[Federal Register Volume 62, Number 41 (Monday, March 3, 1997)]
[Rules and Regulations]
[Pages 9351-9359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4840]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules
and Regulations
[[Page 9351]]
DEPARTMENT OF AGRICULTURE
Farm Service Agency
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
7 CFR Parts 1910, 1941, 1943, 1945, and 1980
RIN 0560-AE87
Implementation of the Direct and Guaranteed Loan Making
Provisions of the Federal Agricultural Improvement Act of 1996
AGENCY: Farm Service Agency, Rural Housing Service, Rural Business-
Cooperative Service, and Rural Utilities Service, USDA.
ACTION: Interim rule with request for comments.
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SUMMARY: This action is being taken to implement provisions of the
Federal Agriculture Improvement and Reform Act of 1996 (1996 Act),
which affect the making of direct and guaranteed farm credit program
loans of the Farm Service Agency (FSA), formerly administered by the
Farmers Home Administration (FmHA). This action is required by the 1996
Act, provisions of which were effective upon enactment or 90 days after
enactment. The intended effect is to complement provisions of the 1996
Act and improve FSA's direct and guaranteed farm credit loan making
function.
DATES: Effective March 24, 1997. Comments must be submitted by May 2,
1997.
ADDRESSES: Submit written comments to the Director, Farm Credit
Programs Loan Making Division, Farm Service Agency, Stop 0522, Post
Office Box 2415, Washington, D.C. 20013-2415.
FOR FURTHER INFORMATION CONTACT:
Steven R. Bazzell, Senior Loan Officer, Farm Service Agency. Telephone:
202-720-3889; facsimile: 202-690-1117; or e-mail:
[email protected]
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule was determined significant and was reviewed by the Office
of Management and Budget under Executive Order 12866.
Regulatory Flexibility Act
The Regulatory Flexibility Act is not applicable to this rule since
the Farm Service Agency (FSA) is not required by 5 U.S.C. 553, or any
other provision of law, to publish a notice of proposed rulemaking to
effect these administrative changes. See section 663(d) of the 1966
Act.
The Unfunded Mandate Reform Act of 1995
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA) Pub. L.
104-4, established requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, FSA
generally must prepare a written statement, including a cost-benefit
analysis, for the proposed and final rules with ``Federal mandates''
that may result in expenditures to State, local, or tribal governments,
in the aggregate, or to the private sector, of $100 million or more in
any 1 year. When such a statement is needed for a rule, section 205 of
the UMRA generally requires FSA to identify and consider a reasonable
number of regulatory alternatives and adopt the least costly, more
cost-effective or least burdensome alternative that achieves the
objective of the rule.
This rule contains no Federal mandates (under regulatory provisions
of title II of the UMRA) for State, local, and tribal governments or
the private sector. Thus, this rule is not subject to the requirements
of section 202 and 205 of the UMRA.
Environmental Evaluation
This action has no significant impact on the quality of the
environment, and therefore, neither an Environmental Assessment nor an
Environmental Impact Statement is required.
Executive Order 12778
This interim rule has been reviewed under Executive Order 12778,
Civil Justice Reform. In accordance with this rule, (1) all State and
local laws and regulations that are in conflict with this rule will be
preempted, (2) no retroactive effect will be given to this rule, and
(3) administrative proceedings in accordance with the agency
procedures, or those regulations published by the Department of
Agriculture to implement the provisions of the National Appeals
Division as mandated by the Department of Agriculture Reorganization
Act of 1994 (7 CFR parts 11 and 780), must be exhausted before bringing
suit in court challenging action taken under this rule, unless those
regulations specifically allow bringing suit at an earlier time.
For reasons set forth in the Notice to 7 CFR part 3015, subpart V
(48 FR 29115, June 24, 1983) the programs within this rule are excluded
from the scope of Executive Order 12372, which requires
intergovernmental consultation with State and local officials.
Paperwork Reduction Act
This interim rule does not impose any new information collection or
recordkeeping requirements; however, the provisions of the 1996 Act do
eliminate the need for some information previously collected and result
in a revision to the number of estimated respondents from whom
information will be collected. Therefore, the Agency is revising the
information collection currently approved in support of the Direct Farm
Ownership Loan program regulations under the Office of Management and
Budget (OMB) control number 0560-0157 and the Application for Direct
Loan Assistance under OMB control number 0560-1067. The Agency will
publish a Federal Register notice in the near future requesting
comments for a 60-day period regarding revisions resulting from the
1996 Act; increases or decreases in program activity; and, changes to
the estimated responses per respondent and estimated average hours per
response. OMB emergency clearance has been obtained to allow continued
use of the affected regulations and forms under OMB control number
0560-0173.
Discussion of the Interim Rule
The 1996 Act required certain provisions to be implemented no later
[[Page 9352]]
than 90 days from April 4, 1996, the date of enactment. Section 374 of
the Consolidated Farm and Rural Development Act (CONACT) as added by
section 649 of the 1996 Act, requires streamlined compliance
certifications for applicants and borrowers. Implementation of this
section does not require a regulatory change; instead, the Agency will
revise the loan application to implement section 374. The other
specific changes to the loan making provisions of the FSA farm credit
programs are discussed by loan program as follows:
Operating Loan (OL) Program
Subject to the limitations discussed below in the ``transition
rule,'' the 1996 Act restricts direct OL eligibility to farmers and
ranchers who meet the definition of a beginning farmer or rancher, but
who have operated a farm or ranch for 5 year or less, or who have not
previously received direct OL loans in more than 6 different years, and
who have not had a CONACT debt forgiven through a write down or write
off under section 353 of the CONACT, a compromise, adjustment,
reduction, or charge-off of a debt or claim under section 331 of the
CONACT, payment of a loss on a guaranteed loan under section 357 of the
CONACT, or through the discharge of any portion of a debt as a result
of bankruptcy. This restriction applies to all parties who have
executed a promissory note. The 1996 Act did stipulate that borrowers
who obtained a write-down on a direct or guaranteed loan under section
353 of the CONACT would remain eligible for direct and guaranteed OL
loans to pay farm and ranch annual operating expenses, which includes
family subsistence expenses. A transition rule provides that if on
April 4, 1996, a farmer or rancher had received direct OL loans in 4 or
more previous years, the applicant is eligible for new direct OL loans
for 3 additional years. The 4 or more previous years' OL loans may have
been received in non-consecutive years. The new direct OL loans may
also be made to the applicant in non-consecutive years. The loan
repayment term and the time that a loan is outstanding are not
considerations. In establishing the 5 years of experience, the 1996 Act
specifically states that Rural Youth loans do not qualify as the
operation of a farm or ranch. However, the Agency has never considered
the recipient of a Youth Loan as a farm operator for establishing
experience levels and this provision represents no change in regulatory
procedures. The 1996 Act does specifically state that Youth Loans do
not count against the recipient with regard to the OL eligibility time
limits. A minor clarification has been added to state that Youth Loan
purposes may be broader than regular operating loan purposes. For
direct and guaranteed OL loans, the 1996 Act has changed the definition
of a beginning farmer to eliminate the restriction that applicants may
not own farm or ranch property that is greater than 25 percent of the
median farm size. Direct OL loan purposes have been narrowed to
eliminate non-farm enterprise, recreation, pollution abatement and
control, small business, and solar energy as explicit loan purposes.
The special beginning farmer or rancher operating loan assistance
provisions have been removed because sections 318 and 310F of the
CONACT were repealed by the 1996 Act. In addition, the prior statutory
provision that required the Agency to extend additional direct annual
operating loans to borrowers in default on loans with the Agency has
been effectively eliminated. Debt refinancing under the direct OL loan
program is still an eligible loan purpose but is now restricted under
the 1996 Act, as follows: Applicants are eligible for refinancing with
direct OL funds providing they have had direct or guaranteed OL loans
refinanced 4 times or less, and they meet one of the following two
conditions: (1) The applicant is an existing direct loan borrower who
has suffered a qualifying loss because of a disaster declared by the
President or designated by the Secretary, or (2) is an applicant
refinancing a debt owed to a non-USDA creditor. The direct loan
borrower referred to in (1) above may be indebted for any type of
direct loan under the CONACT. The restriction on the number of times
that OL loans may be refinanced will have little impact since the
Agency very rarely ``refinances'' its own loans, which involves
obtaining a new promissory note and obligating new funds. A lender who
refinances a borrower's direct OL loan with an Agency loan guarantee
will receive a 95-percent guarantee on the total unpaid amount of the
direct loan refinanced. Borrowers participating in Agency's down
payment farm ownership loan program will also receive 95-percent
guarantees on their guaranteed FO or OL loans. The 1996 Act directs the
Agency to use the current definition of war found in 38 U.S.C. section
101(12) to determine eligibility for veteran's preference. This change
makes veterans of the Persian Gulf War eligible for preferential
funding when there is a shortage of funds. Farmers and ranchers must
comply with the catastrophic risk protection insurance (CAT)
requirement by either obtaining at least the CAT coverage level on
economically significant crops, or waiving their eligibility for
emergency crop loss assistance in connection with the uninsured crop.
However, FSA direct emergency (EM) loss loan assistance is not
considered emergency crop loss assistance for the purposes of
implementing this statutory provision. In addition, chattel property
acquired with direct OL loans must be covered by general hazard
insurance at the tax or cost depreciated value of the property,
whichever is less. Real estate serving as primary security must also be
covered by insurance in accordance with 7 CFR part 1806, subpart A. A
transition provision in section 2002 of the Omnibus Consolidated
Rescissions and Appropriations Act of 1996 authorizes making and
guaranteeing OL and EM loans as in effect prior to the date of
enactment of the 1996 Act to a loan applicant less than 90-days
delinquent on that date that had already submitted an application for
the loan.
Farm Ownership (FO) Program
The 1996 Act restricts direct FO eligibility to an applicant who
has at least 3 years experience operating a farm or ranch and who
either (1) meets the Agency's regulatory definition of a beginning
farmer or rancher, or (2) has never received a direct FO loan, or (3)
has not had a direct FO loan outstanding for more than 10 years before
the new direct FO loan would be closed. In establishing the 3 years of
experience, the 1996 Act specifically states that rural Youth loans do
not qualify as the operation of a farm or ranch. However, as with the
direct OL loan program, this is not a departure from previous Agency
regulations on establishing experience levels. The 1996 Act contains a
transition rule for existing borrowers, which allows (1) borrowers who,
on April 4, 1996, the date of enactment of the 1996 Act, had a direct
FO loan outstanding for less than 5 years to receive additional direct
FO loans for 10 more years from April 4, 1996; and (2) 5 additional
years for borrowers who had a direct FO loan outstanding for 5 or more
years on April 4, 1996. The 1996 Act has changed the definition of a
beginning farmer to raise the maximum amount of farm or ranch property
that may be owned from 15 to 25 percent of the median farm size in
which the property is located. However, the Agency will continue to use
the mean rather than the median farm size in this definition since
median farm sizes are unavailable in the Census of Agriculture. The
scope of direct FO loan
[[Page 9353]]
purposes has been reduced by eliminating debt refinancing, pollution
abatement and control, non-farm enterprises, non-fossil energy systems,
and recreation uses and facilities as explicit loan purposes.
Guaranteed FO loan purposes mirror the changes in the direct FO
program, with the exception that refinancing remains as eligible
guaranteed FO loan purpose. In fact, the 1996 Act provides a 95-
percent, as opposed to the normal 90-percent maximum, guarantee of
unpaid principal and interest when the loan purpose is to refinance
direct loan debts owned to the Agency. Hazard insurance is required by
the 1996 Act as a direct FO loan condition. The FO applicant must
provide evidence that hazard insurance has been obtained on any real
estate improvements securing an FO loan. Farmers and ranchers must also
comply with the catastrophic risk protection insurance (CAT)
requirement by either obtaining at least the CAT coverage level on
economically significant crops, or waiving their eligibility for
emergency crop loss assistance in connection with the uninsured crop.
FSA direct emergency (EM) loss loan assistance is not considered
emergency crop loss assistance for the purposes of implementing this
statutory provision. The 1996 Act allows the Agency to provide a four
percent minimum interest rate to direct FO borrowers who obtain at
least 50 percent of their real estate financing needs from a private
creditor, with or without an FSA loan guarantee. The Agency's
regulations establish a minimum of four percent in accordance with the
1996 Act, with the intention that the Agency will adjust the rate
periodically to reflect budgetary constraints and overall demand for
direct FO loan funds. The 1996 Act stipulates that the Agency use the
current definition of war found in 38 U.S.C. section 101(12) to
determine eligibility for veteran's preference. This extends
preferential treatment to veterans of the Persian Gulf war when there
is a shortage of funds. Guaranteed FO loans made to eligible applicants
participating in the Down payment Loan program will have their loans
guaranteed at the rate of 95 percent.
Emergency (EM) Loan Program
Rather than the previous statutory requirement for crop insurance
to have covered crops affected by a disaster as a result of which an EM
loan is sought, hazard insurance now must have covered property on
which a farmer or rancher is seeking an EM physical loss loan. The
minimum level of coverage must have been at the tax or cost depreciated
value, whichever is less. Farmers and ranchers must also comply with
the catastrophic risk protection insurance (CAT) requirement by either
obtaining at least the CAT coverage level on economically significant
crops, or waiving their eligibility for emergency crop loss assistance
in connection with the uninsured crop. FSA direct EM loss loan
assistance is not considered emergency crop loss assistance for the
purposes of implementing this statutory provision. The test for credit
threshold has been reduced from $300,000 to $100,00, which requires
applicants with EM requests of greater than $100,000 to apply at a
minimum of three commercial lenders to ensure that private credit, with
or without an FSA loan guarantee, is unavailable. The maximum level of
EM principal indebtedness has been reduced from $500,000 per qualified
natural disaster to a total outstanding principal indebtedness of
$500,000 per borrower. The financing of non-farm enterprises is no
longer an eligible EM loan purpose. The procedure for appraising an EM
applicant's agricultural assets to establish the security value has
been changed. The Agency was previously required to use the higher of
two market values for collateral valuation purposes. The first
appraisal reflected the market value of the property 1 day before the
State Governor's request to the Secretary for an EM disaster
designation, while the second value reflected the market value 1 year
and 1 day before the State Governor's request to the Secretary. The
Agency will now use the market value 1 day before the first day of the
disaster's incidence period.
List of Subjects
7 CFR Part 1910
Application processing, Loan programs-agriculture.
7 CFR Part 1941 and 1943
Applicant eligibility, Beginning farmers and ranchers, Loan
programs-agriculture.
7 CFR Part 1945
Disaster assistance, Loan programs-agriculture.
7 CFR Part 1980
Beginning farmers and ranchers, Loan guarantees, Loan programs-
agriculture.
For the reasons set forth in the preamble, 7 CFR chapter XVIII is
amended as follows:
PART 1910--GENERAL
1. The authority citation for part 1910 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
Subpart A--Receiving and Processing Applications
Sec. 1910.1 [Amended]
2. Section 1910.1 is amended by removing the last sentence of
paragraph (a).
Sec. 1910.3 [Amended]
3. Section 1910.3 is amended in paragraph (c) by:
a. Removing the third sentence; and
b. Removing the words ``type entity as set out in FmHA loan making
regulations'' in the ninth sentence.
Sec. 1910.4 [Amended]
4. Section 1910.4 is amended by:
a. Removing paragraph (b)(19);
b. Redesignating paragraphs (b)(20) through (b)(23) as (b)(19)
through (b)(22), respectively; and
c. Removing the words ``and the Acquisition/Leasing of Agency
Acquired Farmland'' from the title and from the first sentence of
paragraph (f).
5. Section 1910.10 is amended by revising paragraph (a)(1) to read
as follows:
Sec. 1910.10 Preference.
(a) * * *
(1) Veteran's preference is given to any person applying for an RH,
FO, SW, or OL loan who has been honorably discharged, including
clemency discharges, or released from the active forces of the U.S.
Army, Navy, Air Force, Marine Corps, or Coast Guard, and who served
during a period of war, as defined in 38 U.S.C. 101(12).
* * * * *
PART 1941--OPERATING LOANS
6. The authority citation for part 1941 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
Sec. 1941.4 [Amended]
7. Section 1941.4 is amended by:
a. Adding the words ``Except for OL loan purposes,'' at the
beginning of paragraph (e) in the definition of ``Beginning farmer or
rancher,''
b. Removing the number ``15'' and adding the number ``25'' in its
place in the first sentence of paragraph (e) of the definition of
``Beginning farmer or rancher,''
c. Removing the third sentence from the definition of ``Cosigner;''
d. Removing the words ``and nonfarm'' from the introductory text of
paragraph (d) of the definition of a ``Family farm,''
[[Page 9354]]
e. Removing the second sentence from the definition of a ``Farm;''
f. Removing all of the text before the semi-colon that follows the
word ``debts'' in paragraph (b) of the definition of a ``Feasible
plan;''
g. Removing the third sentence from the definition of a
``Financially viable operation;''
h. Removing the second sentence from the definition of ``Nonfarm
enterprise''; and
i. Removing the definition of a ``Recreation enterprise.''
8. Section 1941.12 is amended by adding new paragraphs (a)(8),
(a)(9), (a)(10), (a)(11), (b)(9), (b)(10), (b)(11), and (b)(12) to read
as follows:
Sec. 1941.12 Eligibility requirements.
* * * * *
(a) * * *
(8) Meet the definition of a beginning farmer or rancher, but have
operated a farm or ranch for 5 years or less, or the applicant, or
anyone who will execute the promissory note, has not had direct OL
loans closed in more than 6 different years prior to the year in which
the new direct OL loan is closed. Youth Loans are not counted as direct
OL loans for the purpose of this paragraph.
(9) Transition rule. An applicant is eligible for new direct OL
loans for 3 additional years if as of April 4, 1996, the applicant, or
anyone who will execute the promissory note, had direct OL loans closed
in 4 or more separate years prior to the year in which the new direct
OL loan is closed. The 4 previous years' direct OL loans, as well as
the 3 additional years of new direct OL loans, may be in non-
consecutive years.
(10) Have not caused the Agency a loss by receiving debt
forgiveness on all or a portion of any direct or guaranteed loan made
under the authority of the Consolidated Farm and Rural Development Act
(CONACT) by debt-write down, write-off, compromise under the provisions
of section 331 of the CONACT, adjustment, reduction, charge-off or
discharge in bankruptcy or through any payment of a guaranteed loss
claim under the same circumstances. Notwithstanding the restrictive
provisions of this paragraph, applicants who received a write-down
under section 353 of the CONACT may receive direct and guaranteed OL
loans to pay annual farm and ranch operating expenses, which includes
family subsistence if the applicant meets all other eligibility
requirements.
(11) Not be delinquent on any direct or guaranteed loan made under
the provisions of the CONACT. Notwithstanding the provisions of this
paragraph, an operating loan may be made or guaranteed under the
provisions of subtitle B of the CONACT as in effect on April 3, 1996,
if the applicant was less than 90-days delinquent on April 4, 1996, and
had submitted an application prior to April 5, 1996.
(b) * * *
(9) Have at least one member of the business entity who meets the
definition of a beginning farmer or rancher, but has operated a farm or
ranch for 5 years or less. Also, the applicant, or anyone who will
execute the promissory note, must not have had direct OL loans closed
in more than 6 different years prior to the year in which the new
direct OL loan is closed. Youth Loans are not counted as direct OL
loans for the purpose of this paragraph.
(10) Transition rule. An applicant is eligible for new direct OL
loans for 3 additional years if as of April 4, 1996, the applicant, or
anyone who will execute the promissory note, had direct OL loans closed
in 4 or more separate years prior to the year in which the new direct
OL is closed. The 4 previous years' OL loans, as well as the 3
additional years of new direct OL loans, may be in non-consecutive
years.
(11) Have not caused the Agency a loss by receiving debt
forgiveness on all or a portion of any direct or guaranteed loan made
under the authority of the Consolidated Farm and Rural Development Act
(CONACT) by debt-write down, write-off, compromise under the provisions
of section 331 of the CONACT, adjustment, reduction, charge-off or
discharge in bankruptcy or through any payment of a guaranteed loss
claim under the same circumstances. Notwithstanding the restrictive
provisions of this paragraph, applicants who received a write-down
under section 353 of the CONACT may receive direct and guaranteed OL
loans to pay annual farm and ranch operating expenses, which includes
family subsistence if the applicant meets all other eligibility
requirements.
(12) Not be delinquent on any direct or guaranteed loan made under
the provisions of the CONACT. Notwithstanding the provisions of this
paragraph, an operating loan may be made or guaranteed under the
provisions of subtitle B of the CONACT as in effect on April 3, 1996,
if the applicant was less than 90-days delinquent on April 4, 1996, and
had submitted an application prior to April 5, 1996.
* * * * *
Secs. 1941.14 and 1941.15 [Removed and Reserved]
9. Sections 1941.14 and 1941.15 are removed and reserved.
10. Section 1941.16 is revised to read as follows:
Sec. 1941.16 Loan purposes.
An applicant who obtained a write-down under direct or guaranteed
loan authorities is restricted to the purposes listed under paragraphs
(c), (g) and (h) of this section. All other eligible applicants may
only request OL funds for any of the following purposes:
(a) Payment of costs associated with reorganizing a farm or ranch
to improve its profitability.
(b) Purchase of livestock, including poultry, and farm or ranch
equipment, including quotas and bases, and cooperative stock for
credit, production, processing or marketing purposes.
(c) Payment of annual operating expenses, examples of which
include, but are not exclusively limited to feed, seed, fertilizer,
pesticides, farm or ranch supplies, cooperative stock, and cash rent.
(d) Payment of costs associated with land and water development for
conservation or use purposes.
(e) Payment of loan closing costs.
(f) Payment of costs associated with complying with Federal or
State-approved standards under the Occupational Safety and Health Act
of 1970 (29 U.S.C. 655 and 667). This purpose is limited to applicants
who demonstrate that compliance with the standards will cause them
substantial economic injury.
(g) Payment of training costs required or recommended by the
Agency.
(h) Payment of farm, ranch, or home needs, including family
subsistence. A portion of the loan is available to the borrower for use
outside of a supervised bank account. This portion is the lesser of:
(1) 10 percent of the OL loan;
(2) $5,000; or
(3) The amount needed to meet the subsistence needs of the family
for a 3-month period.
(i) Refinancing debts if the applicant has had direct or guaranteed
OL loans refinanced (refinanced does not mean restructured) 4 times or
less and one of the following conditions is met:
(1) The need for refinancing was caused by a qualifying disaster
declared by the President or designated by the Secretary; or
(2) The debts to be refinanced are owned to a non-USDA creditor.
Sec. 1941.17 [Amended]
11. Section 1941.17 is amended by removing paragraphs (a) and (f),
and by
[[Page 9355]]
redesignating paragraphs (b) through (e) as (a) through (d),
respectively.
12. Section 1941.32 is revised to read as follows:
Sec. 1941.32 Catastrophic Risk Protection (CAT) insurance requirement.
Applicants must comply with the CAT insurance requirement no later
than loan closing by either:
(1) Obtaining at least the CAT level of coverage, if available, for
each crop of economic significance as defined by the Federal Crop
Insurance Corporation, or,
(2) By waiving eligibility of emergency crop loss assistance in
connection with the uninsured crop. FSA emergency (EM) loss loan
assistance is not considered emergency crop loss assistance for the
purpose of the crop insurance waiver on the uninsured crop.
Subpart B--Closing Loans Secured by Chattels
13. Section 1941.88 is amended by:
a. Removing the introductory text;
b. Removing paragraph (c);
c. Redesignating paragraph (a) and (b) as (b) and (c),
respectively;
d. Amending paragraph (d) by removing all of the text between the
words ``Borrowers'' and ``should'' located in the first sentence; and
e. Adding a new paragraph (a); and revising redesignated paragraph
(c) to read as follows:
Sec. 1941.88 Insurance.
(a) Catastrophic Risk Protection (CAT) insurance requirement.
Applicants must obtain at least the CAT level of crop insurance of
coverage for each crop of economic significance, as defined by the
Federal Crop Insurance Corporation, if such coverage is offered. The
applicant can meet this requirement by either:
(1) Obtaining at least the CAT level of coverage or,
(2) Waiving eligibility for emergency crop loss assistance in
connection with the uninsured crop. EM loss loan assistance is not
considered emergency crop loss assistance for purposes of this waiver.
* * * * *
(c) Chattels and real estate. Chattel property that secures OL
loans must be covered by hazard insurance unless the Agency determines
that coverage is not readily available or the benefit of the coverage
is more than its cost. When insured, chattel property must at least be
covered at its tax or cost depreciated value, whichever is less. Real
property must be covered by general hazard and flood insurance in
accordance with subparts A and B of part 1806 of this chapter.
* * * * *
PART 1943--FARM OWNERSHIP, SOIL AND WATER AND RECREATION
14. The authority citation for part 1943 continues to read as
follows:
Authority: 5 U.S.C. 301; and 7 U.S.C. 1989.
Subpart A--Direct Farm Ownership Loan Policies, Procedures and
Authorizations
Sec. 1943.4 [Amended]
15. Section 1943.4 is amended by:
a. Removing ``A beginning farmer'' and adding ``Except for OL loan
purposes, a beginning farmer'' in its place at the beginning of
paragraph (e) of the definition of ``Beginning farmer or rancher;''
b. Removing the number ``15'' and adding the number ``25'' in its
place in the first sentence of paragraph (e) of the definition of
``Beginning farmer or rancher;''
c. Removing the third sentence from the definition of ``Cosigner;''
d. Removing the words ``and nonfarm'' from the introductory text of
paragraph (d) of the definition of a ``Family farm.''
e. Removing the second sentence from the definition of ``Farm.''
f. Removing all the text to the end of the sentence following the
word ``debts'' in paragraph (b) of the definition of a ``Feasible
plan;'' and
g. Removing the second sentence of the definition of ``Nonfarm
enterprise.''
16. Section 1943.12 is amended by:
a. Removing the words ``and operating'' and the parenthetical text
``(1 year's complete production and marketing cycle within the last 5
years)'' from paragraph (a)(3);
b. Removing the words ``and operating'' and the parenthetical text
``(1 year's complete production and marketing cycle within the last 5
years)'' from paragraph (b)(4)(ii); and
c. Adding new paragraphs (a)(8), (a)(9), (a)(10), (a)(11), (b)(8),
(b)(9), (b)(10) and (b)(11) to read as follows:
Sec. 1943.12 Farm ownership loan eligibility requirements.
* * * * *
(a) * * *
(8) Have operated a farm or ranch for at least 3 years and satisfy
at least one of the following conditions:
(i) Meet the definition of a beginning farmer or rancher.
(ii) The applicant, or anyone who will execute the promissory note,
has not had direct FO loans outstanding for more than a total of 10
years prior to the date that the new FO loan is closed.
(iii) Have never received a direct FO loan.
(9) Transition rule. This applies to applicants with direct FO
loans outstanding on April 4, 1996.
(i) If the applicant, or anyone who executed the promissory note,
had direct FO loans outstanding for less than 5 years, the applicant is
eligible for new direct FO loans through April 4, 2006.
(ii) If the applicant, or anyone who executed the promissory note,
had direct FO loans outstanding for 5 years or more, those parties are
eligible for new direct FO loans through April 4, 2001.
(10) Have not caused the Agency a loss by receiving debt
forgiveness on all or a portion of any direct or guaranteed loan made
under the authority of the Consolidated Farm and Rural Development Act
(CONACT) by debt-write down, write-off, compromise provisions of
section 331 of the CONACT, adjustment, reduction, charge-off or
discharge in bankruptcy or through any payment of a guaranteed loss
claim under the same circumstances.
(11) Not be delinquent on any direct or guaranteed loan made under
the provisions of the CONACT.
(b) * * *
(8) Have one or more members, constituting a majority interest in
the business entity, who have operated a farm or ranch for at least 3
years and who satisfy one of the following conditions:
(i) Meet the definition of a beginning farmer or rancher.
(ii) The applicant, or anyone who will execute the promissory note,
has not had direct FO loans outstanding for more than a total of 10
years prior to the date that the new FO loan is closed.
(iii) Have never received a direct FO loan.
(9) Transition rule. This applies to business entity applicants
with direct FO loans outstanding on April 4, 1996.
(i) If the applicant, or anyone who executed the promissory note,
had direct FO loans outstanding for less than 5 years, the applicant is
eligible for new direct FO loans through April 4, 2006.
(ii) If the applicant, or anyone who executed the promissory note,
had direct FO loans outstanding for 5 years or more, those parties are
eligible for new direct FO loans through April 4, 2001.
(10) Have not caused the Agency a loss by receiving debt
forgiveness on all or a portion of any direct or guaranteed loan made
under the authority of the Consolidated Farm and Rural Development Act
(CONACT) by debt-write down, write-off, compromise provisions of
section 331 of the CONACT, adjustment, reduction, charge-off or
discharge in bankruptcy or through any payment of a guaranteed loss
claim under the same circumstances.
[[Page 9356]]
(11) Not be delinquent on any direct or guaranteed loan made under
the provisions of the CONACT.
* * * * *
17-18. Section 1943.16 is revised to read as follows:
Sec. 1943.16 Loan purposes.
Loan funds may only be used to:
(a) Acquire or enlarge a farm or ranch. Examples of items that the
Agency may authorize the use of FO funds for include, but are not
limited to, the purchase of easements, the applicant's portion of land
being subdivided, purchase of cooperative stock, appraisal and survey
fees, and participation in special FO loan programs of this subpart.
Down payments are authorized as a loan purpose subject to the
following:
(1) A deed is obtained and the transaction is properly documented
by debt and security instruments.
(2) Any prior liens meet the FO security requirements for the
Agency's junior lien position.
(3) For contract purchases, purchase contracts must properly
obligate the buyer and seller to fulfill the terms of the contract,
provide the buyer with possession, control and beneficial use of the
property, and entitle the buyer to marketable title upon fulfillment of
the contract terms. The deed must be held in trust by a bonded agent
until transferred to the buyer. Upon buyer's default, the seller must
give the Agency written notice of the default and a reasonable
opportunity to cure the default. Any sums advanced by the Agency must
be repaid by the borrower.
(b) Make capital improvements. Examples of items that the Agency
may authorize the use of FO funds for include, but are not limited to,
the construction, purchase and improvement of farm dwellings, service
buildings, and facilities that can be made fixtures to the real estate.
(c) Promote soil and water conservation and protection. Examples
include the correction of well-defined, hazardous environmental
conditions, and the construction or installation of tiles, terraces,
and waterways.
(d) Pay closing costs.
Sec. 1943.17 [Amended]
19. Section 1943.17 is amended by removing paragraphs (a)(4) and
(a)(5).
20. Section 1943.18 is amended by revising paragraph (b)(2) and
adding a new paragraph (c) to read as follows:
Sec. 1943.18 Rates and terms.
* * * * *
(b) * * *
(2) The farm business plan shows that installments at the higher
rate, along with other debts, cannot be paid during the period of the
plan.
* * * * *
(c) Interest rate with joint financing. When the applicant obtains
financing from a private lender equivalent to 50 percent or more of the
total funds needed, the interest rate on the direct FO loan will be
fixed at a rate determined by the Agency Administrator but at not less
than 4 percent for the term of the loan. The current rate is available
in FSA offices.
Sec. 1943.19 [Amended]
21. Section 1943.19 is amended by:
a. Removing the word ``refinanced'' from the first sentence in
paragraphs (a)(1) and (d)(3); and
b. Removing the words ``or refinanced'' from the first sentence in
paragraph (b)(1).
Sec. 1943.23 [Amended]
22. Section 1943.23 is amended by:
a. Removing the words ``or nonfarm enterprise'' from the first
sentence of paragraph (g)(1); and
b. Removing paragraphs (g)(3) and (g)(4).
23. Section 1943.24 is amended by:
a. Removing the words ``nonfarm enterprise facility or'' from the
third sentence of paragraph (a);
b. Removing the words ``, including any nonfarm enterprise,'' from
the first sentence in paragraph (b)(1);
c. Removing paragraph (b)(1)(iv);
d. Removing the words ``and any nonfarm enterprise'' from the first
sentence of paragraph (c);
e. Removing paragraph (d)(3) and (d)(4);
f. Redesignating paragraph (d)(2) as (d)(3);
g. Removing paragraph (f);
h. Redesignating paragraphs (g) through (k) as (f) through (j),
respectively; and
i. Revising paragraph (d)(1) and adding a new paragraph (d)(2) to
read as follows:
Sec. 1943.24 Special requirements.
* * * * *
(d) * * *
(1) Insurance must be obtained on any property acquired with, or
serving as primary security on an FO loan in accordance with subpart A
of part 1806 of this chapter.
(2) Applicants must comply with the catastrophic risk protection
insurance (CAT) requirement by either:
(i) Obtaining at least the available CAT level of coverage for each
crop of economic significance, as defined by the Federal Crop Insurance
Corporation, or
(ii) Waiving eligibility for emergency crop loss assistance in
connection with the uninsured crop. FSA emergency (EM) loss loan
assistance is not considered emergency crop loss assistance for the
purpose of the crop insurance waiver on the uninsured crop.
* * * * *
24. Section 1943.25 is amended by revising paragraph (b) to read as
follows:
Sec. 1943.25 Options planning and appraisals.
* * * * *
(b) Farm business plans will be completed as provided in subpart B
of part 1924.
* * * * *
25. Section 1943.54 is amended by removing the third sentence from
the definition of ``Cosigner.''
PART 1945--EMERGENCY
26. The authority citation for part 1945 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989, and 42 U.S.C. 1480.
Sec. 1945.154 [Amended]
27. Section 1945.154 is amended by removing the third sentence from
the definition of ``Cosigner,'' and by removing the second sentence
from the definition of a ``Nonfarm enterprise.''
Sec. 1945.156 [Amended]
28. Section 1945.156 is amended by removing ``$300,000'' from
paragraphs (b)(2)(i) introductory text and (b)(2)(ii) introductory text
and adding ``$100,000'' in its place.
29. Section 1945.162 is amended by:
a. Redesignating paragraphs (a) through (m) as paragraphs (b)
through (n), respectively; and
b. Adding a new paragraph (a) to read as follows:
Sec. 1945.162 Eligibility requirements.
* * * * *
(a) Debt forgiveness. EM applicants are ineligible if they have
caused the Agency a loss by receiving debt forgiveness on all or a
portion of any direct or guaranteed loan made under the authority of
the Consolidated Farm and Rural Development Act (CONACT) by debt-write
down, write-off, compromise provisions of section 331 of the CONACT,
adjustment, reduction, charge-off or discharge in bankruptcy or through
any payment of a guaranteed loss claim under the same circumstances.
Further, the EM applicant must not be delinquent on any direct or
guaranteed loan made under the provisions of the CONACT.
* * * * *
30. Section 1945.163 is amended by revising paragraph (e) to read
as follows:
[[Page 9357]]
Sec. 1945.163 Determining qualifying losses, eligibility for EM
loan(s) and the maximum amount of each.
* * * * *
(e) EM loan limit. The loan will be limited to the amount necessary
to restore the farm to its pre-disaster condition; however, this amount
cannot exceed the lesser of the sum of the maximum production loss
(paragraph (a)(2)(x) of this section) and the maximum physical loss
(paragraph (b) of this section) or $500,000 total outstanding EM debt
per borrower. The maximum principal amount of total EM debt that any
one individual, business entity, or individual member of a business
entity may have outstanding is $500,000.
* * * * *
Sec. 1945.166 [Amended]
31. Section 1945.166 is amended by:
a. Removing the comma after the word ``family'' in the first
sentence of paragraph (a)(1) and adding the word ``and'' in its place;
b. Removing the comma after the word ``farm'' in the first sentence
of paragraph (a)(1) and adding the word ``credit'' in its place;
c. Removing the phrase ``and non-farm enterprise credit, whichever
is the lesser'' in the first sentence of paragraph(a)(1);
d. Removing the entire second sentence of paragraph (a)(1);
e. Removing the paragraph (b)(5); and
f. Removing paragraph (c)(3) and redesignating paragraph (c)(4) as
(c)(3).
32. Section 1945.167 is amended by:
a. Revising the section heading;
b. Removing paragraphs (a) and (i);
c. Redesignating the remaining paragraphs as (c) through (j),
respectively and;
d. Adding new paragraphs (a) and (b) to read as follows:
Sec. 1945.167 Insurance, loan limitations and special provisions.
(a) EM loan funds cannot be used for physical loss purposes unless
that physical property lost was covered by general hazard insurance at
the time that the damage caused by the natural disaster occurred. The
level of coverage in effect at the time of the disaster must have been
the tax or cost depreciated value, whichever is less. Chattel property
must also have been covered at the tax or cost depreciated value,
whichever is less, when such insurance was readily available.
(b) Applicants must comply with the CAT insurance requirement no
later than loan closing by either:
(1) Obtaining at least the CAT level of coverage, if available, for
each crop of economic significance as defined by the Federal Crop
Insurance Corporation, or,
(2) By waiving eligibility for emergency crop loss assistance in
connection with the uninsured crop. FSA EM loan assistance is not
considered emergency crop loss assistance for the purpose of the crop
insurance waiver on the uninsured crop.
* * * * *
33. Section 1945.169 is amended by revising paragraph (1) to read
as follows:
Sec. 1945.169 Security.
* * * * *
(1) Crop insurance. If crop insurance is obtained, an assignment of
indemnity is required. When payment of the insurance premium is not
required until after harvest, crops may be released to make the
payment. If a loss claim is paid to the borrower, the premium will be
first deducted by the insurance carrier before making security
releases.
* * * * *
34. Section 1945.175 is amended by:
a. removing paragraph (c)(3);
b. redesignating paragraph (c)(4) as paragraph (c)(3); and
c. revising paragraph (c)(2) and (c)(3) to read as follows:
Sec. 1945.175 Options, planning and appraisals.
* * * * *
(c) * * *
(2) The appraised value of assets securing EM loans is established
as of the day before the beginning of the incidence period of the
qualifying disaster.
(3) Chattel appraisals will be completed on Form FmHA 1945-15,
``Value Determination Worksheet (EM loans only),'' when chattels are
taken as security. The property which will serve as security will be
described in sufficient detail so it can be identified. Sources such as
livestock market reports and publications reflecting values of farm
machinery and equipment will be used as appropriate. Chattels owned by
the applicant, and nonfarm chattel property offered as security (such
as planes, house trailers, boats, etc.) will be appraised at the
present market value only. Chattels that the applicant/borrowers did
not own on the dates set forth in paragraphs (c)(2) (i) and (ii) of
this section will be appraised at the present market value only.
* * * * *
PART 1980--GENERAL
35. The authority citation for part 1980 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
Subpart A--General
Sec. 1980.20 [Amended]
36. Section 1980.20 is amended in the introductory text of
paragraph (a) by adding ``The Farm Service Agency loan guarantee limit
is 90 percent unless otherwise stated in subpart B of this part.''
after the fourth sentence.
37. Section 1980.106 is amended in paragraph (b) by:
a. Adding the words ``Except for OL loans,'' to the beginning of
paragraph (5) of the definition of a ``Beginning farmer or rancher;''
b. Removing the number ``15'' and adding the number ``25'' in its
place in the first sentence of paragraph (5) of the definition of a
``Beginning farmer or rancher;''
c. Removing the third sentence from the definition of ``Cosigner;''
d. Removing the second sentence of the definition of ``Nonfarm
enterprise;'' and
e. Revising the definition of ``Veteran'' to read as follows:
Sec. 1980.106 Abbreviations and definitions.
* * * * *
(b) * * *
Veteran. One who has been honorably discharged, including clemency
discharges, or release from the active forces of the U.S. Army, Navy,
Air Force, Marine Corps, or Coast Guard, and who served during a period
of war, as defined in 38 U.S.C. 101(12).
38. Section 1980.108 is amended by revising paragraph (a)(3)(ii) to
read as follows:
Sec. 1980.108 General provisions.
(a) * * *
(3) * * *
(ii) Applicants must either:
(1) Obtain at least the CAT level of crop insurance coverage, if
available, for each crop of economic significance, as defined by the
Federal Crop Insurance Corporation, or,
(2) Waive eligibility for emergency crop loss assistance in
connection with the uninsured crop. FSA EM loss loan assistance is not
considered emergency crop loss assistance for purposes of this waiver.
* * * * *
39. Section 1980.119 is amended by revising paragraph (d) to read
as follows:
Sec. 1980.119 Lender's sale or assignment of guaranteed loan.
* * * * *
(d) Retention of unguaranteed portion of loan. Lenders must retain
at least 10 percent of the loan from the unguaranteed portion, except
that when the loan guarantee exceeds 90 percent,
[[Page 9358]]
the lender must retain the total unguaranteed portion of the loan.
* * * * *
40. Section 1980.174 is added to read as follows:
Sec. 1980.174 Percentage of guarantee.
(a) A 95-percent loan guarantee will be provided in the following
situations:
(1) When the sole loan purpose of a guaranteed OL or FO loan is to
refinance a direct FSA farm credit program loan.
(2) When the purpose of an FO loan guarantee is to participate in
the down payment loan program.
(3) When a guaranteed OL is made to a farmer or rancher who is
participating in the down payment loan program. The guaranteed OL must
be made during the period that a borrower has a direct FO loan
outstanding for acquiring a farm or ranch.
(4) When a guaranteed OL or FO loan is requested for multiple
purposes and only a portion of the loan is used to refinance a direct
FSA farm credit program loan, in which case a weighted percentage of
guarantee is provided.
(b) Guarantees issued to CLP lenders are never at a guarantee rate
of less than 80 percent.
41-43. Section 1980.175 is amended by:
a. Revising introductory text of paragraph (b);
b. Removing paragraph (d)(7);
c. Redesignating paragraphs (d)(2) through (d)(6) as (d)(3) through
(d)(7), respectively;
d. Revising paragraphs (c)(1), (c)(2) and (d)(1); and adding a new
paragraph (d)(2); and
e. Removing all the words between ``Borrowers'' and ``should'' in
the first sentence of paragraph (i)(3); to read as follows:
Sec. 1980.175 Operating loans.
* * * * *
(b) The applicant, and anyone who will execute the promissory note,
has not caused the Agency a loss by receiving debt forgiveness on all
or a portion of any direct or guranteed loan made under the authority
of the Consolidated Farm and Rural Development Act (CONACT) by debt
write-down, write-off, compromise under the provisions of section 331
of the CONACT, adjustment, reduction, charge-off or discharge in
bankruptcy or through any payment of a guaranteed loss claim under the
same circumstances. Notwithstanding the restrictive provisions of this
paragraph, applicants who received a write-down under section 353 of
the CONACT may receive direct and guaranteed OL loans to pay annual
farm and ranch operating expenses, which includes family subsistence if
the applicant meets all other eligibility requirements. Further, the
applicant, and anyone who will execute the promissory note, cannot be
delinquent on any direct or guaranteed loan made under the provisions
of the CONACT. Notwithstanding the provisions of this paragraph, an
operating loan may be made or guaranteed under the provisions of
subtitle B of the CONACT as in effect on April 3, 1996, if the
applicant was less than 90-days delinquent on April 4, 1996, and had
submitted an application prior to April 5, 1996.
* * * * *
(c) Loan purposes--(1) Loan note guarantee. Loan funds may only be
used for the following purposes:
(i) Payment of costs associated with reorganizing a farm or ranch
to improve its profitability.
(ii) Purchase of livestock, including poultry, and farm or ranch
equipment, including quotas and bases, and cooperative stock for
credit, production, processing or marketing purposes.
(iii) Payment of annual farm or ranch operating expenses, examples
of which include feed, seed, fertilizer, pesticides, farm or ranch
supplies, cash rent, family subsistence, and other farm and ranch
needs.
(iv) Payment of costs associated with land and water development
for conservation or use purposes.
(v) Refinancing indebtedness incurred for any authorized OL loan
purpose, when the lender and loan applicant can demonstrate the need to
refinance.
(vi) Payment of loan closing costs.
(vii) Payment of costs associated with complying with Federal or
State-approved standards under the Occupational Safety and Health Act
of 1970 (29 U.S.C. 655 and 29 U.S.C. 667). This purpose is limited to
applicants who demonstrate that compliance with the standards will
cause them substantial economic injury.
(viii) Payment of training costs required or recommended by the
approval official.
(2) Contract of guarantee--line of credit. Lines of credit may be
advanced for the following purposes:
(i) Payment of annual operating expenses, family subsistence, and
purchase of feeder animals.
(ii) Payment of current annual operating debts advanced by other
creditors. Under no circumstances can carry-over operating debts be
refinanced.
(d) Loan limitations. (1) No applicant or any individual who
executes a promissory note may receive an additional guaranteed OL if a
combination of guaranteed or direct OL loans were received (closed) in
more than 15 previous years. Transition rule: If a borrower was
indebted for a direct or guaranteed OL loan on October 28, 1992, and
had any combination of direct or guaranteed OL loans closed in 10 or
more prior calendar years, eligibility to receive new guaranteed OL
loans is extended for 5 additional years from October 28, 1992, and the
years need not run consecutively. However, in the case of a line of
credit, each year in which an advance is made after October 28, 1992,
counts toward the 5 additional years.
(2) Real estate improvements and repairs can be made only when the
loan applicant owns the property, or the loan applicant has a lease
that either ensures use of the improvement or repair over its useful
life or provides fair compensation for the unused economic life.
* * * * *
Sec. 1980.176 [Removed and Reserved]
44. Section 1980.176 is removed and reserved.
45. Section 1980.180 is amended by removing paragraphs (d)(4) and
(d)(5); and by revising paragraph (c) to read as follows:
Sec. 1980.180 Farm ownership loans.
* * * * *.
(c) Loans are authorized only to:
(1) Acquire or enlarge a farm or ranch. Examples of items that the
Agency may authorize the use of FO funds for include, but are not
limited to, providing down payments, purchasing easements or the loan
applicant's portion of land being subdivided, and participating in
special FO loan programs of this subpart. In the case of a contract
purchase, purchase contracts must properly obligate the buyer and
seller to fulfill the terms of the contract, provide the buyer with
possession, control and beneficial use of the property, and entitle the
buyer to marketable title upon fulfillment of the contract terms. The
deed must be held in trust by a bonded agent until transferred to the
buyer. Upon buyer's default, seller must give the Agency written notice
of the default and a reasonable opportunity to cure the default. Any
sums advanced by the Agency must be repaid by the borrower.
(2) Make capital improvements provided the loan applicant owns the
farm, 0r has either a lease to ensure use of the improvement over its
useful life or that compensation will be received for any remaining
economic life. Examples of items that the Agency may
[[Page 9359]]
authorize the use of FO funds for include, but are not limited to, the
construction, purchase, and improvement of farm dwellings, service
buildings and facilities that can be made fixtures to the real estate.
(3) Promote soil and water conservation and protection. Examples
include the correction of well-defined, hazardous environmental
conditions, and the construction or installation of tiles, terraces and
waterways.
(4) Pay closing costs, including but not limited to purchasing
stock in a cooperative, and appraisal and survey fees.
(5) Refinancing indebtedness incurred for authorized loan purposes,
provided the lender and loan applicant demonstrate the need to
refinance the debt.
* * * * *
Signed at Washington, D.C., on February 19, 1997.
Dallas R. Smith,
Acting Under Secretary for Farm and Foreign Agricultural Services.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-4840 Filed 2-28-97; 8:45 am]
BILLING CODE 3410-05-M