[Federal Register Volume 61, Number 132 (Tuesday, July 9, 1996)]
[Rules and Regulations]
[Pages 35916-35934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17266]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1910, 1924, 1941, 1943, 1945, 1951, 1955, 1962, 1965,
and 1980
RIN 0575-AB45
Loan Assessment, Market Placement, and Graduation of Direct Loan
Borrowers
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, and Farm Service Agency, USDA.
ACTION: Interim rule with request for comments.
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SUMMARY: The issuing USDA agencies are amending the direct and
guaranteed farm loan regulations to implement changes to the
Consolidated Farm and Rural Development Act (CONACT) as a result of the
Food, Agriculture, Conservation, and Trade Act of 1990 (1990 Act) and
the Agricultural Credit Improvement Act of 1992 (1992 Act). These
amendments implement and coordinate ``loan assessment,'' ``market
placement,'' and the ``graduation of seasoned direct loan borrowers to
the loan guarantee program.'' The intended outcome is to improve the
success rate of borrowers receiving Farm Service Agency (FSA)
assistance and to facilitate their transitions to commercial credit.
DATES: Effective July 9, 1996. Comments must be submitted by October 7,
1996.
ADDRESSES: Submit written comments to Steven R. Bazzell, Senior Loan
Officer, Farm Credit Programs Loan Making Division, Farm Service Agency
(FSA) United States Department of Agriculture (USDA), Ag Box Code 0522,
Room 5438 South Building, 14th Street and Independence Avenue, SW.,
Washington, DC. 20250-0522. Written comments made pursuant to this rule
will be available for public inspection at the above address between
8:15 am and 4:45 pm, Monday through Friday, except holidays.
FOR FURTHER INFORMATION CONTACT: Mr. Bazzell of the Farm Credit
Programs Loan Making Division at telephone (202) 720-3889, fax (202)
690-1117, or e-mail sbazzell@wdc.fsa.usda.gov.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined ``not significant'' for the purpose
of complying with Executive Order 12866, and therefore, it has not been
reviewed by the Office of Management and Budget (OMB).
Executive Order 12372
1. For the reasons set forth in the Notice related to 7 CFR part
3015, subpart V (48 FR 29115, June 24, 1983), Farm Ownership Loans,
Farm Operating Loans, and Emergency Loans are excluded from the scope
of Executive Order 12372, which requires intergovernmental consultation
with State and local officials.
2. The Soil and Water Loan Program is subject to and has complied
with the provisions of Executive Order 12372 and FmHA Instruction 1940-
J.
Federal Assistance Programs
These changes affect the following FSA Farm Credit programs as
listed in the Catalog of Federal Domestic Assistance:
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' The issuing agencies have
determined that this action does not significantly affect 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.
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 National Appeals
Division appeal regulations at 7 CFR part 11 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.
Paperwork Reduction Act
The information collection or recordkeeping requirements contained
in these regulations 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 numbers 0575-0134, 0575-0061, 0575-0141, 0575-
0085, 0575-0083, 0575-0090, 0575-0093, 0575-0079 and 0575-0111 in
accordance with the Paperwork Reduction Act of 1995. This interim rule
does not revise or impose any new information collection or
recordkeeping requirement from those approved by OMB.
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Discussion of the Interim Rule
On December 30, 1993, the Farmers Home Administration (FmHA)
published a proposed rule in the Federal Register (58 FR 69274-69298)
with a comment period that ended February 28, 1994. The purpose of this
interim rule is to implement statutory provisions on loan assessment,
market placement, and graduation of seasoned direct loan borrowers to
the guaranteed loan program. These provisions were contained in the
1990 Act and the 1992 Act and affect former FmHA Farmer Programs. Due
to the reorganization of USDA, responsibility for administering FmHA
Farmer Programs has been transferred to FSA. Other loan programs
formerly administered by FmHA will only be affected by general,
conforming administrative revisions made to the regulations on
receiving and processing applications and analyzing credit needs and
graduation of borrowers. These programs include: Rural Housing loans
now administered by the Rural Housing Service (RHS), Water and Waste
Facility loans now administered by the Rural Utilities Service (RUS),
and Business and Industrial loans and Intermediary Relending Program
loans now administered by the Rural Business-Cooperative Service (RBS).
FSA, RHS, RUS, and RBS are jointly issuing this interim rule since
substantial administrative revisions have been made to regulations
affecting their programs in an effort to reduce Agency regulations.
The issuing agencies are publishing these regulations as an interim
rule and providing a 90-day comment period. The comment period will
provide the public, including Agency field staff, the opportunity to
use and evaluate the new
[[Page 35917]]
processes from a practical standpoint. We expect this will provide the
Agency with many more valuable suggestions to consider prior to
issuance of the final rule.
Discussion of Comments
In response to the proposed rule, 14 respondents provided 25
specific comments. Since few of the comments addressed the same issue,
they have been grouped by the general regulatory areas to which they
pertain, as follows: Borrower supervision and planning, chattel loan
security, graduation to commercial credit, and guaranteed loans.
Borrower Supervision and Planning
One respondent stated that each borrower should submit the year's
actual production and financial information, in addition to the
projected budget, when the projected budget is being submitted for
review and reclassification purposes only. The Agency has revised the
regulations to require that actual production and financial performance
information be submitted along with the borrower's projections. FSA
agrees with the rationale that actual performance should be obtained
whenever financial information is obtained from borrowers in order to
monitor their financial progress. This is in line with the practices of
commercial lenders and the goals of FSA's borrower training.
One respondent stated that the year-end analysis should ideally be
done prior to the beginning of the next production cycle, but not later
than 60 days after the end of the previous production cycle. FSA has
revised the regulations to state that, whenever possible, the year-end
analysis should be scheduled and completed not later than 60 days after
the end of the borrower's business year or farm budget planning period.
This change was made in recognition of the uncertainties of Agency
staffing and the fluctuating nature of the demand for FSA Farm Credit
assistance. It is impracticable to mandate that the year-end analysis
be completed within the 60-day timeframe, without exception.
One respondent stated that a year-end analysis should be required
on all recently serviced loans under subpart S of part 1951. The
proposed regulations require that a year-end analysis be completed for
all first-time, annual operating, delinquent, and limited resource
interest rate borrowers. All other FSA Farm Credit borrowers were to
receive a year-end analysis at the discretion of the Agency based upon
the ``assessment'' of the needs and risks associated with each
individual farming operation. In response to this comment, the Agency
has revised the regulation to broaden coverage to require a year-end
analysis the first year after the borrower: (1) Receives a new loan,
chattel subordination or restructuring; (2) is determined delinquent or
financially distressed; (3) has a loan deferred; or (4) receives
limited resources interest rates. This change expands year-end analysis
coverage to chattel subordinations and restructurings while mandating
that it be performed only the first year when most problems arise.
Chattel subordinations and restructurings will trigger a year-end
analysis in the first year because of the increased risk to the
Government. Thereafter, the Agency has the flexibility to perform the
year-end analysis on a case-by-case basis based on the individual needs
of each borrower.
One respondent stated that Exhibit A, Attachment 1, of subpart B of
part 1924 of this chapter should be modified to inform the farm
borrower that budget plans other than the Form FmHA 432-1, ``Farm and
Home Plan,'' may be used. This Exhibit A letter is, however, used
exclusively to inform borrowers of their rights and responsibilities in
regard to the disposition of security. Since Exhibit A does not pertain
to farm budgeting, no changes will be made in response to this comment.
The Agency plans to remove this exhibit from the regulations in the
final rule.
Three respondents made a general statement that there are
inadequate staff resources at the county office level to carry out the
provisions of these regulations in a timely manner. The Agency has
eliminated several regulatory requirements to provide expanded
discretion to county office personnel, such as the elimination of
mandatory accounting updates and field visits. Such administrative
procedures have been removed from the regulations, but will be
addressed in internal agency instructions. Additional administrative
reductions may be considered for future regulatory revisions, after the
Agency has empirical evidence to determine the effectiveness of the
current regulatory changes. Therefore, no changes will be made by the
Agency at this time.
One respondent stated that FSA should accept an applicant's self-
certification with regard to environmental compliance. Currently,
Agency personnel, or lenders in the case of guaranteed loans, are
required to make a visual inspection of the farming operation as part
of the environmental compliance process. Generally, environmental
statutes place the burden on the Federal Government for compliance.
This responsibility cannot be delegated to individual applicants
without statutory authority. No change will be made.
One respondent stated that ``production cycle,'' as the term is
used in conducting the year-end analysis under Sec. 1924.55(d)(1)
should be defined as the completion of the farm budget planning period.
The Agency agrees that this could be potentially confusing and has
revised Sec. 1924.55(d)(1) to clarify ``production cycle'' to mean
``farm budget planning period.''
Chattel Loan Security
One respondent stated that Sec. 1924.56(b)(5) should be clarified
to state that during an appeal, FSA will release normal income security
to allow the borrower to pay essential family living and farm operating
expenses, except for the expenses which are the subject of the appeal.
The Agency agrees that this could be misunderstood and has referenced
this paragraph back to subpart A of part 1962.
Three respondents stated that the FSA regulations require that
notices be filed (for lien perfection) under both the Uniform
Commercial Code (UCC) and Central Filing System (CFS), where
implemented, which in their opinion has no significant benefit. The
respondents stated that filing under both systems should be used on a
discretionary basis for problem accounts only. The most common practice
among commercial lenders is to file notices under both the UCC and CFS.
FSA will follow this same conventional practice, and no changes will be
made in Agency procedure. Section 1962.5, describes which filing
procedures for financing statements and other internal procedures for
handling security instruments, has been removed but will be covered by
internal Agency instructions.
One respondent stated that Sec. 1924.57 should be revised to state
that Agency personnel may provide credit counseling rather than will
provide credit counseling. This suggestion is not being adopted in
internal agency instructions since it is the Agency's responsibility to
provide credit counseling as needed by individual farm borrowers. This
administrative section has been removed from the regulations.
One respondent stated that the regulations should allow more Agency
discretion on conducting field visits, year-end analyses, credit
counseling, etc. The Agency has already eliminated required numbers of
field visits, collateral inspections (when justified
[[Page 35918]]
and documented in the case file), accounting updates, etc., and has
directed that these activities be derived directly from the farm
assessment. No further changes in this regard will be made until
empirical evidence can be examined by the Agency with regard to the
effectiveness of the current revisions.
One respondent stated that borrowers who are not required to
undergo a year-end analysis should only be required to submit an annual
balance sheet and that it is unreasonable to require these borrowers to
submit a projected cash flow for the upcoming year for borrower
classification purposes. FSA is required by the 1992 Act to reclassify
``seasoned direct borrowers'' for the purpose of graduation, and the
projected cash flow is needed to classify borrowers; therefore, FSA
will make no changes with respect to the financial information needed.
However, FSA has revised the regulations to require these
``classification only'' borrowers to submit their full set of financial
statements only every 2 years. In intervening years when financial
statements are not obtained, the Agency will make a desk review of the
borrower's case file and determine whether graduation efforts should be
pursued according to internal Agency instructions. Full financial
information will be required automatically only every 2 years because
based on past experience a borrower's ability to graduate generally
does not change significantly from 1 year to the next. This will meet
the requirements of the statute, while reducing the burden on field
staff resources and borrowers. The Agency expects this approach to
actually enable the county offices to graduate more direct borrowers to
commercial credit because there will be more time available to perform
a more thorough graduation review and to more vigorously pursue
graduation through Market Placement.
Two respondents commented that Sec. 1924.56 needs clarification,
especially with regard to the derivation and use of production yields.
FSA agrees and has revised this regulation to clarify that 5 years of
actual production history will be used as a guide when preparing and
evaluating a farm business plan. This clarification has been made to
stress that, while historical information is extremely useful, the
analysis of an agricultural operation's production trends and current
capabilities must be considered.
One respondent suggested that the existing Form FmHA 431-2, ``Farm
and Home Plan,'' be revised to incorporate Form FmHA 1962-1,
``Agreement for Use of Proceeds/Release of Chattel Security.'' FSA will
give this suggestion consideration for future improvements, but no
changes will be made at this time. Form FmHA 1962-1 has been removed as
an exhibit to part 1962, subpart A, but will be available in any Agency
office.
Graduation to Commercial Credit
One respondent stated that only borrowers classified as commercial
should be considered candidates for graduation to commercial credit. No
change will be made since the Consolidated Farm and Rural Development
Act section 333A(f) (7 U.S.C. 1983a(f)) specifies that both commercial
and standard classified borrowers be considered for graduation.
One respondent stated that the proposed regulations require all
commercial and standard classified borrowers to have an assessment
completed or updated. The respondent recommended that an assessment not
automatically be required. The respondent suggested that a current
balance sheet, actual performance for the most recent year, and a
projected farm budget should instead be used to determine graduation
potential and for preparation of the prospectus to lenders. FSA agrees
with the logic of this recommendation and has revised Sec. 1951.262 and
the definition of ``prospectus.'' Many graduation candidates will not
need a complete or updated assessment, as described under subpart B of
part 1924, when the sole purpose is pursuing graduation to commercial
credit.
One respondent stated that the language ``reasonable rates and
terms'' should not be changed to ``prevailing rates and terms'' in
subpart F of part 1951 because the former language is defined by
regulation and it is contained in various loan documents, particularly
in the Community and Business Programs. FSA agrees and will not delete
``reasonable rates and terms'' from this regulation.
One respondent stated that farm borrowers should be charged
commercial interest rates when it appears that they are able to
graduate to commercial credit. Otherwise, the respondent stated, there
is no incentive for borrowers to graduate. Subpart A of part 1951
presently requires that direct borrowers be charged FSA's ``regular''
interest rate when they attain a 10-percent repayment margin. This
interest rate is comparable to commercial lending rates, therefore, no
change will be made.
Guaranteed Loans
The last respondent stated that under Sec. 1980.113, the term
``current balance sheet'' should be defined as one that is less than 90
days old on the date the Agency receives a complete application. FSA
agrees that this should be clarified and has revised the regulation
accordingly.
Miscellaneous Changes
In addition to the changes made as a result of public comments, FSA
has made several changes to further streamline or, in some cases,
clarify the intent of the regulations as discussed below.
The 5-year budget project projection also is being eliminated as a
general requirement for all FCP borrowers and applicants. The 5-year
budget will instead be used as a counseling tool by the Agency, as
appropriate, under internal Agency instructions. This change is in
keeping with the Agency's movement toward fewer regulatory requirements
and more discretion for Agency personnel.
Section 1924.55 is being clarified to state that many components of
the assessment will be inapplicable to the Youth Loan program since
these applicants and borrowers are not conducting farming or ranching
operations. Year-end analyses for Youth loans are also being made a
discretionary activity for Agency personnel since these loans are used
to make small purchases for mainly educational purposes, e.g., raising
and selling one pig or cow for a 4-H project.
``Flagged Accounts'' are being eliminated as needing mandatory
year-end analyses under Sec. 1924.55. Flagged accounts include such
accounts as bankruptcies and foreclosure actions pending. In such
cases, contact with the borrower may be constrained by a court, or the
farming operation may be in some stage of liquidation and, therefore,
no longer an ongoing business concern. Therefore, flagged accounts will
have a year-end analysis performed only at the discretion of the
Agency.
Section 1924.55 also has been revised to state that in the case of
existing borrowers, an assessment should be made at the time of the
year-end analyses if no assessment has yet been done. An earlier
assessment would have been done if the borrower had been found eligible
for another loan, for example. The mandatory assessment provision was
removed for existing borrowers in order to permit an administrative
phase-in of the assessment process over a three year period for most
existing borrowers.
[[Page 35919]]
Borrowers with flagged accounts would receive assessments only when and
if year-end analyses were performed in accordance with this revised
section. (The reason for the flagged account exception is discussed
above.) This policy is permissible under CONACT section 360 which only
requires initial assessments of eligible applicants and follow-up
reviews of the new borrowers. The phase-in will promote high quality
assessments by field offices and allow them to focus on new borrowers.
The Agency is unable because of fiscal constraints to take advantage of
its statutory authority to contract out loan assessments.
A minor revision was made with regard to the market placement
regulations in the guaranteed loan program. The requirement for the
submission of the applicant's or borrower's assessment to the lender
was deleted since the Agency will prepare the guaranteed application on
the lender's behalf. The Market Placement Application described under
Sec. 1980.113 also was revised to make it more concise. Upon further
Agency review, it was determined that the individual line items
describing the application were unnecessary. This now states Form FmHA
1980-25, which is the guaranteed loan application, along with all other
items listed in this section with the exception of the loan or line of
credit agreement, are required. The loan assessment is prepared by the
Agency as part of the items required in the narrative summary under
Sec. 1980.113(a)(12).
Section 1910.4 has been revised to implement a requirement of the
Federal Debt Collection Act of 1990. Under this statute, an applicant
is ineligible for a loan if the applicant has an outstanding recorded
judgment against them by the United States in a Federal Court other
than the United States Tax Court.
Section 1910.5 has been revised to clarify how bankruptcy is used
in determining the acceptability of an applicant's credit history. The
key is not the bankruptcy itself, but rather the circumstances behind
it. If they were beyond the borrower's control, then they are not
considered an indication of unacceptable credit history.
References to the FmHA County Committee and its certification of a
borrower or applicant's farm loan eligibility for five years have been
removed. FmHA County Committees and the mandate to make 5 year
certifications of eligibility were abolished by section 227(b) of the
Department of Agriculture Reorganization Act of 1994. The functions
performed by the FmHA County Committee in relation to Farmer Programs
loans now will be performed by the Agency. ``Agency'' has been defined
in the regulations to include FSA county or area committees established
in accordance with section 8(b) of the Soil Conservation and Domestic
Allotment Act (16 U.S.C. 590h(b)). Loan eligibility will be determined
for each loan application.
Regulations being changed to implement loan assessment, market
placement, and graduation policies also were substantially revised to
remove administrative procedures. These procedures instead will be
covered solely by the Agency's internal instructions.
The Agency intends to remove exhibits being revised by this interim
rule in the final rule. Any substantive policy will be covered in the
regulation text. Forms will remain available in any Agency office.
List of Subjects
7 CFR Part 1910
Agriculture, Applications, Credit, Loan programs--Housing and
community development, Low and moderate income housing, Marital status
discrimination, Sex discrimination.
7 CFR Part 1924
Agriculture, Construction management, Construction and repair,
Energy conservation, Housing, Housing and community development, Loan
programs--Low and moderate income housing.
7 CFR Part 1941
Agriculture, Crops, Livestock, Loan programs--Rural areas, Youth.
7 CFR Part 1943
Agriculture, Credit Loan Programs--Recreation and recreation areas,
Water resources.
7 CFR Part 1945
Agriculture, Disaster assistance, Loan programs.
7 CFR Part 1951
Account servicing, Agriculture, Credit, Debt restructuring, Loan
programs--Housing and community development, Low and moderate income
housing loans--Servicing.
7 CFR Part 1955
Government acquired property, Government property management.
7 CFR Part 1962
Agriculture, Crops, Government property, Livestock, Loan programs--
Rural areas.
7 CFR Part 1965
Agriculture, Foreclosure, Loan programs--Rural areas.
7 CFR Part 1980
Agriculture, Loan programs.
Accordingly, Chapter XVIII, Title 7, Code of Federal Regulations is
amended as follows:
PART 1910--GENERAL
1. The authority citation for part 1910 is revised 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
2. Section 1910.1 introductory paragraph is amended:
a. by removing the phrase ``Farmers Home Administration or its
successor agency under Public Law 103-354 (FmHA or its successor agency
under Public Law 103-354)'' and adding the words ``Farm Service Agency
(FSA) and Rural Housing Service (RHS)'' in its place;
b. by removing the words ``Farmer Programs'' and adding the words
``Farm Credit Programs'' in its place;
c. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' in paragraph (a) and adding the words ``FSA and
RHS'' in its place; and revising paragraph (c) and adding paragraph (e)
to read as follows:
Sec. 1910.1 General.
* * * * *
(c) FmHA forms are available in any Rural Development (RD) or FSA
office.
* * * * *
(e) As used in this subpart in relation to Farm Credit Programs
loans, Agency means the Farm Service Agency, its county and State
committees and their personnel, and any successor agency.
3. In Sec. 1910.3:
a. the introductory text and paragraph (a), introductory text, are
amended by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' and adding the words ``FSA or RHS'' in their
place;
b. all references to ``or its successor agency under Public Law
103-354'' in paragraphs (a)(1), (a)(2), and (a)(4)(i) are removed; and
references to ``FmHA or its successor agency under Public Law 103-354''
are removed and ``RD'' is added in their place, the first time it
[[Page 35920]]
appears in paragraph (a)(4)(i) and in paragraph (a)(4)(ii).
4. Section 1910.4 is amended by:
a. removing paragraph (h);
b. redesignating paragraphs (c) through (g) as (d) through (h),
respectively;
c. removing the words ``Farmer Programs'' in redesignated
paragraphs (d), (k) introductory text and (k)(3) and adding the words
``Farm Credit Programs;'' in its place;
d. removing the words ``FmHA or its successor agency under Public
Law in paragraph (k)(4) and adding the words ``the Agency'' in its
place; and
e. removing the language appearing in the parentheticals in
redesignated paragraphs (d)(3)(i), introductory text, (d)(3)(iii),
introductory text, (d)(3)(v) and (k)(4).
5. Section 1910.4 paragraphs (k)(1), (k)(4) and redesignated
(d)(1), (d)(3)(i), (d)(3)(iii), introductory text, and (d)(3)(v) are
amended by removing the phrase ``or its successor agency under Public
Law 103-354.''
6. In Sec. 1910.4 paragraph (k)(3) the reference ``paragraph (c)''
is removed and the reference ``paragraph (d)'' is added in its place;
removing and reserving paragraph (j); revising redesignated paragraphs
(e), (f), (g), and (h), and paragraphs (b), (i)(1), (i)(1)(i),
(i)(1)(ii)(B), (i)(5) and adding new paragraph (c) to read as follows:
Sec. 1910.4 Processing applications.
* * * * *
(b) Completed Farm Credit Programs applications and additional FSA
responsibilities. All persons requesting an application will be
provided Exhibit A (available in any office). The County Supervisor
will provide assistance as necessary to help applicants complete their
applications. Complete applications will be processed in the order of
date received, except as outlined in Section 1910.10 of this subpart.
If the application is complete when it is first received, a County
Office official will stamp the filing date on the front of Form FmHA
410-1 and enter the date in the ``Application Received'' and
``Application Completed'' fields in the Application Processing Module
of the Management Records Systems (MRS.) On the date all information
necessary to process an application is received, a County Office
official will send the applicant FmHA Guide Letter 1910-A-3 (available
in any office) notifying the applicant that the application is
considered complete. The date entered in the ``Application Completed''
field in the Application Processing Module of MRS will establish the
30-day and 60-day timeframes for determining eligibility and loan
approval/disapproval, respectively. The County Supervisor will verify
the information furnished by the applicant, and record and assemble
additional information needed to properly evaluate the applicant's
qualifications and credit needs. Additional information may be obtained
and verified by County Office records, personal contacts, and visits to
the applicant's operation. A complete Farm Credit Programs application
requires fulfillment of both the applicant and FSA responsibilities.
Once this information is received and the application is considered
complete, FSA has additional responsibilities before loan approval is
determined. The various responsibilities are as follows:
Applicant's Responsibilities for a Complete Application
(1) Completed Form FmHA 410-1, ``Application for FmHA Services,''
including a signed Form FmHA 410-9, ``Statement Required by the Privacy
Act.''
(2) If the applicant is a cooperative, corporation, partnership, or
joint operation:
(i) A complete list of members, stockholders, partners or joint
operators showing the address, citizenship, principal occupation, and
the number of shares and percentage of ownership or of stock held in
the cooperative or corporation, by each, or the percentage of interest
held in the partnership or joint operation, by each.
(ii) A current personal financial statement from each of the
members of a cooperative, stockholders of a corporation, partners of a
partnership, or joint operators of a joint operation.
(iii) A current financial statement from the cooperative,
corporation, partnership, or joint operation itself.
(iv) A copy of the cooperative's or corporation's charter, or any
partnership or joint operation agreement, any articles of incorporation
and bylaws, any certificate or evidence of current registration (good
standing), and a resolution(s) adopted by the Board of Directors or
members or stockholders authorizing specified officers of the
cooperative, corporation, partnership, or joint operation to apply for
and obtain the desired loan and execute required debt, security, and
other instruments and agreements.
(3) A brief written description as to the farm training and/or
experience of the applicant and the individual members of an entity
applicant (new applicants only). If a waiver from the training required
in Section 1924.74 of subpart B of part 1924 of this chapter is
requested, provide verification of any courses taken which covered
production and/or financial management concepts, and/or a statement
explaining how the applicant's proven performance based on 5-year
production records demonstrates production ability.
(4) Supporting and documented verification that the applicant (and
all members of an entity applicant) cannot obtain credit elsewhere,
including a guaranteed loan.
(5) Financial records for the past five years. Income tax records
may be provided by the applicant when other financial records are not
available.
(6) Five years of production history immediately preceding the year
of application, unless the applicant has been farming less than 5
years.
(7) A brief written description of the proposed operation and the
proposed size of the operation (required for new applicants and
existing borrowers with significant changes in their operations).
(8) Verification of off-farm employment, if any. This will be used
only when the applicant is relying on off-farm income to pay part of
the applicant's expenses.
(9) Projected production, income and expenses, and loan repayment
plan, which may be submitted on Form FmHA 431-2, ``Farm and Home
Plan,'' or other similar plans of operation acceptable to FSA.
(10) Applicable items required in Exhibit M of subpart G of part
1940 of this chapter including SCS Form CPA-026, ``Highly Erodible Land
and Wetland Conservation Determination,'' Form AD-1026, ``Highly
Erodible Land Conservation (HELC) and Wetland Conservation (WC)
Certification,'' and Form FmHA 1940-20, as required by subpart G of
part 1940 of this chapter.
(11) A legal description of farm, real estate property and/or (if
applicable) a copy of any lease, contract, option or agreement entered
into by the applicant which may be pertinent to consideration of the
application, or when a written lease is not obtainable, a statement
setting forth the terms and conditions of the agreement.
(12) Form FmHA 440-32, ``Request for Statement of Debts and
Collateral,'' when applicable.
(13) Forms FmHA 1945-22, ``Certification of Disaster Losses,'' and
FmHA 1940-38, ``Request for Lender's Verification of Loan
Application,'' (EM loans only).
FSA's Responsibilities for a Complete Application
(14) Send Form FmHA 410-7, ``Notification to Applicant on Use of
Financial Information from Financial
[[Page 35921]]
Institution,'' to the applicant when applicable.
(15) Form FmHA 1945-26, ``Calculation of Actual Losses'' (EM loans
only).
(16) Credit reports as provided in subparts B and C of this part.
(17) Form FmHA 1945-29, ``ASCS Verification of Farm Acreages,
Production and Benefits,'' (EM loans only).
(18) The Current/Past Debt Inquiry and Borrower Cross-Reference
Systems. The Current/Past Debt Inquiry System must be reviewed for each
application and copies of the screens must be attached to the
applicant's file.
(19) For special beginning farmer or rancher operating (OL) loan
assistance, a plan of operation will be developed for each of the first
5 years for which such assistance is requested. A projection of the
financial status of the operation showing financial viability within
the commitment period will also be developed. The 5-year plan and
projection will be developed as described in Sec. 1941.15. This
information will be presented on reports generated on the automated
Farm and Home Plan system, or in other plans or documents consistent
and acceptable to the Agency.
Additional FSA Farm Credit Responsibilities
(20) Form FmHA 1924-1, ``Development Plan,'' if necessary.
(21) Form FmHA 1940-22, ``Environmental Checklist for Categorical
Exclusions,'' or Class I and Class II assessment, whichever is
applicable.
(22) Real estate and chattel appraisal, when applicable.
(23) Completion of the assessment in accordance with Sec. 1924.55.
(c) Notifying applicants that direct loan eligibility is subject to
the unavailability of guaranteed financing. If the assessment,
completed in accordance with Sec. 1924.55 concludes that guaranteed
assistance may be available, with or without interest assistance, a
prospectus will be sent to area lenders in accordance with
Sec. 1951.262 (f) as appropriate. If a lender indicates interest in
providing financing with a Farm Credit Programs loan guarantee, refer
to Sec. 1980.113 (c) for handling as a market placement application. No
direct loan to a current borrower will be approved until the process
outlined in this paragraph has been concluded.
* * * * *
(e) Notifying applicants (including presently indebted borrowers)
about Limited Resource loans. Immediately after an application for OL,
FO, SW, or EM assistance is received, the County Supervisor will send a
letter similar to Guide Letter 1924-B-1 to the applicant telling the
applicant about Limited Resource loans.
(f) Notifying socially disadvantaged applicants regarding the
availability of Direct Farm Ownership (FO) loans and the acquisition/
leasing of Agency acquired farmland. Immediately after an application
for FO assistance is received, the County Supervisor will send Exhibit
B of this subpart, ``Letter to Notify Socially Disadvantaged
Applicants/Borrowers Regarding the Availability of Acquired Farmland,''
to the applicants. Exhibit B will also be presented to all socially
disadvantaged individuals at the time they make their initial contact
regarding Agency credit services. Socially disadvantaged applicants are
defined in Section 1943.4 of subpart A of part 1943 of this chapter.
(g) Notifying Borrowers about Farm Credit Programs (FCP) Borrower
Responsibilities. When an application for OL, FO, SW or EM assistance
is approved, the County Supervisor will provide to the borrower Exhibit
C of this subpart, ``Letter to Notify Applicant(s)/Borrower(s) of Their
Responsibilities in Connection with FmHA Farmer Programs Loans.''
(h) Determining eligibility. The Agency will determine eligibility
of all Farm Credit Programs applicants including those who are already
indebted for a Farm Credit Programs loan. The Farm Credit Programs
application does not need to be complete before it is reviewed;
however, all information relative to the eligibility decision must be
received. The Rural Housing Service will determine eligibility for all
RH loan applicants.
(1) The Agency will certify whether or not the applicant meets the
eligibility requirements and whether or not the applicant is a
beginning farmer or rancher, as defined in the applicable Farm Credit
Programs loan making regulation. An eligible Operating Loan (OL) or
Farm Ownership (FO) Loan applicant, who is considered a beginning
farmer or rancher, will have access to targeted funds. An eligible FO
applicant requesting to purchase suitable farmland, who is considered a
beginning farmer or rancher, will be given priority in accordance with
Sec. 1955.107 (f). In addition, it is the responsibility of the Agency
to determine whether or not the FO applicant is an operator of not
larger than a family size farm, as of the time immediately after the
contract of sale or lease is entered into, even though the applicant is
not in need of Agency credit assistance on eligible rates and terms to
purchase suitable farmland. The loan approval official will determine
the applicant's projected repayment ability, the adequacy of collateral
equity to secure the requested loan, and the feasibility of the
proposed operation.
(2) An outstanding judgment obtained by the United States in a
Federal Court (other than the United States Tax Court), which has been
recorded, shall cause the applicant to be ineligible for any loan or
grant until the judgment is paid in full or otherwise satisfied. Agency
loan or grant funds may not be used to satisfy the judgment.
(i) * * *
(1) Farm Credit Programs (FCP) applications. Each application must
be approved or disapproved and the applicant notified in writing of the
action taken, not later than 60 days after receipt of a complete
application. The District Director will monitor the processing of all
applications to ensure that each is processed in a timely manner and
receives a final disposition (i.e., approval, rejection, or withdrawal)
within the timeframes outlined in this section.
(i) Receipt by the applicant of a signed copy of Form FmHA 1940-1,
``Request for Obligation of Funds,'' will be considered written notice
of loan approval.
(ii) * * *
(A) * * *
(B) Every week the District Director will generate a report, using
the FOCUS Ad-Hoc Reporting System, based on the weekly upload of
information from each county office MRS data base. The District
Director will note each complete application pending more than 45
calendar days, and immediately take steps to ensure that final
disposition on the application is taken no later than 60 calendar days
after receipt of the complete application.
* * * * *
(5) Adverse decisions. If an applicant is given an adverse
decision, the applicant will be given appeal rights as provided in
Subpart B of Part 1900 or 7 CFR part 780, as appropriate. The letter
will contain the ECOA statement set forth in Section 1910.6(b)(1) of
this subpart.
* * * * *
7. Section 1910.5 is amended:
a. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' in paragraph (c)(1) and adding the word
``Agency,'' in its place;
b. removing the word ``bankruptcy'' in paragraph (c)(4)
introductory text, and
c. revising paragraph (c)(5) to read as follows:
[[Page 35922]]
Sec. 1910.5 Evaluating applications.
* * * * *
(c) * * *
(5) Non-payment of a debt due to circumstances beyond the
applicant's or borrower's control. However, non-payment of a debt due
to circumstances within an applicant's or borrower's control may be
used as an indication of unacceptable credit history, in accordance
with paragraph (c)(1) of this section. The mere fact that an applicant
or borrower filed bankruptcy will not be used as an indication of
unacceptable credit history. The circumstances causing the nonpayment
of debt, i.e., whether nonpayment was beyond the applicant's or
borrower's control, however, are proper considerations.
* * * * *
Secs. 1910.6 through 1910.9 [Removed and Reserved]
8. In part 1910 Secs. 1910.6 through 1910.9 are removed and
reserved.
Sec. 1910.10 [Amended]
9. Section 1910.10(b) is amended by removing the words ``Farmer
Program'' and adding the words ``Farm Credit Programs (FCP)'' in its
place.
10. Section 1910.11 is revised to read as follows:
Sec. 1910.11 Special requirements.
(a) Servicemen's Readjustment Act of 1944. Section 512(a)(D) of the
Servicemen's Readjustment Act of 1944, as amended, provides that an
applicant for a direct housing loan from the Department of Veterans
Affairs (VA) must be ``unable to obtain a loan for such purposes from
the Secretary of Agriculture under the Consolidated Farm and Rural
Development Act, as amended, or the Housing Act of 1949, as amended.''
Department of Veterans Affairs Loan Guaranty Officers may, therefore,
require VA loan applicants to apply to the agency for loan assistance.
(b) Veterans determined ineligible by the Agency. If the veteran is
unable to obtain a loan, the County Supervisor will, upon request,
furnish the applicant with a rejection letter to be presented to the
Loan Guaranty Officer. The Loan Guaranty Officer may consult with the
County Supervisor regarding the investigation made by the Agency of the
veteran's application and the specific reasons for rejection.
PART 1924--CONSTRUCTION AND REPAIR
11. The authority citation for part 1924 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989 and 42 U.S.C. 1480.
Subpart B--Management Advice to Individual Borrowers and Applicants
12. Section 1924.51 is revised and Secs. 1924.54 and 55 are added
to read as follows:
Sec. 1924.51 General.
This subpart contains policies for providing management advice to
all Farm Credit Programs direct loan applicants and borrowers. Forms
and Farm Assessment and Supervision Reference handbooks are available
in any Agency county office.
Sec. 1924.54 Definitions.
As used in this subpart, the following definitions apply:
Agency. This term refers to the Farm Service Agency, its county and
State committees and their personnel, and any successor agency.
Commercial classified. The Agency's highest quality Farm Credit
programs accounts. The financial condition of the borrowers is strong
enough to enable them to absorb the normal adversities of agricultural
production and marketing. There is ample security for all loans, there
is sufficient cash flow to meet the expenses of the agricultural
enterprise and the financial needs of the family, and to service debts.
The account is of such quality that commercial lenders would likely
view the loans as a profitable investment.
Farm Assessment and Supervision Reference. This reference provides
guidance to field staff on conducting assessments, year-end analyses,
and general borrower supervision.
Farm business plan. The automated or manual Farm and Home Plan
system which contains a projection that accurately reflects the
borrower's plan of operation for the production or marketing cycle. The
annual plan may cover a period of more or less than 12 months. A normal
year's plan, as defined in this section, will be used when the annual
plan does not reflect typical income, expenses, and debt payments. The
Agency will accept farm business plans other than the Farm and Home
Plan if they provide sufficient information to enable Agency officials
to render a sound credit decision in accordance with Agency
regulations.
Farm Credit Programs loan. Includes Farm Ownership (FO), Soil and
Water (SW), Operating (OL), Emergency (EM), Economic Emergency (EE),
Recreation (RL), Special Livestock (SL), Economic Opportunity (EO) and
Softwood Timber (ST) loans. Also included are Rural Housing loans for
farm service buildings (RHF), and Rural Housing (RH) loans where the
borrower is also indebted for an Agency direct farm loan that is not a
collection only or judgment account. Non-Program loans, which are
defined in Sec. 1951.451(a), are excluded.
Financially viable operation. A financially viable operation
projects that it can generate sufficient income to meet annual
operating expenses and debt payments as they become due, meet basic
family living expenses to the extent they are not met by dependable
non-farm income, provide for the replacement of capital items, and
provide for long-term financial progress to enable the operator to
obtain commercial credit.
Individual. The term ``individual'' is used throughout this subpart
to refer to the person receiving Agency supervision and management
advice. If an applicant or borrower applies as an individual applicant,
the term ``individual'' means the operator. In the case of an eligible
corporation, cooperative, partnership, or joint operation, the term
``individual'' means the entity members with the primary responsibility
for making management decisions and carrying out the day-to-day
physical tasks.
Normal year plan. A projected farm business plan most
representative, or typical, of an operation's normal income, expenses
(including family living expenses), and capital debt payments.
Prospectus. Consists of a transmittal letter similar to FmHA Guide
Letter 1951-F-3 with a current balance sheet and projected year's
budget attached. The applicant or borrower name and address need not be
withheld from the lender. The prospectus is used to determine lender
interest in financing or refinancing specific direct loan applicants
and borrowers. The prospectus will provide information regarding the
availability of Agency loan guarantee and interest assistance.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1924.55 Assessment of the agricultural operation.
Assessments will be completed for direct Farm Credit Programs loan
applicants. An assessment is a comprehensive evaluation of the
components of an operation, the identification and prioritization of
training and supervisory needs, and the resulting plan of supervision
to assist
[[Page 35923]]
the borrower in achieving financial viability. The assessment is the
central foundation upon which to build strategies for planning, credit
and management counseling, loan controls, analysis, borrower training,
and all other needed supervision. An assessment will include thorough
inspections of the operation and face-to-face meetings and discussions
with all key individuals. At least semi-annual reviews of progress will
be performed in accordance with paragraph (e) of this section.
(a) Agency evaluation. The Agency will assess each of the areas
described in paragraph (b) of this section in close cooperation with
the applicant or borrower. As part of that assessment, the Agency will
determine whether the proposed budget is feasible on a direct or
guaranteed loan basis, the type and nature of any material financial or
production management weaknesses in the operation, and the specific
strategy needed, including timeframes, to effect improvements and
control risks. Material weaknesses are those that have a significant
impact on the net income of the operation and need to be corrected to
enable the borrower to progress financially and eventually graduate
from FSA farm credit programs. Examples of material weaknesses include,
but are not limited to: lack of a farm recordkeeping system, obsolete
or inadequate facilities, and use of outdated production practices. In
the case of Youth loans, it is recognized that most of the component
areas will be ``Not Applicable'' since there is no full-scale farming
operation to consider.
(b) The assessment is an evaluation, conducted with an applicant or
borrower, of the following components:
(1) Type of operation.
(2) Goals.
(3) Real estate, including facilities.
(i) Location and size.
(ii) Proposed and existing improvements.
(iii) Presence of environmental hazards.
(iv) Conservation practices and measures.
(v) Adequacy and continued availability of real estate.
(vi) External factors, such as urban encroachment and zoning
changes.
(4) Chattel property used in the operation.
(5) Farm business organization and key personnel.
(6) Historical financial data.
(7) Projected budget.
(8) Planned changes.
(9) Ability to obtain guaranteed credit.
(c) Supervision and training. Appropriate supervisory oversight and
training recommendations will be developed based on the Agency's
evaluation of the strengths and weaknesses of the operation in
accordance with paragraphs (a) and (b) of this section and
Sec. 1924.59.
(d) Performing the year-end analysis. A year-end analysis is
required for borrowers (except for Youth loans and loans flagged as
having bankruptcy, foreclosure, or other action pending) the first year
after an initial or subsequent loan, chattel subordination, or
restructuring is received, borrowers who are financially distressed or
delinquent, borrowers who have loans deferred, and borrowers who are
receiving limited resource interest rates. All other borrowers
(including flagged accounts) will receive a year-end analysis at the
discretion and judgment of the Agency. However, at least every two
years, the borrower will provide upon Agency request, a year-end
balance sheet, actual financial performance, and a projected farm
budget so that the borrower can be classified for graduation purposes
in accordance with subpart F of part 1951. The year-end analysis should
coincide with the borrower's farm budget planning period. The borrower
will work with the Agency to:
(1) Complete the year-end analysis, whenever possible, within the
60-day period after completion of the borrower's business year or farm
budget planning period.
(2) Complete and review the ``actual'' columns on the farm business
plan and Form FmHA 1962-1, ``Agreement for the Use of Proceeds/Release
of Chattel Security,'' if applicable.
(3) Develop a farm business plan for the next production cycle in
accordance with Sec. 1924.56.
(4) Reach agreement on key management issues. Any such agreements
will be documented for the borrower case file and signed by the
borrower.
(e) For all borrowers, the assessment described under this section
will be reviewed on at least a semi-annual basis to monitor progress.
The borrower will consult with the Agency official in person, or if
that is not possible, by telephone, or in writing. A meeting must be
scheduled as soon as practicable to determine corrective options if:
the borrower is, or expects to be, delinquent; the borrower is
experiencing difficulties; or other significant changes have occurred.
The year-end analysis under this section may be treated as one of the
required assessment reviews.
13. Sections 1924.56 through 1924.60 are revised to read as
follows:
Sec. 1924.56 Farm business planning.
The automated Farm and Home Plan system is the primary tool used by
the Agency to evaluate loan feasibility and prospects for achieving
financial viability. Other manual or automated business planning
systems may be used with the consent of the Agency.
(a) [Reserved].
(b) Documentation and revision of plans. Individuals must submit a
farm business plan to the Agency, upon request, for loan approval and
servicing purposes. An individual may request the assistance of the
Agency official, as needed, in completing the plan. Farm business plans
will be based only on accurate, verifiable information. If the Agency
official and the individual cannot reach agreement, on the farm
business plan, then the Agency will make loan approval and servicing
determinations based on the Agency's separate, revised farm business
plan. The individual will have the right to appeal any resulting
adverse decision.
(1) Historical information will be used as a guide to evaluate the
feasibility of projected farm business plans. Individuals must provide
the Agency with their previous 5-year production history, if available.
Positive and negative trends, mutually agreed upon changes and
improvements, and current input prices, will be taken into
consideration when arriving at reasonable projections.
(i) For individuals with less than a 5-year history, actual
production records from an operation to be taken over by the individual
will be considered, whenever available.
(ii) In the absence of the information listed in paragraph
(b)(1)(i) of this section, other reliable data sources that may be used
include: FSA Farm Programs (formerly Agriculture Stabilization and
Conservation Service) actual yield records and county or State
averages.
(iii) This paragraph applies when an accurate projection cannot be
made because the individual's production history in any or all of the
previous 5 years has been substantially affected by a disaster that has
been declared by the President or designated by the Secretary of
Agriculture. This paragraph also applies to those individuals who would
have had a qualifying physical or production loss, as defined in
Sec. 1945.154(a), from such a disaster, but who were not located in a
designated or declared disaster area.
(A) If the individual's disaster years yields are less than the
county average yields, county average yields will be used for those
years. If county average
[[Page 35924]]
yields are not available, State average yields will be used.
(B) In calculating a baseline average yield, the individual may
exclude the production year with the lowest actual or county average
yield, providing the individual's yields were affected by disasters
during at least 2 of the 5 years.
(2) Unit prices for agricultural commodities as published in the
State supplement will generally be used. However, regional or county
unit prices may be used when there are transportation costs or other
significant factors that cause a difference in commodity prices within
the State. Individuals who can provide reliable evidence that they will
receive a premium price for a commodity will be allowed to use the
higher price for farm planning. The determination of disaster years
will be based on the 5-year history of disaster declarations or
designations for all counties contained in the State supplement.
(3) When the Agency official and individual revise the farm
business plan, the plan will be signed and initialed by both parties.
Form FmHA 1962-1 (available in any Agency office) will be revised
whenever significant changes occur during the year that will affect
repayment ability. It is the individual's responsibility to notify the
Agency of any necessary changes. If the changes would result in a major
change in the operation, a completely new farm business plan must be
developed. The individual and Agency official will initial and date
revisions to the Form FmHA 1962-1.
(4) If the borrower and Agency cannot reach an agreement on
revisions to the farm plan and an adverse decision results, the
borrower may appeal. During an appeal, the Agency will make releases of
normal income security for essential family living and farm operating
expenses in accordance with Sec. 1962.17. If the borrower refuses to
execute Form FmHA 1962-1 as finally determined by the Agency after an
appeal, the account will be serviced under Sec. 1962.18. If the
borrower does not appeal, the planned releases documented on Form FmHA
1962-1 are binding.
Sec. 1924.57 [Reserved].
Sec. 1924.58 Recordkeeping.
(a) All borrowers must have a recordkeeping system, which must be
documented as part of the assessment under Sec. 1924.55.
(b) The selected recordkeeping system must provide information
similar to that contained in Forms FmHA 431-2, FmHA 432-1, ``Farm
Family Record Book,'' and FmHA 432-2, ``Five Year Inventory Record.''
The recordkeeping system must enable borrowers to make informed
management decisions and allow the Agency to render loan making and
servicing decisions in accordance with Agency program regulations.
(c) Borrowers must maintain accurate records and submit financial
information to the Agency when required. Failure to do so will result
in the borrower's ineligibility for future Agency financing and loan
servicing and may result in acceleration and collection action.
Sec. 1924.59 Supervision.
The Agency's supervision is based on the information and evaluation
resulting from the assessment of the operation. The borrower is
required to:
(a) Cooperate with the Agency and comply with all supervisory
agreements, farm plans, and all other loan-related requirements.
(b) Promptly notify the Agency of any significant change in the
business or family expenses or the development of problem situations.
(c) Maintain and protect the collateral for Agency loans and
promptly report to the Agency any losses or other significant changes
in the collateral.
(d) Complete any training required by Sec. 1924.74.
Sec. 1924.60 Nonfarm enterprises.
A nonfarm enterprise is any business enterprise which supplements
farm income by providing goods or services for which there is a need
and a reasonably reliable market. The same general policies covered in
this subpart for giving management assistance to an applicant or
borrower on farm loans will be followed in dealing with an applicant or
borrower on nonfarm enterprise loans. The appropriate plans and record
book will be used for the nonfarm enterprise. The borrower
responsibilities in Sec. 1924.59 (a) also apply to nonfarm enterprises.
Secs. 1924.61 through 1924.73 [Removed and Reserved.]
14. In part 1924 Secs. 1924.61 through 1924.73 are removed and
reserved.
Sec. 1924.74 [Amended]
15. Section 1924.74 is amended by:
a. Removing all references to ``FmHA or its successor agency under
Public Law 103-354'' and adding the word ``Agency,'' it its place;
b. Removing the words ``Farmer Programs'' and adding the words
``Farm Credit Programs'' in its place; and
c. Removing the phrase ``Form FmHA or its successor agency under
Public Law 103-354'' wherever it appears and adding the words ``Form
FmHA'' in its place.
16. Section 1924.74 is amended by:
a. removing the ninth and twelfth sentences of introductory
paragraph (b)(1) and the second sentence of paragraph (b)(1)(i);
b. removing in the eighth sentence of paragraph (b)(1) the phrase
``Form FmHA or its successor agency under Public Law 103-354 1924-23,
``
c. removing the words ``County Committee,'' ``Committee,'' in
paragraphs (b)(1), (b)(1)(i), (b)(1)(ii) and (b)(2) and adding the word
``Agency'' in their place; and
d. removing the words ``County Committee's'' in paragraph (b)(3),
introductory text, and paragraph (b)(4) and adding the words ``the
Agency's'' in their place.
17. Section 1924.100 is revised to read as follows:
Sec. 1924.100 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget
(OMB) and have been assigned OMB control number 0560-0154.
18. Exhibit A is amended by redesignating all text following the
closure ``County Supervisor'' as attachment 1 to exhibit A; removing
all references to ``FmHA or its successor agency under Public Law 103-
354'' and adding the word ``Agency'' in its place; by removing the
references ``Form 1962-1'' and adding ``Form FmHA 1962-1'' in its
place; and revising the first paragraph of redesignated attachment 1 to
read as follows:
Exhibit A--Letter to Borrower Regarding Releases of Farm Income To Pay
Family Living and Farm Operating Expenses
* * * * *
Attachment 1 to Exhibit A
Periodically, you will be asked to complete Form FmHA 1962-1,
``Agreement for the Use of Proceeds/Release of Chattel Security,''
which will document the agreement between you and the Agency as to how
proceeds from the sale of chattel property which serves as security for
your Agency loans will be released. You will also need to list those
buyers to whom you plan to sell your farm products. This plan will give
you and the Agency a clear idea of what income you expect from your
operation and how those proceeds will be used. The plan will set forth
the amount of money required for paying essential family living, farm
operating expenses, and debt service payments. You and the
[[Page 35925]]
Agency must agree on how much money will be released from your crop
proceeds. Such releases must be in accordance with Agency regulations.
* * * * *
PART 1941--OPERATING LOANS
19. The authority citation for part 1941 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
Subpart A--Operating Loan Policies, Procedures, and Authorizations
Sec. 1941.1 [Amended]
20. Section 1941.1 is amended by removing the words ``Farmers Home
Administration (FmHA)'' and adding the words ``Farm Service Agency
(FSA)'' in its place in the fourth sentence and removing ``FmHA'' and
adding the word ``Agency'' in its place.
Sec. 1941.4 [Amended]
21. Section 1941.4 is amended by adding the definition for
``Agency'' after the definition for ``Additional security.''
* * * * *
Agency. The Farm Service Agency, its county and State committees
and their personnel, and any successor agency.
* * * * *
Sec. 1941.15 [Amended]
22. Section 1941.15 paragraph (e) is amended by:
a. removing the reference to ``Sec. 1924.57'' and adding
``Sec. 1924.56'' in its place;
b. removing the phrase ``for County Committee review'';
c. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraphs (c), (e)(2), (f)(3), (j), and the heading
of paragraph (i) and adding the word ``Agency'' in its place;
d. by removing the words ``FmHA or its successor agency under
Public Law 103-354's'' in paragraphs (e)(3) and (j) and adding the
words ``the Agency's'' in its place.
23. Section 1941.15 is amended by:
a. removing the second sentence in paragraph (a);
b. removing the phrase ``FmHA or its successor agency under Public
Law 103-354-assisted'' in the first sentence of paragraph (a) and
paragraph (h)(2) introductory text;
c. removing the phrase ``FmHA or its successor agency under Public
Law 103-354 regulations setting forth'' in the last sentence of
paragraph (f)(2);
d. removing the words ``County Committee'' and adding the word
``Agency'' in its place in paragraph (h)(1); and
e. removing the phrase ``subpart B of part 1900 of this chapter''
and adding ``7 CFR part 780'' in its place in paragraph (h)(3); and
f. revising paragraph (k) to read as follows:
Sec. 1941.15 Special beginning farmer or rancher OL loan assistance.
* * * * *
(k) Agency certification. A special beginning farmer OL application
will only be considered after the applicant submits a complete 5-year
plan of operation and a projection of the financial status of the
operation as set forth in paragraph (e) of this section. In addition to
the requirements of Sec. 1941.30, the following conditions apply:
(1) Agency certifications of eligibility under paragraph (b) of
this section are effective throughout the commitment period.
(2) For subsequent loan requests during the commitment period, the
Agency will certify as to the applicant meeting the eligibility
requirements for the regular direct or guaranteed OL loan programs, as
appropriate. Such certification is unnecessary if a 5-year eligibility
certification has not yet expired unless the County Supervisor has
determined that the applicant's situation has changed such that the
eligibility determination would potentially be affected. If
recertification is rejected, no subsequent loan will be made under the
commitment and the commitment will be revoked in accordance with
paragraph (h) of this section.
Sec. 1941.16 [Amended]
24. Section 1941.16 paragraph (k) is amended by removing the words
``Agricultural Stabilization and Conservation Service (ASCS)'' and
adding the words ``FSA Farm Programs (formerly Agricultural
Stabilization and Conservation Service)'' in its place.
Sec. 1941.18 [Amended]
25. Section 1941.18 is amended:
a. In paragraph (a), introductory text, by removing ``FmHA'' and
adding the words ``the Agency'' in its place and
b. In paragraph (a)(2), by removing the reference to
``Sec. 1924.60'' and adding ``Sec. 1924.55'' in its place.
Sec. 1941.19 [Amended]
26. Section 1941.19 paragraph (f)(1) is amended:
a. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354 for any other farmer programs'' and adding the
phrase ``the Agency for any other farm credit programs'' in its place
and
b. by removing paragraphs (g) through (j).
Sec. 1941.30 [Removed and Reserved]
27. In part 1941 Sec. 1941.30 is removed and reserved.
Sec. 1941.33 [Amended]
28. Section 1941.33 is amended:
a. by removing the words ``County Committee'' in paragraph
(b)(1)(i) and adding the word ``Agency'' in its place,
b. by removing paragraph (b)(1)(ii),
c. by redesignating paragraphs (b)(1) (iii) through (vii) as (b)(1)
(ii) through (vi), respectively;
d. by removing the second reference to ``FmHA'' in paragraph
(b)(2)(i), and
e. by removing the words ``(see subpart B of part 1900 of this
chapter)'' from paragraph (c)(2).
PART 1943--FARM OWNERSHIP, SOIL AND WATER AND RECREATION
29. The authority citation for part 1943 is revised 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. 1943.1 [Amended]
30. Section 1943.1 is amended by removing the words ``Farmers Home
Administration (FmHA)'' and adding the words ``Farm Service Agency
(FSA)'' in its place and Sec. 1943.2 is amended by removing ``FmHA''
and adding the word ``Agency'' in its place.
Sec. 1943.4 [Amended]
31. Section 1943.4 is amended in the definition of primary security
by removing ``and/or'' and adding ``and'' in its place, and also by
adding the following definition after the definition of additional
security.
* * * * *
Agency. The Farm Service Agency, its county and State committees
and their personnel, and any successor agency.
* * * * *
Sec. 1943.18 [Amended]
32. Section 1943.18(b)(3) is amended by removing the reference to
``Sec. 1924.60'' and adding ``Sec. 1924.55'' in its place.
Sec. 1943.29 [Amended]
33. Section 1943.29 (c) is amended by removing the references to
``FmHA'' and adding the words ``the Agency'' in its place.
Secs. 1943.30 and 1943.32 [Removed and Reserved]
34. In part 1943 Secs. 1943.30 and 1943.32 are removed and
reserved.
Sec. 1943.33 [Amended]
35. Section 1943.33 is amended by:
[[Page 35926]]
a. removing and reserving paragraph (b)(2);
b. removing paragraph (c);
c. removing the words ``County Committee'' in paragraph (b)(1)(i)
and adding the word ``Agency'' in its place; and
d. removing paragraph (b)(1)(ii); and redesignating paragraphs
(b)(1) (iii) through (vii) as (b)(1) (ii) through (vi) respectively.
Subpart B--Direct Soil and Water Loan Policies, Procedures and
Authorizations
Secs. 1943.80 and 1943.82 [Removed and Reserved]
36. In part 1943 Secs. 1943.80 and 1943.82 are removed and
reserved.
Sec. 1943.83 [Amended]
37. Section 1943.83 is amended by:
a. removing the words ``County Committee'' in paragraph (b)(1)(i)
and adding the word ``Agency'' in its place;
b. removing paragraph (b)(1)(ii); and redesignating paragraphs
(b)(1) (iii) through (vii) as paragraphs (b)(1)(ii) through (vi)
respectively; and
c. removing and reserving paragraph (b)(2); and removing paragraph
(c).
PART 1945--EMERGENCY
38. The authority citation for part 1945 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1980.
Subpart D--Emergency Loan Policies, Procedures and Authorizations
Secs. 1945.151 and 1945.152 [Amended]
39. Sections 1945.151 and 1945.152 are amended by removing the
words ``Farmers Home Administration (FmHA)'' and adding the words
``Farm Service Agency (FSA)'' in its place and by removing ``FmHA'' and
adding the word ``Agency'' in its place.
Sec. 1945.154 [Amended]
40. Section 1945.154 (a) is amended in the definition of Feasible
Plan by removing words ``Sec. 1924.57(c)(5) of'' and also by adding the
following definition after the definition of Additional security.
* * * * *
Agency. The Farm Service Agency, its county and State committees
and their personnel, and any successor agency.
* * * * *
41. Section 1945.163 is amended by:
a. removing all references to ``Form FmHA or its successor agency
under Public Law 103-354 and adding the words ``Form FmHA'' in their
place;
b. removing the reference to ``FmHA'' in the last sentence of
introductory text; and adding the words ``the Agency'' in its place;
and
c. by removing and reserving paragraph (a)(2)(ii) and revising
paragraph (a)(1) to read as follows:
Sec. 1945.163 Determining qualifying losses, eligibility for EM
loan(s) and the maximum amount of each.
* * * * *
(a) * * *
(1) The normal year's production will be established by eliminating
the poorest year of the 5-year production history immediately preceding
the disaster year and averaging the remaining 4 years' production. The
applicant must select the year to be eliminated. The year selected to
be eliminated must be the same year for all farm enterprises (i.e., all
crops, livestock, and livestock products), which constituted a part of
the applicant's farming operation during that year. Applicants will
identify the production for each commodity that was produced on all
farms operated by the applicant in the disaster year. Applicants must
use the production record sources for each crop in the order of
priority as follows:
(i) The applicant's actual reliable farm records. If actual yields
are not available for all of the 5 crop years, the applicant will use a
combination of actual records and other data as specified in paragraphs
(a)(1) (ii) and (iii) of this section.
(ii) FSA Farm Programs (formerly ASCS) ``actual yields.'' When this
production record source is used, the applicant must obtain the
information and submit it with the application. The disaster year
actual yield will be used as the yield for those years for which the
applicant has no production records to determine the normal year's
yields.
(iii) The county or State average yields. These average yields are
located in the State supplement. However, these production figures can
be substituted only when an applicant has insufficient records for
certain commodities and years.
(iv) State Director determination. When an applicant's production
loss is on new land being developed, or to young perennial crops such
as fruits and nuts, which have not reached their mature production
potential, the Agency will establish the normal yields to be used.
* * * * *
Sec. 1945.166 [Amended]
42. Section 1945.166 is amended by removing ``FmHA'' in the last
sentence of paragraph (c)(4) and adding the word ``Agency'' in its
place.
Sec. 1945.167 [Amended]
43. Section 1945.167 is amended by removing paragraph (g); removing
paragraph (h); redesignating paragraphs (i) through (k) as (h) through
(j), and removing ``FmHA'' wherever it appears in redesignated
paragraph (h) and adding the word ``Agency'' in its place.
44. Section 1945.167 is amended by:
a. removing the words ``crop(s)'' and ``disaster(s)'' in paragraph
(a) and adding the words ``crop'' and ``disaster'' in their place
respectively;
b. removing the words ``FmHA or its successor agency under Public
Law 103-354'' in the heading of paragraph (b) and adding the word
``Agency'' in its place; and removing the words ``FmHA or its successor
agency under Public Law 103-354 farmer programs'' in paragraph (b) and
adding the words ``Farm Credit Programs'' in its place;
c. removing the word ``purpose(s)'' in the heading of paragraph (c)
and adding the word ``purposes'' in its place; removing the word
``operation(s)'' in paragraph (c) and adding the word ``operation'' in
its place.
Sec. 1945.168 [Amended]
45. Section 1945.168 is amended:
a. by removing ``FmHA'' in the first sentence of paragraph (a) and
adding the words ``the Agency'' in its place; and
b. by removing the words ``loan(s)'', ``reason(s)'' and ``lien(s)
in paragraphs (b)(1)(i) and (ii) and adding the words ``loans'',
``reasons'' and ``lien'' in their place, respectively.
Sec. 1945.169 [Amended]
46. Section 1945.169 is amended by removing and reserving
paragraphs (n), (o), and removing (p)(3), and (p)(4).
Sec. 1945.173 [Amended]
47. Section 1945.173 is amended by removing ``FmHA'' in paragraph
(b)(2)(ii) and adding the word ``Agency'' in its place.
Secs. 1945.180 and 1945.182 [Removed and Reserved]
48. In part 1945 Secs. 1945.180 and 1945.182 are removed and
reserved.
Sec. 1945.183 [Amended]
49. Section 1945.183 is amended by removing and reserving
paragraphs (a)(1) through (3), (a)(4)(i) and (ii); and removing (c)
through (e).
50. Section 1945.183 is amended:
a. by removing the words ``County Committee'' in paragraph (b)
introductory text, and paragraph (b)(1) and adding the word ``Agency''
in its place;
b. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' in paragraphs (a)(4)(iii), (b)(7)
[[Page 35927]]
and (b)(8) and adding the word ``Agency'' in its place;
c. by removing the word ``loan(s)'' in paragraphs (b)(4) and (b)(8)
and adding the word ``loan'' in its place;
d. by removing the word ``certification(s)'' in paragraph (b)(6)
and adding the word ``certifications'' in its place; and
e. by removing the words ``Form FmHA or its successor agency under
Public Law 103-354'' wherever it appears and adding the words ``Form
FmHA'' in its place.
PART 1951--SERVICING AND COLLECTIONS
51. The authority citation for part 1951 is revised to read as
follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1480.
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
52. Sections 1951.251 through 1951.300 are revised to read as
follows:
Sec. 1951.251 Purpose.
This subpart prescribes the policies to be followed when analyzing
a direct borrower's needs for continued Agency supervision, further
credit, and graduation. All loan accounts will be reviewed for
graduation in accordance with this subpart, with the exception of
Guaranteed, Watershed, Resource Conservation and Development, Rural
Development Loan Funds, and Rural Rental Housing loans made to build or
acquire new units pursuant to contracts entered into on or after
December 15, 1989, and Intermediary Relending Program loans. The term
``Agency'' used in this subpart refers to the Farm Service Agency (FSA)
including its county and state committees and their personnel), Rural
Utilities Service (RUS), Rural Housing Service (RHS), or Rural
Business-Cooperative Service (RBS), depending upon the loan program
discussed herein.
Sec. 1951.252 Definitions.
Commercial classified. The Agency's highest quality Farm Credit
Programs (FCP) accounts. The financial condition of the borrowers is
strong enough to enable them to absorb the normal adversities of
agricultural production and marketing. There is ample security for all
loans, there is sufficient cash flow to meet the expenses of the
agricultural enterprise and the financial needs of the family, and to
service debts. The account is of such quality that commercial lenders
would likely view the loans as a profitable investment.
Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO),
Operating (OL), Soil and Water (SW), Recreation (RL), Emergency (EM),
Economic Emergency (EE), Economic Opportunity (EO), Special Livestock
(SL), Softwood Timber (ST) loans, and Rural Housing loans for farm
service buildings (RHF).
Graduation, FCP. The payment in full of all FCP loans or all FCP
loans of one type (i.e., all loans made for chattel purposes or all
loans made for real estate purposes) by refinancing with other credit
sources either with or without an Agency loan guarantee. A loan made
for both chattel and real estate purposes, for example an EM loan, will
be classified according to how the majority of the loan's funds were
expended. Borrowers must continue with their farming operations to be
considered as graduated.
Graduation, other programs. The payment in full of any direct loan
for Community and Business Programs, and all direct loans for housing
programs, before maturity by refinancing with other credit sources.
Graduated housing borrowers must continue to hold title to the
property. Graduation, for other than FCP, does not include credit which
is guaranteed by the United States.
Prospectus, FCP. Consists of a transmittal letter with a current
balance sheet and projected year's budget attached. The applicant's or
borrower's name and address need not be withheld from the lender. The
prospectus is used to determine lender interest in financing or
refinancing specific Agency direct loan applicants and borrowers. The
prospectus will provide information regarding the availability of an
Agency loan guarantee and interest assistance.
Reasonable rates and terms. Those commercial rates and terms which
borrowers are expected to meet when borrowing for similar purposes and
similar periods of time. The ``similar periods of time'' of available
commercial loans will be measured against, but need not be the same as,
the remaining or original term of the loan. In the case of Multi-Family
Housing (MFH) loans, ``reasonable rates and terms'' would be considered
to mean financing that would allow the units to be offered to eligible
tenants at rates consistent with other multi-family housing.
Servicing official. The district or county office official
responsible for the immediate servicing functions of the borrower.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1951.253 Objectives.
(a) [Reserved]
(b) Borrowers must graduate to other credit at reasonable rates and
terms when they are able to do so.
(c) If a borrower refuses to graduate, the account will be
liquidated under the following conditions:
(1) The borrower has the legal capacity and financial ability to
obtain other credit.
(2) Other credit is available from a commercial lender at
reasonable rates and terms. In the case of Labor Housing (LH), Rural
Rental Housing (RRH), and Rural Cooperative Housing (RCH) Programs,
reasonable rates and terms must also permit the borrowers to continue
providing housing for low and moderate income persons at rental rates
tenants can afford considering the loss of any subsidy which will be
canceled when the loan is paid in full.
(d) The Agency will enforce borrower graduation.
Sec. 1951.254 [Reserved]
Sec. 1951.255 Nondiscrimination.
All loan servicing actions described in this subpart will be
conducted without regard to race, color, religion, sex, familial
status, national origin, age, or physical or mental handicap.
Secs. 1951.256--1951.261 [Reserved]
Sec. 1951.262 Farm Credit Programs--graduation of borrowers.
(a) [Reserved].
(b) [Reserved].
(c) [Reserved].
(d) [Reserved].
(e) Graduation candidates. Borrowers who are classified
``commercial'' or ``standard'' are graduation candidates. At least
every 2 years, all borrowers who have a current classification of
commercial or standard must submit a year-end balance sheet, actual
financial performance information for the most recent year, and a
projected budget for the current year to enable the Agency to
reclassify their status and determine their ability to graduate.
(f) Sending prospectus information to lenders. (1) The Agency will
distribute a borrower's prospectus to local lenders for possible
refinancing only with the borrower's written permission. If more than
one lender indicates an interest in providing credit, the borrower has
the right to select a lender.
(2) If any borrower does not consent to the Agency contacting
lenders directly on their behalf, the borrower must make formal
application to at least
[[Page 35928]]
two local lenders who typically finance operations similar to that of
the borrower. The borrower is responsible for any application fees.
Letters of denial or rejection from lenders without formal application
being made will not be accepted by the Agency. The borrower has 60 days
from the date the borrower receives the prospectus information to make
application and receive a response from lenders. For good cause, the
borrower may be granted a reasonable amount of additional time by the
Agency.
Sec. 1951.263 Graduation of non-Farm Credit programs borrowers.
(a) [Reserved].
(b) [Reserved].
(c) The thorough review. Borrowers are required to supply such
financial information as the Agency deems necessary to determine
whether they are able to graduate to other credit. At a minimum, the
financial statements requested from the borrower must include a balance
sheet and a statement of income and expenses. Ordinarily, the financial
statements will be those normally required at the end of the particular
borrower's fiscal year. For borrowers who are not requested to furnish
audited financial statements, the balance sheet and statement of income
and expenses may be of the borrower's own format if the borrower's
financial situation is accurately reflected. The borrower has 60 days
for group type loans and 30 days for individual type loans to supply
the financial information requested.
(d) [Reserved].
(e) Requesting the borrower to graduate. (1) The Agency will send
written notice to borrowers found able to graduate requesting them to
graduate. The borrower must seek a loan only in the amount necessary to
repay the unpaid balance.
(2) Borrowers must provide evidence of their ability or inability
to graduate within 30 days for RH borrowers, and 90 days for group type
borrowers, after the date of the request. The Agency may allow
additional time for good cause, for example when a borrower expects to
receive income in the near future for the payment of accounts which
would substantially reduce the amount required for refinancing, or when
a borrower is a public body and must issue bonds to accomplish
graduation.
(3) If a borrower is unable to graduate the full amount of the
loan, the borrower must furnish evidence to the Agency, showing:
(i) The names of other lenders contacted;
(ii) The amount of loan requested by the borrower and the amount,
if any, offered by the lenders;
(iii) The rates and terms offered by the lenders or the specific
reasons why other credit is not available; and
(iv) The purpose of the loan request.
(4) The difference in interest rates between the Agency and other
lenders will not be sufficient reason for failure to graduate if the
other credit is available at rates and terms which the borrower can
reasonably be expected to pay. An exception is made where there is an
interest rate ceiling imposed by Federal law or contained in the note
or mortgage.
(5) The Agency will notify the borrower in writing if it determines
that the borrower can graduate. The borrower must take positive steps
to graduate within 15 days for individual loans and 60 days for group
loans from such notice to avoid legal action. The servicing official
may grant a longer period where warranted.
Sec. 1951.264 Action when borrower fails to cooperate, respond or
graduate.
(a) When borrowers with other than FCP loans fail to:
(1) Provide information following receipt of both FmHA Guide
Letters 1951-1 and 1951-2 (available in any Agency office), or letters
of similar format, they are in default of the terms of their security
instruments. The approval official may, when appropriate, accelerate
the account based on the borrower's failure to perform as required by
this subpart and the loan and security instruments.
(2) Apply for or accept other credit following receipt of both FmHA
Guide Letters 1951-F-5 and 1951-6 (available in any Agency office), or
letters of similar format, they are in default under the graduation
requirement of their security instruments. If the Agency determines the
borrower is able to graduate, foreclosure action will be initiated in
accordance with Sec. 1955.15(d)(2)(ii). If the borrower's account is
accelerated, the borrower may appeal the decision.
(b) If an FCP borrower fails to cooperate after a lender expresses
a willingness to consider refinancing the Agency loan, the account will
be referred for legal action.
Sec. 1951.265 Application for subsequent loan, subordination, or
consent to additional indebtedness from a borrower who has been
requested to graduate.
(a) Any borrower who appears to meet the local commercial lending
standards, taking into consideration the Agency's loan guarantee
program, will not be considered for a subsequent loan, subordination,
or consent to additional indebtedness until the borrower's ability or
inability to graduate has been confirmed. An exception may be made
where the proposed action is needed to alleviate an emergency
situation, such as meeting applicable health or sanitary standards
which require immediate attention.
(b) If the borrower has been requested to graduate and has also
been denied a request for a subsequent loan, subordination, or consent
to additional indebtedness, the borrower may appeal both issues.
Sec. 1951.266 Special requirements for MFH borrowers.
All requirements of subpart E of part 1965 must be met prior to
graduation and acceptance of the full payment from an MFH borrower.
Secs. 1951.267-1951.299 [Reserved]
Sec. 1951.300 OMB control number.
The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget (OMB) and have been
assigned OMB control number 0575-0093.
Exhibit A of Subpart F--[Removed and Reserved]
53. Exhibit A of subpart F is removed and reserved.
Subpart S--Farmer Program Account Servicing Policies
54. Section 1951.906 is amended by revising the definitions of
``Feasible plan,'' ``Financially distressed,'' and ``Good faith'' to
read as follows:
Sec. 1951.906 Definitions.
* * * * *
Feasible plan. A feasible plan is a plan based upon the applicant's
or borrower's actual records that show the farming operation's actual
income, production and expenses. Income tax returns and supporting
documents (hereafter called income tax records) must be submitted to
verify the actual records. The records, including income tax records,
must be for the most recent 5-year period or if the borrower has been
farming less than 5 years, the records for the period which the
borrower has farmed. For borrowers who have been farming for less than
5 years, the borrower's actual records will be used along with other
available records in the order listed in Sec. 1924.56 to complete a 5-
year history. Future production yields will be based on a 5-year
average of the most recent past 5 years' actual production yields.
[[Page 35929]]
Borrowers that have yields affected by disasters in at least 2 of the 5
most recent years' actual production may exclude the crop year with the
lowest actual yield. In accordance with Sec. 1924.56, if the
applicant's remaining disaster year's yields are less than the county
average yield and the borrower's yields were affected by the disaster,
county average yields will be used for that year. If county average
yields are not available, State average yields will be used. These
records will be used along with realistic anticipated prices, including
any planned farm program payments, to determine that the income from
the farming operation and any reliable off-farm income, will provide
the income necessary for an applicant or borrower to at least be able
to:
(1) Pay all operating expenses and all taxes which are due during
the projected farm business accounting period.
* * * * *
(3) Meet up to 105 percent, but not less than 100 percent, of the
scheduled payments on all debts, except as provided in Sec. 1941.14 for
annual production loans or subordinations made to a delinquent borrower
submitting a ``NEW APPLICATION.'' The Agency will assume that a
borrower needs up to 105 percent of the scheduled payments on all the
debts for the business accounting period in order to meet the
obligations and continue farming. However, this will not prohibit a
borrower from receiving debt restructuring because the projected income
is less than 105 percent of the scheduled payments. In no case will a
borrower receive restructuring if projected income is less than 100
percent of scheduled payments.
* * * * *
Financially distressed. A financially distressed borrower is one
who will not be able to make payments as planned for the current or
next business accounting period. Borrowers will also be considered
financially distressed if the borrower will not be able to project a
feasible plan of operation for the next business accounting period.
* * * * *
Good faith. An eligibility requirement for Primary Loan Servicing
including Net Recovery Buyout, and Leaseback/Buyback. A borrower is
considered to have acted in ``good faith'' if the borrower has
demonstrated honesty and sincerity in carrying out the agreements on
Form FmHA 1962-1 (available in any Agency office) and any other written
agreements with the Agency. Findings of a lack of good faith will be
based on violations within the borrower's control. These actions will
demonstrate the borrower's intent to violate written agreements with
the Agency. The Agency must substantiate any allegations of fraud,
waste, or conversion with a written legal opinion by the Office of the
General Counsel (OGC) when such allegations are used to deny a
servicing request. A borrower will not be considered to lack good faith
if the sole basis for such determination was the disposition of normal
income security, as defined in Sec. 1962.4, prior to October 14, 1988
without the Agency's consent and the borrower demonstrates that the
proceeds were used to pay essential family living and farm operating
expenses that the Agency could have approved according to Sec. 1962.17.
* * * * *
Sec. 1951.909 [Amended]
55. Section 1951.909 is amended:
a. by removing the reference to ``Sec. 1924.60 of subpart B of part
1924 of this chapter'' in paragraph (e)(3)(vii) and adding the
reference ``Sec. 1924.55,'' in its place and;
b. by removing the reference ``as set forth in subpart B of part
1900 of this chapter'' in paragraph (e)(3)(vii).
56. Section 1951.909 is amended:
a. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' in the heading of paragraph (e)(4) and in
paragraph (e)(4)(xi) and adding the word ``Agency'' in its place; and
b. by removing and reserving paragraphs (e)(3)(vi)(B) and (C).
PART 1955--PROPERTY MANAGEMENT
57. The authority citation for part 1955 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart B--Management of Property
Sec. 1955.66 [Amended]
58. Section 1955.66 is amended:
a. by removing the words ``Farmer Program loans'' in paragraphs
(a)(2)(iii)(A) and adding the words ``Farm Credit Programs loans'' in
their place;
b. by removing the reference ``Sec. 1924.27 of'' in paragraph
(a)(2)(iii)(B);
c. by removing the phrase ``FmHA or its successor agency under
Public Law 103-354'' in the third sentence of the introductory text and
paragraphs (a)(1) and (a)(2)(iii)(C) and adding the words ``the
Agency'' in its place; and
d. by removing the words ``Agricultural Stabilization and
Conservation Service (ASCS)'' in paragraph (a)(2)(iii)(D) and adding
the words ``the local FSA Farm Programs (formerly ASCS)'' in its place.
PART 1962--PERSONAL PROPERTY
59. The authority citation for part 1962 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing and Liquidation of Chattel Security
Sec. 1962.5 [Removed and Reserved]
60. In part 1962 Sec. 1962.5 is removed and reserved.
61. Section 1962.6 is revised to read as follows:
Sec. 1962.6 Liens and assignments on chattel property.
(a) Chattel property not covered by Agency lien. (1) When
additional chattel property not presently covered by an Agency lien is
available and needed to protect the Government's interest, the County
Supervisor will obtain one or more of the following:
(i) A lien on such property.
(ii) An assignment of the proceeds from the sale of agricultural
products when such products are not covered by the lien instruments.
(iii) An assignment of other income, including FSA Farm Programs
(formerly ASCS) payments.
(2) When a current loan is not being made to a borrower, a crop
lien will be taken as additional security when the County Supervisor
determines in individual cases that it is needed to protect the
Government's interests. However, a crop lien will not be taken as
additional security for Farm Ownership (FO), Rural Housing (RH), Labor
Housing (LH), and Soil and Water (SW) loans. When a new security
agreement or chattel mortgage is taken, all existing security items
will be described on it.
(b) [Reserved]
(c) Assignments of upland cotton, rice, wheat and feed grain
payments. Borrowers may assign FSA Farm Programs (formerly ASCS)
payments under upland cotton, rice, wheat and feed grain programs.
(1) Obtaining assignments. Assignments will be obtained as follows:
(i) Only when it appears necessary to collect operating-type loans.
(ii) Only for the crop year for which operating-type loans are
made, and
(iii) For only the amount anticipated for payments as indicated on
Form FmHA 1962-1, ``Agreement for the Use of Proceeds/Release of
Chattel
[[Page 35930]]
Security,'' of the applicable upland cotton, rice, wheat and feed grain
programs.
(2) Selecting counties. The County Supervisor then will:
(i) Determine, at the time of loan processing for indebted
borrowers and new applicants, who must give assignments and obtain them
no later than loan closing. Special efforts will be made to obtain the
bulk of assignments before the sign-up period for enrolling in the
annual Feed Grain and Wheat set aside programs.
(ii) Obtain assignments from selected borrowers on Form ASCS-36,
``Assignments of Payment,'' which will be obtained from FSA Farm
Programs.
(3) Releasing assignments and handling checks. (i) The County
Supervisor will inform FSA Farm Programs that releasing its assignment
whenever a borrower pays the amount due for the year on the operating-
type loan debt or pays the debt in full.
(ii) Checks obtained as a result of an assignment will be made only
to the Agency, and the proceeds used as indicated on Form FmHA 1962-1.
Sec. 1962.8 [Amended]
62. Section 1962.8 is amended by removing and reserving paragraphs
(a) and (b).
Sec. 1962.9 and 1962.12 [Removed and Reserved]
63. In part 1962 Secs. 1962.9 and 1962.12 are removed and reserved.
64. Section 1962.13 is revised to read as follows:
Sec. 1962.13 Notification to potential purchasers.
(a) In States without a Central Filing System (CFS), all Farm
Credit Programs borrowers prior to loan closing or prior to any
servicing actions which require taking a lien on farm products, such as
crops or livestock, must provide the names and addresses of potential
purchasers. A written notice will be sent by the Agency, certified
mail, return receipt requested, to these potential purchasers to
protect the Government's security interest.
(1) The name and address of the debtor, with signature.
(2) The name and address of any secured party.
(3) The Social Security number or tax ID number of the debtor.
(4) A description of the farm products given as security by the
debtor, including the amount of such products where applicable, the
crop year, the county in which the products are located, and a
reasonable description of the farm products.
(5) Any payment obligation imposed on the potential purchaser by
the secured party as a condition for waiver or release of lien. The
original or a copy of the written notice also must be sent to the
purchaser within 1 year before the sale of the farm products. The
written notice will lapse on either the expiration period of the
Financing Statement or the transmission of a letter signed by the
County Supervisor and showing that the statement has lapsed or the
borrower has performed all obligations to the Agency.
(b) Lists of borrowers whose chattels or crops are subject to an
Agency lien may be made available, upon request, to business firms in a
trade area, such as sale barns and warehouses, that buy chattels or
crops or sell them for a commission. These lists will exclude those
borrowers whose only crops for sale require FSA Farm Programs (formerly
ASCS) marketing cards. The list is furnished only as a convenience and
may be incomplete or inaccurate as of any particular date.
(1) [Reserved]
(2) [Reserved]
65. In Sec. 1962.14 all references to ``FmHA or its successor
agency under Public Law 103-354'' are removed and the words ``the
Agency'' are added in their place.
66. Section 1962.16, introductory text is added and paragraph (a)
is revised to read as follows:
Sec. 1962.16 Accounting by the borrower.
The Agency will maintain a current record of each borrower's
security. Whenever an inspection is performed, the borrower must advise
the Agency of any changes in the security and will complete and sign
Form FmHA 1962-1 in accordance with Sec. 1924.56 if it has not been
previously completed for the year.
(a) Agency responsibilities. Chattel security will be inspected
annually except in cases where the Agency official has justified in
assessment or analysis review that no undue risk exists. An FO borrower
who has been current with the Agency and who has provided chattels as
additional security is an example of a case where an inspection may not
be needed. All inspections will be recorded in the running record of
the borrower's file. More frequent inspections should be made for
delinquent borrowers or borrowers that have been indebted for less then
1 full crop year. The Agency official will discuss the provisions of
Secs. 1962.17 and 1962.18 and assist the borrower in completing the
form. If a borrower does not plan to dispose of any chattel security,
the form should be completed to show this and should be signed. When
the Agency official has other contacts with the borrower, the official
should also check for dispositions and acquisitions of security.
Changes will be recorded on the form, dated and initialed by the
borrower and the agency official. The purpose of all inspections is to:
(1) Verify that the borrower possesses all the security,
(2) Determine security is properly maintained, and
(3) Supplement security instruments.
* * * * *
67. Section 1962.17, paragraph (a), is revised to read as follows:
Sec. 1962.17 Disposal of chattel security, use of proceeds and release
of lien.
(a) General. (1) The borrower must account for all security. When
the borrower sells security, the property and proceeds remain subject
to the Agency's lien until the lien is released. All checks, drafts, or
money orders which the borrower receives for the sale of collateral
listed on Form FmHA 1962-1 (available in any Agency office) must be
payable to both the borrower and the Agency unless all Agency loan
installments for the period of the form have been paid including any
past-due installments. If the borrower disposes of collateral or uses
the proceeds in a way not listed on Form FmHA 1962-1, the borrower will
have violated the loan agreement, and the Government will not release
its security interest in the collateral. Releases of sales proceeds
will be terminated when the borrower's accounts are accelerated.
(2) Section 1924.56 requires that there must always be a current
Form FmHA 1962-1 in the file of a borrower with a loan secured by
chattels. If a borrower asks the Agency to release proceeds from the
sale of chattels and there is a current Form FmHA 1962-1 in the file,
the request will be approved or disapproved in accordance with
paragraph (b) of this section. If the borrower's request for release is
denied, the borrower must be given attachment 1 of exhibit A of subpart
S of part 1951 of this chapter, a written explanation of the reasons
for the denial, and the opportunity for an appeal in accordance with 7
CFR part 780. Immediately upon determining that the borrower does not
have a current Form FmHA 1962-1 in the file, the County Supervisor will
immediately contact the borrower to develop one.
(3) If the borrower requests a change(s) to Form FmHA 1962-1, and
the County Supervisor can approve the change(s), the borrower and the
County Supervisor will initial and date each
[[Page 35931]]
change in accordance with item (6) in the Forms Manual Insert (FMI) for
Form FmHA 1962-1. The form will be marked ``Revised'' and the borrower
will be notified in writing confirming that the change(s) has been
approved.
* * * * *
68. Section 1962.17 is amended by:
a. removing the phrase ``or its successor agency under Public Law
103-354'' wherever it appears;
b. removing the word ``FmHA,'' except when it refers to ``Form
FmHA,'' the second time it appears in paragraph (a)(1), in paragraphs
(a)(2), (b)(2), (b)(2)(v), the second time it appears in paragraph
(b)(2)(vii), in paragraphs (b)(2)(viii)(B), (b)(3), (b)(5), (c)(2)(i),
in the first and last sentences of paragraph (d)(2)(ii), and in
paragraphs (e)(1)(i) through (e)(1)(iii) and adding the words ``the
Agency'' in its place;
c. removing the word ``FmHA,'' except when it refers to ``Form
FmHA,'' in the first and second sentences of paragraphs (b)(1) and in
paragraphs (b)(2)(iv), (b)(2)(vi), (b)(2)(vii), (c)(2), (c)(2)(ii),
(c)(4), (c)(5), (d), (f) and (g) and adding the word ``Agency'' in its
place;
d. removing the reference to ``1924.57(d)'' in the last sentence
of paragraph (b)(5) and adding the reference ``1924.56'' in its place;
e. removing the words ``Farmer Programs'' in paragraph (c)(5) and
adding the words ``Farm Credit Programs'' in its place; and
f. removing the words ``Farmers Home Administration'' in paragraph
(d)(2)(ii).
* * * * *
Sec. 1962.34 [Amended]
69. Section 1962.34 is amended by:
a. removing paragraphs (f) through (h);
b. removing the phrase ``FmHA or its successor agency under Public
Law 103-354's'' in paragraph (b)(1) and adding the words ``the
Agency's'' in its place;
c. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraphs (b)(2), (b)(4), and (d), and the first word
at the beginning of the first sentence and the second, fourth, and
fifth sentences of paragraph (b)(3) and adding the word ``Agency'' in
its place;
d. removing the phrase ``Form FmHA or its successor agency under
Public Law 103-354 1964-13'' in paragraph (b)(3) and adding the words
``Form FmHA 1965-13'' in its place;
e. removing the words ``Farmer Programs'' in paragraphs (b)(3) and
(d) and adding the words ``Farm Credit Programs'' in its place; and
f. by revising paragraph (e) to read as follows:
Sec. 1962.34 Transfer of chattel security and EO property and
assumption of debts.
* * * * *
(e) Agency actions.
(1) Transfer to eligible applicant. The Agency will determine the
transferee's eligibility for the type of loan to be assumed.
(2) Release from liability. If the total outstanding debt is not
assumed, the Agency must make the following determinations before it
releases the transferor from personal liability:
(i) The transferor and any cosigner do not have reasonable ability
to pay all or a substantial part of the balance of the debt not assumed
after considering their assets and income at the time of transfer,
(ii) The transferor and any cosigner have cooperated in good faith,
used due diligence to maintain the security against loss, and have
otherwise fulfilled the covenants incident to the loan to the best of
their ability, and
(iii) The transferee will assume a portion of the indebtedness at
least equal to the present market value of the security.
* * * * *
Sec. 1962.40 [Amended]
70. Section 1962.40 is amended by:
a. adding the words ``subpart A of'' immediately preceding the
reference ``part 1965'' in paragraph (c);
b. removing the word ``insured'' in the heading of paragraph (d)
and adding the word ``direct'' in its place; removing the words ``an
insured'' in the first sentence of paragraph (d) and adding the words
``a direct'' in its place; and by removing the phrase ``to FmHA or its
successor agency under Public Law 103-354'' in the first sentence of
paragraph (d);
c. removing the phrase ``FmHA or its successor agency under Public
Law 103-354's'' in the second sentence of paragraph (d) and in
paragraph (e)(1) and adding the word ``Government's'' in its place;
d. removing all references to ``FmHA or its successor agency under
Public Law 103-354'' in paragraphs (e)(1)(i) and (e)(2) and adding the
words ``the Agency'' in their place; and
e. removing and reserving paragraph (e)(4).
Sec. 1962.43 [Removed and Reserved]
71. In part 1962 Sec. 1962.43 is removed and reserved.
Sec. 1962.44 [Amended]
72. Section 1962.44 is amended by removing and reserving paragraphs
(a) and (c); and by removing all references to ``FmHA or its successor
agency under Public Law 103-354'' in paragraph (b) and adding the words
``the Agency'' in their place.
Sec. 1962.46 [Amended]
73. Section 1962.46 is amended by:
a. removing the words ``an insured'' in the fourth sentence of the
introductory text of paragraph (c) and adding the words ``a direct'' in
its place;
b. removing all references to ``FmHA or its successor agency under
Public Law 103-354'' and adding the words ``the Agency'' in their
place, and
c. by removing all references to ``FmHA or its successor agency
under Public Law 103-354's'' in paragraphs (b) through (d) and adding
the words ``the Agency's'' in their place.
Sec. 1962.47 [Amended]
74. Section 1962.47 is amended:
a. by removing the words ``an insured'' in the first sentence of
paragraph (b)(2)(iv) and adding the words ``a direct'' in its place;
b. by removing references to ``FmHA or its successor agency under
Public Law 103-354'' in paragraphs (a)(3)(i), (b), introductory text,
(b)(2)(i), (b)(2)(iv), and (c) introductory text, and adding the words
``the Agency'' in its place; and
c. by removing the phrase ``or its successor agency under Public
Law 103-354 1965-14'' in the first sentence of paragraph (b)(2)(i).
Exhibit F of Subpart A--[Removed and Reserved]
75. Exhibit F of Subpart A is removed and reserved.
PART 1965--REAL PROPERTY
76. The authority citation for part 1965 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing of Real Estate Security for Farm Credit
Program Loans and Certain Note--Only Cases
Sec. 1965.13 [Amended]
77. Section 1965.13 is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraph (f)(4)(ii) and adding the words ``FSA Farm
Credit Programs'' in its place; and
b. removing the references to ``Sec. 1924.57(c)(5)'' and
Sec. 1924.57(b)'' in paragraphs (f)(4)(ii)(A) and (B) and adding
``Sec. 1924.56'' in their place.
PART 1980--GENERAL
78. The authority citation for part 1980 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
[[Page 35932]]
Subpart B--Farm Credit Programs Loans
Sec. 1980.101 [Amended]
79. Section 1980.101 is amended by:
a. removing the words ``Farmers Home Administration or its
successor agency under Public Law 103-354'' in the first sentence of
paragraph (a);
b. removing all references to ``FmHA or its successor agency under
Public Law 103-354'' in paragraphs (a) and (b) and adding the word
``Agency'' in their place;
c. adding and reserving paragraphs (c)(1) and (c)(2);
d. removing the words ``Farmer Programs'' in paragraphs (a) and (b)
and adding the words ``Farm Credit Programs'' in its place;
e. removing the phrase ``or its successor agency under Public Law
103-354'' in paragraph (e)(1), and
f. by revising paragraph (e)(2) to read as follows:
Sec. 1980.101 Introduction.
* * * * *
(e) * * *
(2) Contract of Guarantee (Operating Loans--Line of Credit only).
Lenders desiring a guarantee on a ``line of credit'' will use the
method contained in subpart A of this part. Line of credit loans are
guaranteed in accordance with Form FmHA 1980-27, ``Contract of
Guarantee (Line of Credit).'' Line of credit notes and agreements may
not be sold by the originating lender, but the originating lender may
use participating lenders in accordance with Sec. 1980.119. Any amount
advanced by the lender in excess of the line of credit ceiling set
forth in the contract is not guaranteed by the Agency.
Sec. 1908.106 [Amended]
80. Section 1980.106(b) is amended by:
a. removing the words ``Farmer Programs'' in the definition of
``Applicant'' and adding the words ``Farm Credit Programs'' in its
place;
b. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in the definition of Approval official and adding the
word Agency in its place; and
c. adding the definition of Agency before the definition of
Applicant.
* * * * *
Agency. Farm Service Agency, its county and State committees and
their personnel, and any successor agency.
* * * * *
Sec. 1980.108 [Amended]
81. Section 1980.108 is amended by:
a. removing the phrases ``FmHA or its successor agency under Public
Law 103-354'' and ``FmHA or its successor agency under Public Law 103-
354's'' in paragraph (a)(1)(iii) and adding the words ``the Agency''
and ``the Agency's'' in their place respectively, and
b. by revising paragraphs (a)(1)(i) and (a)(2)(i) to read as
follows:
Sec. 1980.108 General provisions.
(a) * * *
(1) * * * (i) The lender is responsible for seeing that security is
obtained and maintained to protect the interests of the lender and the
Agency.
* * * * *
(2) * * * (i) Guarantees of parent, subsidiary, or affiliated
companies may be required. Guarantees will be required in an amount
which reasonably assures repayment of the loan or line of credit and
provides sufficient security. If a review of all credit factors
indicates the need for additional security, the lender or the Agency
may require additional personal and corporate guarantees. The lender or
the Agency also may require that such guarantees be secured.
* * * * *
82. Section 1980.109 is amended by revising the introductory text
of paragraph (b) to read as follows:
Sec. 1980.109 Promissory notes, line of credit agreements, security
instruments, and financing statements.
* * * * *
(b) Financing statements. Commercial financing statement forms that
comply with state laws and regulations may be used. If the financing
statement does not already contain the following provisions, they must
be inserted to meet Agency requirements:
* * * * *
Sec. 1980.103 [Amended]
83. Section 1980.110 is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in the introductory text, in the first and last sentences
of paragraph (a), the second time it appears in paragraph (b) and in
paragraph (c) and adding the words ``the Agency'' and ``The Agency'' in
their place;
b. removing the phrase ``FmHA or its successor agency under Public
Law 103-354 Instruction 440.1'' in the last sentence of paragraph (a)
and adding the words ``FmHA Instruction 440.1'' in its place; and
c. by removing the phrase ``Form FmHA or its successor agency under
Public Law 103-354 1980-24'' in paragraph (b) and adding the words
``Form FmHA 1980-24'' in its place.
84. Section 1980.113 is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' wherever it appears in the introductory text and adding
the word ``Agency'' in its place;
b. removing the phrase ``or its successor agency under Public Law
103-354'' in paragraphs (a), introductory text, (a)(1), (a)(2), (a)(5),
and (b), introductory text;
c. removing the words ``cash flow'' in the third sentence in the
introductory text of paragraph (a)(7) and adding the words ``case
file'' in its place;
d. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraph (a)(7)(ii) and adding the word ``Agency'' in
its place;
e. removing the words ``a disaster(s)'' in the introductory text of
paragraph (a)(7)(ii)(D) and adding the word ``disasters'' in its place;
f. revising paragraphs (a)(6), (a)(7)(i)(B), (a)(7)(ii)(B) and (C),
(a)(7)(ii)(D)(1), and (a)(11)(ii) and (iii); and
g. adding new paragraphs (a)(12) and (c) to read as follows:
Sec. 1980.113 Receiving and processing applications.
* * * * *
(a) * * *
(6) Proposed loan agreement or line of credit agreements between
the applicant and lender. Loan agreements or line of credit agreements
will address at least the following:
(i) Improved management or production practices to be implemented.
(ii) Requirements for accounting, recordkeeping, and financial
reporting.
(iii) Limitations on the purchase or sale of capital assets.
(iv) Prohibitions against incurring additional debt or cosigning
for the liabilities of others.
(v) Limits on family living expenses.
(vi) Insurance requirements and collateral inspections.
(vii) Purposes for which loan or line of credit funds can be used.
(viii) Interest rates and terms; how and when the rate may
fluctuate; term of loan; and conditions related to the repayment,
renewal, etc., of loans with balloon payments.
(ix) Credit ceiling, special limitations, and conditions precedent
to annual readvancement or continuation of loans or lines of credit.
(x) Limitations on salaries paid to entity members, hired labor, or
consultants. Limitations on withdrawals in the case of joint operations
and partnerships.
(7) * * *
(i) * * *
[[Page 35933]]
(B) Government loan rates, i.e., FSA (formerly ASCS) target prices.
* * * * *
(ii) * * *
(B) For those farmers with less than a 5-year production or yield
history, the applicant's available production history will be utilized.
(C) For those farmers whose actual history is insufficient to
provide an accurate estimate, consider the use of FSA Farm Programs
actual records for specific farms, county averages, State averages,
university data, or any other reliable sources of information that are
acceptable to the lender, applicant, and the Agency.
(D) * * *
(1) County average yields will be used for disaster years in
developing an historical base yield. If the applicant's disaster years
are less than the county average yields, county average yields will be
used for those years. If county average yields are not available, State
average yields will be used. Once the yield base has been established,
plus or minus adjustments may be made to reflect production trends or
changes that will impact expected yields during the projected farm
budget period. Adjustments can be made providing there is factual
evidence to demonstrate that the yield used in the farm plan is the
most reliable.
* * * * *
(11) * * *
(ii) A current, personal balance sheet from all members of a
cooperative, joint operators of a joint operation, partners of a
partnership, or stockholders of a corporation. To be current, the
balance sheet must be no more than 90 days old on the date that the
application is completed.
(iii) A current balance sheet of the cooperative, corporation,
partnership, or joint operation.
* * * * *
(12) A concise narrative summary of the following items:
(i) The agricultural and nonagricultural enterprises comprising the
operation, including any proposed to be added or dropped.
(ii) The real estate used in the operation including significant
planned and existing improvements, significant conservation practices
in effect, adequacy of facilities, external factors of negative or
positive impact.
(iii) Chattel property, including the adequacy of machinery,
equipment, and foundation livestock to carry out the existing or
proposed operation.
(iv) The farm business organization and key personnel. For example,
the legal business structure, roles, functions and backgrounds of key
individuals, the accounting and record keeping system, and agreements
for transferring or dissolving the business.
(v) Goals. The short-term and long-term business goals of the
operation.
(vi) Historical financial data.
(vii) Planned changes. Changes to overcome negative trends or other
aspects of the operation. Consider such items as improved production
techniques or management practices.
* * * * *
(c) Market Placement applications. This paragraph explains the
requirements for market placement applications for lenders that have
expressed interest in financing or refinancing specific direct loan
applicants described under Sec. 1910.4 (c), as well as for
``commercial'' or ``standard'' borrowers defined under Sec. 1951.252.
If more than one lender is interested in providing financing, the
direct loan applicant or borrower will rank the lenders in order of
preference, and the Agency will present the market placement
applications in that order. A market placement application should be
ready for immediate acceptance by the lender and approval by the
Agency, subject to the terms and conditions of the Request for
Obligation of Funds and Conditional Commitment. The items needed for a
market placement application are to be packaged by the Agency and
consist of the following:
(1) Form FmHA 1980-25 will be prepared using estimated interest
rates and terms. All other items required, with the exception of the
loan or line of credit agreement, for a complete application under this
section will be attached. The lender will submit the loan or line of
credit agreement prior to the Agency's issuance of the Conditional
Commitment.
(2) Form FmHA 1940-3, ``Request for Obligation of Funds--Guaranteed
Loans.''
85. Section 1980.114 is amended by:
a. removing the introductory text; by removing and reserving
paragraphs (a) and (b);
b. by redesignating paragraphs (c) and (d) as paragraphs (d) and
(e), respectively;
c. by removing and reserving the ADMINISTRATIVE section;
d. by revising the section heading;
e. by removing and reserving the redesignated paragraph (d); by
revising redesignated paragraph (e); and by adding a new paragraph (c)
to read as follows:
Sec. 1980.114 Evaluation and assessment of applications.
* * * * *
(c) Agency analysis of complete application. In addition to other
applicable requirements under this part, an application for a guarantee
must meet the following conditions:
(1) The proposed loan or line of credit is for authorized purposes,
and the amounts of borrowed capital are appropriate to successfully
carry on the agricultural operation.
(2) The operation's capital position is adequate taking its
strengths and weaknesses into consideration.
(3) The applicant has adequate repayment ability and has a
reasonable chance of securing non-guaranteed commercial credit for the
operation in the future. Developing an acceptable farm plan is the
responsibility of the lender and its borrower.
(4) Security is adequate, values are reasonable, and loan terms are
consistent with the useful life of the security and Agency regulations.
(5) The projected budget is reasonable in light of the applicant's
stated goals.
* * * * *
(e) Indication of acceptability. If the Agency's evaluation
indicates that the guarantee may be approved, the Agency will consider
the guarantee request for eligibility.
Sec. 1980.115 [Amended]
86. Section 1980.115 is amended by:
a. revising the heading to read ``Eligibility review.'';
b. removing paragraphs (a) through (d) and the ADMINISTRATIVE
section;
c. removing all references in the introductory text to ``County
Committee'' and adding the word ``Agency,'' in their place; and
d. by removing the reference to ``FmHA or its successor agency
under Public Law 103-354'' in the introductory text.
Sec. 1980.125 [Amended]
87. Section 1980.125 is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraphs (a), introductory text, (b)(3), (c)
introductory text, (d)(5), and in the seventh and eighth lines of
paragraph (d)(4) and adding the words ``the Agency'' in its place; and
b. by removing the phrase ``or its successor agency under Public
Law 103-354'' from paragraphs (b)(1)(i), (c)(4), (d)(3), (d)(6) and in
the second and third lines of paragraph (d)(4).
Sec. 1980.126 [Amended]
88. Section 1980.126 is amended by removing the phrase ``FmHA or
its successor agency under Public Law 103-354'' in the last sentence
and
[[Page 35934]]
adding the words ``the Agency'' in its place.
Sec. 1980.129 [Amended]
89. Section 1980.129 is amended by:
a. removing the ADMINISTRATIVE section;
b. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraph (a) and adding the words ``the Agency'' in
its place; and
c. revising the introductory text to read as follows:
Sec. 1980.129 Planning and performing development.
The lender is responsible for seeing that any buildings or other
improvements or major land development to be paid for with loan funds
are properly completed within a reasonable period of time. The lender
is responsible for perfecting the required lien in the security, which
includes ensuring that the security property is free of any mechanic's,
materialmen's, or other liens which would affect lien priority. All
major construction, major repairs, and major land development must be
performed by qualified parties under conditions considered standard and
prudent by commercial lenders and their financial regulators. Form FmHA
449-11, ``Certificate of Acquisition or Construction,'' must be
completed and submitted to the Agency. In connection with construction,
the lender is responsible for:
* * * * *
Sec. 1980.130 [Amended]
90. Section 1980.130 is amended by removing the ADMINISTRATIVE
section.
Sec. 1980.136 [Amended]
91. Section 1980.136 is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraphs (a) and (b) and adding the words ``The
Agency's'' and ``Agency'' respectively in their place; and
b. by removing the word ``instrument(s)'' in paragraph (d) and
adding the word ``instruments'' in its place.
Secs. 1980.148, 1980.149 and 1980.153 [Removed and Reserved]
92. In Part 1980 Secs. 1980.148, 1980.149, and 1980.153 are removed
and reserved.
Sec. 1980.175 [Amended]
93. Section 1980.175(b) is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in the introductory text and adding the word ``Agency''
in its place the first time it appears and to read ``FmHA'' the second
time it appears and to read ``Agency'' in paragraph (b)(1)(i);
b. removing the reference to ``Sec. 1980.106(b)(21)'' in the first
sentence of paragraph (b)(1)(i) and adding the reference to
``Sec. 1980.106(b)'' in its place.
Exhibit A of Subpart B--[Amended]
94. Exhibit A of subpart B is amended by:
a. removing the phrase ``FmHA or its successor agency under Public
Law 103-354'' in paragraph III.A and adding the words ``the Agency'' in
its place in the next to last sentence and to remove the phrase ``or
its successor agency under Public Law 103-354'' everywhere else it
appears in that paragraph;
b. removing the phrase ``or its successor agency under Public Law
103-354'' in paragraph III.C; and
c. by revising paragraph IV to read as follows:
IV. Agency Actions. The Agency will complete the evaluation
described in Sec. 1980.114 in any case where the approval official
determines an independent analysis is needed before approval or denial
of a request for guarantee. The Agency may request additional
information, review the lender's ``complete application'' file or make
an independent evaluation of the application, if needed, to determine
whether the applicant is eligible, the loan or line of credit is for
authorized purposes, there is reasonable assurance of repayment
ability, and sufficient collateral and equity is available. The Agency
will make the final determinations on the eligibility of applicants for
a guaranteed OL loan or line of credit, an SW loan, or FO loan, and the
purposes and terms of such loans or lines of credit.
A. [Reserved].
B. [Reserved].
Each approved lender who currently has an Approved Lender Agreement
executed prior to January 6, 1988, will be required to execute a new
Approved Lender Agreement. If liquidation of the account becomes
imminent, the Lender will consider the borrower for Interest Assistance
and request a determination of the borrower's eligibility by the
Agency. The lender may not initiate foreclosure action on the loan
until 60 days after a determination has been made on the borrower's
eligibility to participate in the Interest Assistance Program.
* * * * *
Signed at Washington, DC, on July 2, 1996.
Eugene Moos,
Under Secretary for Farm and Foreign Agricultural Services.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 96-17266 Filed 7-8-96; 8:45 am]
BILLING CODE 3410-05-P
