[Federal Register Volume 59, Number 26 (Tuesday, February 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2777]
[[Page Unknown]]
[Federal Register: February 8, 1994]
VOL. 59, NO. 26
Tuesday, February 8, 1994
=======================================================================
DEPARTMENT OF AGRICULTURE
Farmers Home Administration
7 CFR Part 1945
RIN 0575-AB72
Revisions to the Direct Emergency Loan Instructions To Implement
Administrative Decisions Pertaining to the Applicant Loan Eligibility
Calculation, Appraisals, and Crop Insurance
AGENCY: Farmers Home Administration, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its
emergency loan (EM) regulations to revise the applicant eligibility
calculation and appraisal requirements and to require crop insurance.
This action is necessary to ease the EM eligibility requirements, to
expedite EM application processing time, and to reduce losses to
family-size farmers and the Government. The intended effect is to
provide assistance to a greater number of farmers affected by major
disasters in a timely manner.
DATES: Written comments must be submitted on or before February 23,
1994.
ADDRESSES: Submit written comments, in duplicate, to the Office of the
Chief, Regulations Analysis and Control Branch, Farmers Home
Administration, USDA, room 6348, South Agriculture Building, 14th
Street and Independence Avenue SW., Washington, DC 20250. All written
comments made pursuant to this notice will be available for public
inspection during regular working hours at the above address.
FOR FURTHER INFORMATION CONTACT: David R. Smith, Senior Loan Officer,
Farmer Programs Loan Making Division, Farmers Home Administration,
USDA, room 5428, South Building, 14th Street and Independence Avenue
SW., Washington, DC 20250, telephone (202) 720-5114.
SUPPLEMENTARY INFORMATION:
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866, and the Office of Management and Budget (OMB) has
determined that it is a ``significant regulatory action.'' Based on
information compiled by the Department, OMB has determined that this
proposed rule:
(1) Would alter the budgetary impact of entitlements, grants, user
fees, or loan programs or rights and obligations of recipients thereof;
and
(2) Is a significant public policy issue as related to the
direction of the EM loan program.
Intergovernmental Consultation
For the reasons set forth in the final rule related to Notice, 7
CFR part 3015, subpart V (48 FR 29115, June 24, 1983) and FmHA
Instruction 1940-J, ``Intergovernmental Review of Farmers Home
Administration Programs and Activities'' (December 23, 1983), Emergency
Loans are excluded from the scope of Executive Order 12372, which
requires intergovernmental consultation with State and local officials.
Programs Affected
These changes affect the following FmHA program as listed in the
Catalog of Federal Domestic Assistance: 10.404--Emergency Loans.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
Subpart G, ``Environmental Program.'' It is the determination of FmHA
that the proposed action does not constitute a major Federal action
significantly affecting the quality of the human environment, and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Civil Justice Reform
This document has been reviewed in accordance with Executive Order
(E.O.) 12778. It is the determination of FmHA that this action does not
unduly burden the Federal Court System in that it meets all applicable
standards provided in section 2 of the E.O.
Paperwork Reduction Act
The information collection requirements contained in this
regulation have been approved by the Office of Management and Budget
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been
assigned OMB control number 0575-0090, in accordance with the Paperwork
Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not
revise or impose any new information collection or recordkeeping
requirement from those approved by OMB.
Discussion of Proposed Rule
It is the policy of this Department that rules relating to public
property, loans, grants, benefits, or contracts shall be published for
comment notwithstanding the exemption of 5 U.S.C. 553 with respect to
such rules. FmHA is publishing this proposed rule with a 15-day comment
period. This proposed rule relieves the restriction of considering
disaster related assistance or compensation in the EM eligibility
calculation. Furthermore, the Agency has concluded that the need to
provide immediate assistance to farmers who have suffered severe
production and physical losses as a result of natural disasters also
justifies the shortened comment period under 5 U.S.C. 553(d) as
discussed below.
Major agricultural disasters during the 1993 crop year, including
extensive flooding and rainfall in 9 Midwestern States and drought in 3
Southeastern States, will result in a significant increase in demand
for FmHA direct loan assistance. In the 9 flood states alone, over 8
million acres of crops were lost or not planted in 1993. Estimates
indicate that the 1993 floods were the second costliest weather
disaster in the history of the United States. Preliminary estimates are
that as many as 10,000 of the affected farmers may require financial
assistance from FmHA.
The need for a change in the regulations is immediate. Farmers have
concluded 1993 operations, and are consulting with their lenders to
plan for 1994. Farmers who have suffered severe production losses are
in dire need of disaster program assistance to repay creditors and
suppliers annual production loans, open supplier accounts, and
installments due on intermediate and long term debts and to otherwise
repair and continue their farming and ranching operations. FmHA is
receiving loan requests at an increasing rate. The Agency wants to give
the public an opportunity for input on the proposed change but FmHA
needs regulations in place for spring planting, so a reasonable
compromise was the 15-day comment period.
Because of the scope of the situation and the impact on local,
regional, and national economies, the Agency believes that an amendment
to the regulations after a shortened comment period is the only way to
assure that affected farmers receive the assistance they need on a
timely basis to recover from these disasters. Any further delay in the
timing of this amendment will reduce the Agency's ability to meet the
needs of those affected, thus imposing additional hardships on those
who have already suffered substantially from flood or drought, and
jeopardizing individual and community financial recovery from these
disasters. The proposal to require crop insurance on the coming year's
crop as a condition of making EM loans is necessary to protect the
borrower and the Government. The requirement and its exceptions,
however, will not delay the making or reduce the number of EM loans.
The making, supervision, and servicing of farm loans to FmHA
borrowers is governed primarily by the Consolidated Farm and Rural
Development Act (CONACT) (7 U.S.C. 1921 et seq.). In particular, 7
U.S.C. 1970 provides that the Secretary, and through delegation FmHA,
shall extend emergency loans ``to any applicant seeking assistance
based on production losses if the applicant shows that a single
enterprise which constitutes a basic part of the applicant's farming,
ranching, or aquaculture operation has sustained at least a 30 per
centum loss of normal per acre or per animal production,'' or a lesser
per centum as determined by FmHA, as a result of the disaster and other
eligibility criteria are met. Under the statute, FmHA also must make
production loss loans based on 80 per centum, or such greater per
centum as determined by FmHA, of the total actual production loss
sustained by the eligible applicant.
The existing emergency (EM) loan regulations state that all
financial disaster assistance/compensation will be considered in
determining the applicant's eligibility for EM assistance and again in
calculating the maximum amount of loss loan entitlement. Once
eligibility is established, then all single enterprises showing a
production loss are considered in the calculation to determine the
maximum loss loan entitlement.
The Agency has concluded that modifications to the current
provisions are in order. In the 13 years (since 2/13/80) that FmHA has
employed the present calculation for determining eligibility, there
have been numerous instances where producers would have suffered
qualifying losses yet were deemed ineligible for an emergency loss loan
only because the dollar loss was reduced by the amount of disaster
related assistance/compensation so that the 30 percent loss level was
not reached. Based on this experience, it is the Agency's opinion that
the ability of FmHA to carry out the underlying intent of the program--
to provide loans to farmers who have suffered losses due to natural
disasters and who cannot obtain credit from private sources--has been
seriously hindered. For this reason, the Agency has concluded that it
can best serve these farmers, and thereby meet the goals of the
program, by revising its regulations as follows.
The Agency proposes to amend 7 CFR part 1945, subpart D,
Sec. 1945.163, by revising the applicant eligibility calculation to
consider only the dollar loss of a single enterprise based on the
difference in income between the disaster year and the normal year.
Disaster related assistance/compensation would not be considered in the
eligibility calculation. The maximum loss loan entitlement, however,
still would be the sum of production losses to all enterprises less any
disaster related assistance/compensation and costs not incurred. This
change is necessary to respond to the extreme financial stress of many
farmers affected by repetitive natural disasters.
By changing the EM loan eligibility calculation, more applicants
will be permitted to qualify for loan assistance. This revision to the
regulation complies with the Robert T. Stafford Disaster Relief and
Emergency Assistance Act, 42 U.S.C. 5155, prohibiting the duplication
of Federal disaster benefits. The amount of the individual EM loss loan
entitlement will continue to be reduced by the amount of any disaster
related assistance or compensation received or to be received by the
applicant. The Agency considered limited legislative history related to
EM loan legislation (Pub. L. 94-68, August 5, 1975) which suggested
that a person who had Federal crop insurance which covered a portion of
the disaster loss might become ineligible by not meeting the 20 percent
damage test (now 30 percent). The legislative history, however, was
found unpersuasive and insufficient to require the Agency to continue
its practice of considering other disaster benefits at the point of EM
eligibility when not specifically required by statute. The Agency
proposes these changes with the belief that more farmers in need will
be assisted and a prudent loan making program will be preserved within
statutory constraints.
The Agency also proposes to amend Sec. 1945.169 by requiring
applicants to purchase multi-peril crop insurance when receiving EM
loan assistance. CONACT section 321(b) states that an applicant shall
be ineligible for EM loan assistance for crop losses to an annual crop
planted or harvested after December 31, 1986, if crop insurance was
available to the applicant under the Federal Crop Insurance Act.
However, the Disaster Assistance Acts of 1988 and 1989; the Food
Agriculture, Conservation, and Trade Act (FACT Act) of 1990; the Dire
Supplemental Appropriations Act of 1991; and the Supplemental
Appropriations, Transfers and Recessions Act of 1992 waived this crop
insurance requirement for losses to annual crops planted for harvest in
years 1988-1993.
While these statutes waived the eligibility requirement, the
Disaster Assistance Acts of 1988 and 1989 and the 1990 FACT Act
required eligible EM applicants to agree to purchase crop insurance as
a loan condition, subject to certain exceptions. (The loan would be
made on the condition that the borrower obtain crop insurance in the
future, if not already insured.) The Dire Supplemental Appropriations
Act of 1991 and the Supplemental Appropriations, Transfers and
Recessions Act of 1992 did not have this requirement. However, upon
implementing changes required by the 1991 Act, the Agency
administratively required eligible applicants to obtain crop insurance
on their 1992 crop in order to receive an EM loan. This administrative
language was inadvertently omitted when making regulation changes
required by the 1992 Act.
The Agency believes it is prudent for applicants to purchase crop
insurance on the coming year's crop and proposes to once again require
it as an EM loan condition. Currently, FmHA only encourages EM
borrowers to obtain FCIC crop insurance or multi-peril crop insurance,
if available. Most FmHA applicants have limited resources and are
unable to fully recover from major disasters. Purchasing crop insurance
will reduce the applicant's risk of incurring devastating losses, and
will also protect the Government's interest. The Agency, however, has
provided for two exceptions. If crop insurance is not available, the
Agency will not require it. In addition, if the premium cost of the
insurance would prevent the applicant from showing ability to repay the
loan, the Agency will waive the requirement. The Agency wants to
provide assistance to such applicants if they can otherwise project
repayment ability. Thus, the crop insurance requirement will not delay
the making of needed EM loans or limit the number of loans made since
crop insurance is only a loan condition which will be waived in the two
instances noted above.
The Agency also proposes to amend Sec. 1945.175 by revising the
requirement for two complete appraisals when the first appraisal
reflects adequate security for the loan(s). Section 324 (d) of the
CONACT states that farm security, including land, livestock, and
equipment, for EM loans will be valued based on the higher of the value
of the assets on the day before the Governor requests assistance and
the value of the assets one year before such day. While the two values
must be considered, the values need not be based on two complete
appraisals.
The proposed change indicates that when a real estate appraisal to
establish the value on the day before the Governor's EM designation
request reflects adequate security for the loan, the basis for the
second value for one year and one day before the subject request will
be documented in an attachment to the appraisal. When the first
appraisal does not reflect adequate security only the applicable parts
of a second Form FmHA 1922-1, ``Appraisal Report - Farm Tract,''
reflecting the changes between the two dates, will be completed to
establish the value one year and one day before the Governor's request.
In cases where there is a physical loss of real estate and funds will
be used for development, the recommended market value will be as
improved. This is consistent with general appraisal practices and
current Form FmHA 1922-1 which includes a provision for the
contributory value of buildings as improved.
With respect to chattel appraisals, when the value one year and one
day before the Governor's request reflects adequate security, the value
one day before the Governor's request will be established on Form FmHA
1945-15, ``Value Determination Worksheet,'' by a reasonable estimate.
This change will reduce Agency processing time and cost in relation to
Emergency loans.
List of Subjects in 7 CFR Part 1945
Agriculture, Disaster assistance, Loan programs--Agriculture.
Therefore, part 1945, chapter XVIII, title 7, Code of Federal
Regulations, is amended as follows:
PART 1945--EMERGENCY
1. The authority citation for part 1945 continues to read as
follows:
Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR
2.23; 7 CFR 2.70.
Subpart D--Emergency Loan Policies, Procedures and Authorizations
2. Section 1945.163 is amended by revising paragraph (d) to read as
follows:
Sec. 1945.163 Determining qualifying losses, eligibility for EM
loan(s) and the maximum amount of each.
* * * * *
(d) Compensation for losses. All financial assistance provided
through any disaster relief program and all compensation for disaster
losses received from any source by an EM loan applicant will reduce the
applicant's loss by the amount of such compensation. All such
compensation will be considered in determining the maximum amount of
loss loan entitlement. Disaster related assistance/compensation will
not be considered in the EM eligibility calculation. The amount of any
disaster program benefits received from ASCS, including the Emergency
Feed Assistance Program (EFAP), Emergency Conservation Program (ECP),
and Disaster Program payments will be considered as compensation for
losses (ASCS Deficiency Payments are not to be considered as
compensation).
* * * * *
3. Section 1945.169 is amended by revising paragraph (j) to read as
follows:
Sec. 1945.169 Security.
(j) Crop insurance. All recipients of EM loans must agree, as a
condition of the loan, to obtain multi-peril crop insurance under the
Federal Crop Insurance Act for the coming year's crop. When one of the
conditions of paragraph (j)(1) of this section exists, the approval
official will document in the applicant's file the basis for not
requiring crop insurance.
(1) Applicants will not be required to obtain crop insurance when
any one of the following conditions exists:
(i) Crop insurance is not available for the crop, i.e., there is no
open season and no opportunity to acquire crop insurance.
(ii) The financial projections on which the loan approval is based
indicate that the premium cost of the required insurance would prevent
the applicant from projecting a feasible plan, and thus disqualifying
the applicant for loan assistance.
(2) When crops are the primary source of repayment for EM loans,
FmHA will require an ``Assignment of Indemnity'' on the borrower's crop
insurance policy(ies).
(3) When EM loans are based on physical losses only, crop insurance
will only be required when loan funds will be used for annual
production expenses. In such cases, the same conditions will apply as
stated in paragraph (j)(1) of this section.
(4) When the payment of crop insurance premiums is not required
until after harvest, the premiums may be paid by releasing insured
crop(s) sale proceeds, notwithstanding the limits of Secs. 1962.17 and
1962.29(b) of subpart A of part 1962 of this chapter. If the borrower's
crop losses are sufficient to warrant an indemnity payment, the premium
due will be deducted by the insurance carrier from such payment. The
FmHA County Office will maintain a record on Form FmHA 1905-12,
``Monthly Expirations,'' of the dates which each borrower's crop
insurance premium(s) is due. This is in accordance with FmHA
Instruction 1905-A, a copy of which is available in any FmHA office.
(5) When an applicant purchases the necessary crop insurance as a
condition to receiving an EM loan and, after the EM loan is closed,
allows the policy(ies) to lapse or be cancelled before completion of
the production year, the borrower will become immediately liable for
full repayment of all principal and interest outstanding on any EM loan
made on the condition of obtaining crop insurance. The loan approval
official will insert this requirement in item 41 of Form FmHA 1940-1,
``Request for Obligation of Funds,'' which is signed by the applicant
and the FmHA loan approval official.
* * * * *
4. Section 1945.175 is amended by revising paragraphs (c)(2), and
(c)(4) to read as follows:
Sec. 1945.175 Options, planning and appraisals.
(c) Appraisals.
* * * * *
(2) Real estate appraisals will be completed as provided in subpart
E of part 1922 of this chapter. However, the value of assets that
secure EM loans associated with a disaster having any portion of its
incidence period occurring on or after May 31, 1983, must be based on
the higher of two values, all of which must be part of the file. These
values will show:
(i) The asset value on the day before a State Governor's, Indian
Tribal Council's, or an FmHA State Director's first EM designation
request, which is associated with the naming of one or more counties in
a State as a disaster area where eligible farmers may qualify for EM
loans; or the asset value one year (365 days) and one day before the
designation request.
(ii) Form FmHA 1922-1, will be completed to reflect the recommended
market value (RMV) as of the day before the Governor's request.
(A) When the value one day before the Governor's request reflects
adequate security for the loan(s), the basis for arriving at the second
value, one year and one day before the Governor's request, will be
documented in an attachment to the appraisal.
(B) When the first appraisal does not reflect adequate security
only the applicable Part(s) 2, 3, 5, 6, 7, and 8 of a second Form FmHA
1922-1, will be completed to reflect changes between the two dates, and
establish a value one year and one day before the Governor's request.
(C) In cases where there is a physical loss of real estate and
funds will be used for development, the RMV will be as improved.
(iii) The following types of real estate offered as collateral for
securing EM loans will be appraised at the present market value only:
(A) Farm real estate the applicant/borrower did not own on the date
set forth in paragraph (c)(2)(i) of this section.
(B) Real estate ``not owned'' by the applicant/borrower (for
example, a relative if offering real estate as collateral for the
proposed EM loan).
(C) A single family dwelling located on a nonfarm tract.
(D) Other types of real estate such as apartment houses and
commercial buildings. The County Supervisor will request the assistance
of the State Director in establishing the value of such real estate.
(iv) Sales data utilized in the preparation of the necessary
appraisal(s) should conform to the dates set forth in paragraph
(c)(2)(i) of this section, to ensure a fair market value of the
property is established. In addition, it should be confirmed that said
sales resulted from reasonable sales efforts and that both the buyer
and seller were willing, informed, and knowledgeable parties.
* * * * *
(4) 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. The value of
assets that secure EM loans associated with a disaster having any
portion of the incidence period occurring on or after May 31, 1983,
must be based on the higher of two values, all of which must be made
part of the file. These values will be based on the time periods
contained in paragraph (c)(2)(i) of this section.
(i) In those cases where the value one year and one day before the
Governor's request reflects adequate security, the appraiser or County
Supervisor will reasonably estimate the value one day before the
Governor's request.
(ii) 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/borrower did not own on the dates set forth in paragraph
(c)(2)(i) of this section will be appraised at the present market value
only.
Dated: February 1, 1994.
Bob J. Nash,
Under Secretary for Small Community and Rural Development.
[FR Doc. 94-2777 Filed 2-7-94; 8:45 am]
BILLING CODE 3410-07-U
