03-8646. 2002 Farm Bill Regulations-Loan Eligibility Provisions

AGENCY:

Farm Service Agency, USDA.

ACTION:

Proposed rule.

SUMMARY:

The Farm Service Agency (FSA) proposes to amend the regulations for direct and guaranteed farm operating loans (OL) to implement the provision of the Farm Security and Rural Investment Act of 2002 (2002 Act) relating to loan eligibility for applicants with prior debt forgiveness resulting from a disaster or emergency designated by the President. FSA is proposing that borrowers who are current on an FSA loan at the onset of a Presidentially-declared disaster or emergency, but who receive debt forgiveness on that loan following the disaster, would be eligible for OL loan assistance if all other regulatory requirements were met. FSA is also proposing to amend the regulations for direct farm ownership (FO) loans to comply with the 2002 Act. FSA is proposing that applicants may qualify for a loan if they participated in the business operations of a farm or ranch for at least three of the past five years, rather than having operated a farm or ranch for that length of time. This portion of the rule is intended to make more borrowers eligible for FSA farm loan assistance. Finally, FSA is proposing to amend regulations concerning reamortization of amortized Shared Appreciation Agreement (SAA) recapture debt.

DATES:

Comments on the rule must be received on or before June 9, 2003, to be assured of consideration.

ADDRESSES:

Submit written comments to the Director, Loan Making Division, Farm Loan Programs, Farm Service Agency, United States Department of Agriculture, STOP 0522, 1400 Independence Avenue, SW., Washington, DC 20250-0522.

FOR FURTHER INFORMATION CONTACT:

Kathy Zeidler, Senior Loan Officer, USDA, FSA, Farm Loan Programs, Loan Making Division, STOP 0522, 1400 Independence Avenue, SW., Washington, DC 20250-0522; telephone [phone]; or e-mail [e-mail]. Comments on the rule may be inspected by contacting Ms. Zeidler for arrangements during normal business hours. Persons with disabilities who require alternative means for communication (Braille, large print, audio tape, etc.) should contact the USDA Target Center at [phone] (voice and TDD).

Notice and Comment

This rule is issued as a proposed rule. Upon completion of the public comment period and consideration of the comments received, FSA will issue a final rule addressing the comments, announcing the final determination, and making the provisions effective.

Executive Order 12866

This rule has been determined to be not significant under Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget (OMB).

Federal Assistance Programs

The title and number of the Federal assistance programs, as found in the Catalog of Federal Domestic Assistance, to which the rule applies are:

10.406—Farm Operating Loans.

10.407—Farm Ownership Loans.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-602), the undersigned has determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities. New provisions included in this rule will not impact a substantial number of small entities to a greater extent than large entities. Therefore, a regulatory flexibility analysis was not performed.

Unfunded Mandates

This rule contains no Federal mandates under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 12988

This rule has been reviewed in accordance with Executive Order 12988. This rule preempts State laws that are inconsistent with it. This rule is not retroactive. Before judicial action may be brought concerning this rule, administrative remedies must be exhausted.

Environmental Assessment

The environmental impacts of this rule have been considered in accordance with the provisions of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA regulations for compliance with NEPA, 7 CFR parts 799, and 1940, subpart G. FSA has completed an environmental evaluation and concluded that the rule requires no further environmental review. No extraordinary circumstances or other unforeseeable factors exist which would require preparation of an environmental assessment or environmental impact statement. A copy of the environmental evaluation is available for inspection and review upon request.

Executive Order 12372

This rule is not subject to the provisions of Executive Order 12372, which requires intergovernmental consultation with State and local officials. See the notice related to 7 CFR part 3015 subpart V published at 48 FR 29115 (June 24, 1983).

Executive Order 13132

The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

Paperwork Reduction Act

The Agency's information collection requirements, currently approved under OMB control numbers 0560-0155, 0560-0157, and 0560-0167 are not affected by the proposed rule.

Government Paperwork Elimination Act

FSA is committed to compliance with the Government Paperwork Elimination Act and the Freedom to E-File Act, which require Government agencies in general and FSA in particular to provide the option of submitting information or transacting business electronically to the maximum extent possible. The forms and other information collection activities required for participation in the program are not yet fully implemented for the public to conduct business with FSA electronically. However, loan application forms are available electronically for downloading through the USDA eForms Web site at http://www.sc.egov.usda.gov.

Background

Section 5319 of the 2002 Act provides another exception to the general rule prohibiting farm loans to borrowers who have received prior debt forgiveness. Under this provision, FSA farm loan borrowers who received debt forgiveness on not more than one occasion resulting directly and primarily from a major disaster or emergency designated by the President on or after April 4, 1996, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.), may be eligible for direct or guaranteed farm operating loans to pay annual farm or ranch operating expenses. Note that while FSA makes emergency loans also when emergencies are designated by the USDA Secretary or FSA Administrator (physical loss loans only), only Presidentially-designated emergencies trigger this exception. In developing the proposed rule, FSA reasoned that if a borrower is operating in an area where a disaster or emergency is designated by the President, and the borrower is current on their FSA loan obligations prior to the designation, any subsequent debt forgiveness can be “directly and primarily” attributed to the major disaster or emergency. Therefore, the Agency is proposing that borrowers who are current on FSA loans at the onset of a Presidentially-declared disaster or emergency, but receive debt forgiveness on the loans within three years following the disaster, fall within the legislative exception and, therefore, would be eligible for OL loan assistance for paying annual farm operating expenses if all other loan requirements were met. The Agency specifically seeks comments on this issue.

Section 5001 of the 2002 Act revised an eligibility requirement for FSA's direct FO loan program. Applicants may now be eligible for this program if they participated in the business operations of a farm or ranch for at least three years, rather than having operated a farm or ranch for that length of time. FSA has in place a policy in its direct OL program defining farm participation with regard to acceptable farm experience and on-the-job training. Because this policy was already in effect, it was expanded to cover the new participation requirement for direct FO loans through administrative notice. The policy notice issued to field offices clarified the participation requirement by stating that applicants who: (1) Owned, managed, or operated a farm or ranch business for at least three years worth of complete production and marketing cycles; (2) have been employed as a farm manager or farm management consultant for at least three years worth of complete production and marketing cycles; or (3) participated in the operation of a farm or ranch by being raised or working on a farm or ranch and having had significant responsibility for the day-to-day decision-making for at least three years' worth of complete production and marketing cycles meet the participation requirement. This rule proposes to amend FO regulations accordingly and to limit the three years of participation to the five years prior to the date the loan application is submitted. Only the last five years should be considered because this is consistent with OL eligibility requirements, which specify that applicants must have sufficient applicable educational and/or on-the-job training or farming experience in managing and operating a farm or ranch (one year's complete production and marketing cycle within the last five years). Recent farming experience is a better indicator of future success.

Section 5314 of the 2002 Act authorizes FSA to consider reamortization of amortized SAA recapture debt for up to 25 years from the date of the original amortization agreement when the borrower becomes delinquent on this non-program debt. To be eligible for this reamortization, the default must be due to circumstances beyond the borrower's control, and the borrower must have acted in good faith in attempting to repay the recapture amount. As this reamortization can be considered even when a borrower has no outstanding FLP loans, or when the SAA was triggered by all FSA loans being paid in full, FSA is proposing to amend 7 CFR 1951.901, 1951.907, 1951.909, and 1951.914 to comply with this requirement.

List of Subjects

7 CFR Part 762

• General—Agriculture
• Loan programs—Agriculture

7 CFR Part 1941

• Crops
• Livestock
• Loan programs—Agriculture
• Rural areas
• Youth

7 CFR Part 1943

• Crops
• Loan programs—Agriculture
• Recreation
• Water resources

7 CFR Part 1951

• Account servicing
• Credit
• Debt restructuring
• Loan programs—Agriculture
• Loan Programs—Housing and community development

Accordingly, 7 CFR is revised as follows:

PART 762—GUARANTEED FARM LOANS

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

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

2. Amend § 762.102(b) by adding a definition of “Presidentially-designated emergency” to read as follows:

§ 762.102

Abbreviations and definitions.

* * * * *

(b) Definitions.

* * * * *

Presidentially-designated emergency. A major disaster or emergency designated by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.)

3. Amend § 762.120 by revising paragraph (a) to read as follows:

§ 762.120

Loan applicant eligibility.

* * * * *

(a) Agency loss. (1) Except as provided in paragraph (a)(2) of this section, the loan 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 guaranteed loan made under the authority of the CONACT by debt write-down or write-off; compromise, adjustment, reduction, or charge-off under the provisions of section 331 of the CONACT; discharge in bankruptcy; or through payment of a guaranteed loss claim on:

(i) More than three occasions on or prior to April 4, 1996; or

(ii) Any occasion after April 4, 1996.

(2) The applicant may receive a guaranteed OL to pay annual farm and ranch operating and family living expenses, provided the applicant meets all other requirements for the loan, if the applicant and anyone who will execute the promissory note:

(i) Received a write-down under section 353 of the CONACT;

(ii) Is current on payments under a confirmed bankruptcy plan; or

(iii) Received debt forgiveness on not more than one occasion after April 4, 1996, resulting directly and primarily from a Presidentially-designated emergency for the county in which the applicant operates. Only applicants who were current on all existing direct and guaranteed FSA loans prior to the onset of a Presidentially-designated emergency and received debt forgiveness on that debt within three years after the onset of such emergency meet this exception.

* * * * *

PART 1941—OPERATING LOANS

4. The authority citation for part 1941 continues to read as follows:

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

Subpart A—Operating Loan Policies, Procedures and Authorizations

5. Amend § 1941.4 by adding a definition of “Presidentially-designated emergency” to read as follows:

§ 1941.4

Definitions.

* * * * *

Presidentially-designated emergency. A major disaster or emergency designated by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).

* * * * *

6. Amend § 1941.12 by revising paragraphs (a)(8) and (b)(11) to read as follows:

§ 1941.12

Eligibility requirements.

* * * * *

(a) * * *

(8) Agency loss. (i) Except as provided in paragraph (a)(8)(ii) of this section, the loan 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 guaranteed loan made under the authority of the CONACT by debt write-down or write-off; compromise, adjustment, reduction, or charge-off under the provisions of section 331 of the CONACT; discharge in bankruptcy; or through payment of a guaranteed loss claim.

(ii) The applicant may receive a direct OL loan to pay annual farm and ranch operating and family living expenses, provided the applicant meets all other requirements for the loan, if the applicant and anyone who will execute the promissory note:

(A) Received a write-down under section 353 of the CONACT;

(B) Is current on payments under a confirmed bankruptcy plan; or

(C) Received debt forgiveness on not more than one occasion after April 4, 1996, resulting directly and primarily from a Presidentially-designated emergency for the county in which the applicant operates. Only applicants who were current on all existing direct and guaranteed FSA loans prior to the onset of a Presidentially-designated emergency and received debt forgiveness on that debt within three years after the onset of such emergency meet this exception.

* * * * *

(b) * * *

(11) Agency loss. (i) Except as provided in paragraph (b)(11)(ii) of this section, the loan 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 guaranteed loan made under the authority of the CONACT by debt write-down or write-off; compromise, adjustment, reduction, or charge-off under the provisions of section 331 of the CONACT; discharge in bankruptcy; or through payment of a guaranteed loss claim.

(ii) The applicant may receive a direct guaranteed OL loan to pay annual farm and ranch and operating and family living expenses, provided the applicant meets all other requirements for the loan, if the applicant and anyone who will execute the promissory note,

(A) Received a write-down under section 353 of the CONACT;

(B) Is current on payments under a confirmed bankruptcy plan; or

(C) Received debt forgiveness on not more than one occasion after April 4, 1996, resulting directly and primarily from a Presidentially-designated emergency for the county in which the applicant operates. Only applicants who were current on all existing direct and guaranteed FSA loans prior to the onset of a Presidentially-designated emergency and received debt forgiveness on that debt within three years after the onset of such emergency meet this exception.

* * * * *

PART 1943—FARM OWNERSHIP, SOIL AND WATER AND RECREATION

7. The authority citation for part 1943 continues to read as follows:

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

Subpart A—Direct Farm Ownership Loan Policies, Procedures, and Authorizations

8. Amend § 1943.4 by adding a definition of “participated in the business operations of a farm or ranch” to read as follows:

§ 1943.4

Definitions.

* * * * *

Participated in the business operations of a farm or ranch. An applicant has participated in the business operations of a farm or ranch if the applicant has:

(1) Been the owner, manager or operator of a farm business for the year's complete production and marketing cycle as evidenced by tax returns, FSA farm records or similar documentation;

(2) Been employed as a farm manager or farm management consultant for the year's complete production and marketing cycle; or

(3) Participated in the operation of a farm by virtue of being raised on a farm or worked on farm with significant responsibility for the day-to-day decisions for the year's complete production and marketing cycle.

* * * * *

9. Amend § 1943.12 by revising the introductory text in paragraphs (a)(6) and (b)(8) to read as follows:

§ 1943.12

Farm ownership loan eligibility requirements.

(a) * * *

(6) Have participated in the business operations of a farm or ranch for at least 3 years out of the 5 years prior to the date the application is submitted and satisfy at least one of the following conditions:

* * * * *

(b) * * *

(8) Have one or more members, constituting a majority interest in the business entity, who have participated in the business operations of a farm or ranch for at least 3 years out of the 5 years prior to the date the application is submitted and satisfy at least one of the following conditions:

* * * * *

PART 1951—SERVICING AND COLLECTIONS

10. The authority citation for part 1951 is revised to read as follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31 U.S.C. 3716; 42 U.S.C. 1480.

Subpart S—Farm Loan Programs Account Servicing Policies

11. Amend § 1951.901 by revising the third sentence to read as follows:

§ 1951.901

Purpose.

* * * Shared Appreciation amortized payments (SA) may be reamortized in accordance with §§ 1951.907(e), 1951.909(c)(6) and 1951.909(e)(2).

* * * * *

12. In § 1951.907, revise the second and third sentences of paragraph (c), introductory text, redesignate paragraph (e) as (f) and add a new paragraph (e) to read as follows:

§ 1951.907

Notice of loan service programs.

* * * * *

(c) * * * If the borrower submits an incomplete application, see paragraph (f) of this section for procedures on requesting additional information. Delinquent borrowers who have also violated their loan agreements with the agency will be handled in accordance with paragraph (f) of this section. * * *

* * * * *

(e) The Agency will notify delinquent NP borrowers who have only SA amortization agreements that all items in paragraph (f)(5) of this section, with the exception of Attachment 2 or 4 of exhibit A and information for conservation contracts or debt settlement, must be submitted within 60 days or the account will be accelerated. If a complete application has not been submitted within 30 days, one additional notice will be sent to the NP borrower indicating the remaining information needed and the last day which it can be submitted.

* * * * *

13. Amend § 1951.909 by adding a new paragraph (c)(6) to read as follows:

§ 1951.909

Processing primary loan service program requests.

* * * * *

(c) * * *

(6) Non-Program borrowers who have only SA amortization agreements must meet the eligibility requirement in paragraph (c)(1) of this section, have acted in good faith in attempting to repay the recapture amount, and develop a feasible plan. Borrowers who do not meet the eligibility or feasibility requirements of this section will be notified of the adverse decision, and the account will be liquidated according to subpart J of this part.

* * * * *

14. Amend § 1951.914 by revising paragraphs (e), introductory text, and (e)(11) to read as follows:

§ 1951.914

Servicing shared appreciation agreements.

* * * * *

(e) Shared appreciation amortization. Shared appreciation due under this section may be amortized to a nonprogram amortized payment unless the amount is due because of acceleration or the borrower ceases farming. The amount due may be amortized as an SA amortized payment under the following conditions:

* * * * *

(11) If a borrower with an SA amortized payment also has outstanding Farm Loan Program loan(s) and becomes delinquent or financially distressed in accordance with § 1951.906 or if a borrower with an SA amortized payment has no outstanding Farm Loan Program loans and becomes delinquent on the SA amortized payment, the SA payment agreement may be reamortized in accordance with § 1951.909.

* * * * *

Dated: March 24, 2003.

J.B. Penn,

Under Secretary for Farm and Foreign Agricultural Services.

Dated: April 1, 2003.

Thomas C. Dorr,

Under Secretary for Rural Development.