[Federal Register: February 18, 2003 (Volume 68, Number 32)]
[Rules and Regulations]
[Page 7693-7701]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18fe03-1]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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[[Page 7693]]
DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Parts 762, 764, and 774
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1910, 1924, 1941, 1943, 1951, 1955, 1956, 1962, and
1965
RIN 0560-AG78
2002 Farm Bill Regulations--General Credit Provisions
AGENCY: Farm Service Agency and Rural Housing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule amends the Farm Service Agency's (FSA) regulations
to comply with provisions of the Farm Security and Rural Investment Act
of 2002 (2002 Act). In addition, this rule clarifies direct loan
eligibility criteria in accordance with the Department of Agriculture
Reorganization Act of 1994. This rule amends the regulations that
govern the direct and guaranteed farm loan programs of FSA by revising
eligible loan purposes, percentage of loan guarantees, terms for
downpayment loans, the direct loan ``term limit'' and numerous other
provisions affecting loan making, servicing and collections. The rule
is intended to focus more FSA resources on beginning farmers and
ranchers and make more borrowers eligible for FSA farm credit
assistance.
DATES: Effective February 18, 2003.
FOR FURTHER INFORMATION CONTACT: Kathy Zeidler, Senior Loan Officer,
USDA, FSA, Farm Loan Programs Loan Making Division, STOP 0522, 1400
Independence Avenue, SW., Washington, DC 20250-0522; telephone (202)
720-5199; e-mail: kathy_zeidler@wdc.usda.gov. Persons with
disabilities who require alternative means for communication (Braille,
large print, audio tape, etc.) should contact the USDA Target Center at
(202) 720-2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Notice and Comment
This rule is not being published for public notice or to solicit
comment from interested parties as a proposed rule because it
implements precise requirements of the Farm Security and Rural
Investment Act of 2002 (Pub. L. 107-171)(the 2002 Act) where the Agency
has little or no leeway in terms of policy interpretation. Thus, this
rule is published as final and is effective immediately. Other
provisions of the 2002 Act that involve agency policy considerations in
which public participation is required will be published separately
according to 5 U.S.C. 553.
Executive Order 12866
This final rule has been determined to be not significant under
Executive Order 12866 and, therefore, has not been reviewed by the
Office of Management and Budget (OMB).
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act, Public Law 96-
534, (5 U.S.C. 601), FSA has determined that this rule will not have a
significant economic impact on a substantial number of small entities.
FSA program participants are predominantly family-size farmers and
ranchers and, as defined by the U.S. Small Business Administration,
approximately 98 percent of all farmers are classified as small
businesses. The provisions in this rule will not impact a substantial
number of small entities to a greater extent than large entities. The
intent of this rule is to implement legislation. Program participation
is voluntary and requires no direct action on the part of small
entities. Thus, large entities are subject to these rules to the same
extent as small entities. Therefore, a regulatory flexibility analysis
was not performed.
Environmental Evaluation
The environmental impacts of this final rule have been considered
in accordance with the provisions of the National Environmental Policy
Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the
Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA
regulations for compliance with NEPA, 7 CFR parts 799, and 1940,
subpart G. FSA completed an environmental evaluation and concluded the
rule requires no further environmental review. No extraordinary
circumstances or other unforeseeable factors exist which would require
preparation of an environmental assessment or environmental impact
statement. A copy of the environmental evaluation is available for
inspection and review upon request.
Executive Order 12988
This final rule has been reviewed in accordance with Executive
Order 12988. This rule preempts State laws to the extent any laws are
inconsistent with it, and its provisions are not retroactive. Before
legal action may be brought concerning this rule, administrative
remedies must be exhausted.
Executive Order 12372
The programs within this rule are not subject to the provisions of
Executive Order 12372, which requires intergovernmental consultation
with State and local officials. See the notice related to 7 CFR part
3015, subpart V, published at 48 FR 29115 (June 24, 1983).
Executive Order 13132
The policies contained in this rule do not have any substantial
direct effect on States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on State and local
governments. Therefore, consultation with the States is not required.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA),
requires Federal agencies to assess the effects of their regulatory
actions on State, local, and tribal governments or the private sector.
The rule contains no Federal mandates, as defined by title II of the
UMRA. Thus, this rule is not subject to the requirements of sections
202 and 205 of UMRA.
[[Page 7694]]
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
This rule is not a major rule under 5 U.S.C. 804(2) and, therefore,
is not subject to the requirements of the SBREFA.
Paperwork Reduction Act
The Agency's information collection requirements, currently
approved under OMB control numbers 0560-0154, 0560-0157, 0560-0162,
0560-0166, 0560-0167, 0560-0171, and 0560-0178 are not affected by the
final rule.
Federal Assistance Programs
The titles and numbers of the Federal assistance programs, as found
in the Catalog of Federal Domestic Assistance, to which this final rule
applies are:
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
Discussion of the Final Rule
This rule implements the general credit provisions of title V of
the 2002 Act as they apply to FSA's Farm Loan Programs (FLP). The
changes to Federal credit policies are relatively minor. The changes
focus more FSA resources on beginning farmers and ranchers and make
slightly more applicants eligible for FSA farm credit assistance. The
effects of the changes are difficult to estimate, but they are expected
to boost demand minimally for FSA farm loan programs. The specific
regulatory changes are discussed below.
Refinancing Bridge Loans
Section 5002 of the 2002 Act authorizes FSA to refinance a
temporary bridge loan that was obtained from a commercial or
cooperative lender because a shortage of loan funds prevented FSA from
closing an approved direct farm ownership (FO) loan. This rule amends 7
CFR 1943.16 to implement this section.
Amount of Guarantee for Operations on Tribal Land
Section 5003 of the 2002 Act expands the category of loans eligible
for a 95 (instead of 90) percent guarantee to include operating loans
(OL) made to a farmer or rancher whose land is subject to the
jurisdiction of an Indian tribe and whose loan is secured by one or
more security instruments that are subject to the jurisdiction of an
Indian tribe. This rule amends FSA's guaranteed loan eligibility
requirements at 7 CFR 762.129 accordingly.
Term and Loan Percentage Changes for Downpayment Loan Program
Section 5005 of the 2002 Act modifies the terms for loans made
under the Downpayment FO Loan Program for qualified beginning farmers
and ranchers. Accordingly, this rule amends 7 CFR 1943.14 to specify
that loans made under this program will be for 40 (instead of 30)
percent of the purchase price or appraised value of the farm or ranch,
whichever is less. The term of the loan is limited to 15 (instead of
10) years or less. Also, the time period in which balloon installments
are prohibited on loans obtained from other lenders in conjunction with
a Downpayment FO loan is increased to 15 (instead of 10) years.
Term Limits on Direct Operating Loans
Section 5101 of the 2002 Act requires the Agency to waive the term
limit for a direct OL to a farmer or rancher when their land is subject
to the jurisdiction of an Indian tribe and commercial credit is not
available. The 2002 Act also provides for a one-time waiver for two
years of the direct OL term limit on a case-by-case basis to other
borrowers if certain criteria are met. The determination is not subject
to administrative appeal. This rule amends 7 CFR 1941.12 to comply with
these provisions. One of the statutory requirements for a case-by-case
waiver is that the borrower have a ``viable farm or ranch operation.''
The Agency has adopted this requirement by referring to the existing
definition of ``financially viable operation'' at 7 CFR 1941.4 and
1924.54. Another statutory requirement is that the borrower has
successfully completed, or will complete within one year, borrower
training under section 359 of the Consolidated Farm and Rural
Development Act (CONACT). The other statutory requirements for a case-
by-case waiver are that the borrower applied for commercial credit from
at least two commercial lenders and was unable to obtain a commercial
loan, including a loan guaranteed by the Secretary.
Emergency Loan Eligibility for Quarantine Losses
Section 5201 of the 2002 Act authorizes emergency (EM) loans for
losses resulting from quarantines imposed by the Secretary under the
Plant Protection Act or animal quarantine laws as defined in section
2509 of the Food, Agriculture, Conservation, and Trade Act of 1990.
This rule amends 7 CFR 764.2 to add a definition of ``quarantine'' and
revise the definition of ``disaster'' to comply with this requirement.
Entity Eligibility
Section 5302 of the 2002 Act adds trusts and limited liability
companies to the list of entities eligible for EM loans and direct and
guaranteed OL and FO loans. Thus, 7 CFR 762.102, 764.2, 1910.4,
1924.74, 1941.4 and 1943.4 are amended by revising the definitions of
``entity'' and ``joint operation'' to comply with this requirement.
Simplified Loan Guarantee Application
Section 5307 of the 2002 Act increases the loan amount for which
FSA can accept a simplified guaranteed loan application from $50,000 to
$125,000. Accordingly, 7 CFR 762.102 and 762.110 have been amended to
meet this requirement.
Beginning Farmer Definition
Section 5310 of the 2002 Act changes the definition of qualified
beginning farmer or rancher by increasing the acres of land that these
applicants may own to a maximum of 30 (instead of 25) percent of the
average farm or ranch size in the county. This rule amends 7 CFR
762.102, 1941.4 and 1943.4 definitions accordingly to comply with this
requirement.
Term and Interest Rate Changes for Seed Loans
Section 10103 of the 2002 Act extends to 36 (from 18) months the
period of time for which the zero percent interest rate may apply to
loans made under the Emergency Loan for Seed Producers Program. The Act
also increases the term of these loans to the earlier of 36 months or
the settlement of the bankruptcy proceeding involving AgriBiotech.
These requirements are implemented in this rule by amending 7 CFR
774.18.
Eligibility Criteria for Direct Loans
Section 227(b) of the Department of Agriculture Reorganization Act
of 1994 repealed a portion of section 333 of the CONACT, which
contained eligibility criteria relating to an applicant's character and
honesty. Therefore, this rule removes these obsolete eligibility
criteria from 7 CFR 1941.12 and 1943.12.
Debt Settlement
Section 5303 of the 2002 Act provides the Secretary the authority
to approve or disapprove applications for debt settlement and release
of liability without the recommendation of, but after consultation
with, the local FSA County Committee (COC). The COC will be consulted
by the Agency prior to an action of this type to comply with this
statute and ensure that all available
[[Page 7695]]
information is considered. Also, the previous regulation described many
actions involving debt settlement processing and COC recommendation
which are internal and have been removed. This rule amends 7 CFR parts
1951, 1955, 1956, 1962, and 1965 accordingly to remove references to
COC recommendations.
Interest Rate Options for Loans in Servicing
Section 5305 of the 2002 Act amended the CONACT by requiring FSA to
use the lowest of the interest rate in effect at the time the borrower
applies for Primary Loan Servicing (PLS), the original interest rate on
the loan, or the interest rate being charged for the loan type at the
time of deferral, consolidation, rescheduling, or reamortization. Prior
to this statutory change, only the latter two options were specified.
For the first new option, the time of PLS application will be the time
the complete application is received by FSA. This method will be used
on program loans with regular or limited resource interest rates. This
rule, therefore, revises 7 CFR 1951.909 and Exhibit A of Attachment 1
of part 1951, subpart S accordingly.
Inventory Property
Section 5308 of the Act increases the time that the Agency is
allowed to sell real estate inventory property to beginning farmers and
ranchers from 75 days to 135 days. Section 5308 further emphasizes the
need to maximize opportunities for beginning farmers by combining or
subdividing inventory property. This rule amends 7 CFR 1955.63 and
1955.107 accordingly to comply with these requirements. In addition,
Exhibits G and G-1 of 7 CFR part 1955, subpart A are removed as they
contain only administrative provisions which do not impact the public.
Annual Review of Borrowers
Section 5318 of the Act requires that FSA conduct annual loan
assessments of direct loan borrowers. As this review was previously
required twice per year, 7 CFR 1924.55 is amended to comply with this
requirement.
List of Subjects
7 CFR Part 762
Agriculture, Loan programs--agriculture.
7 CFR Part 764
Agriculture, Disaster assistance, Loan programs--agriculture.
7 CFR Part 774
Agriculture, Disaster, Loan programs--agriculture.
7 CFR Part 1910
Agriculture, Credit, Loan programs--housing and community
development, Low and moderate income housing, Sex discrimination.
7 CFR Part 1924
Construction, Repair, Planning, Management advice, Loan programs--
agriculture, Loan programs--housing and community development.
7 CFR Part 1941
Crops, Livestock, Loan programs--agriculture, Rural areas, Youth.
7 CFR Part 1943
Crops, Loan programs--agriculture, Recreation, Water resources.
7 CFR Part 1951
Account servicing, Credit, Debt restructuring, Loan programs--
agriculture, Loan Programs--housing and community development.
7 CFR Part 1955
Foreclosure, Government acquired property, Government property
management.
7 CFR Part 1956
Account servicing, Accounting, Credit, Loan programs--agriculture,
Loan programs--housing and community development, Rural areas.
7 CFR Part 1962
Crops, Government property, Livestock, Loan programs--agriculture,
Loan programs--housing and community development, Rural areas.
7 CFR Part 1965
Foreclosure, Credit, Loan programs--agriculture, Loan programs--
housing and community development, Rural areas.
Accordingly, 7 CFR Chapters VII and XVIII are amended as follows:
PART 762--GUARANTEED FARM LOANS
1. The authority citation for part 762 continues to read as
follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989.
2. Amend Sec. 762.102(b) by revising the definitions of
``Entity,'' ``Joint operation,'' the first sentence in subparagraph (5)
of the ``Beginning farmer or rancher'' definition, and the second
sentence of the ``Cash flow budget'' definition to read as follows:
Sec. 762.102 Abbreviations and definitions.
* * * * *
(b) * * *
Beginning farmer or rancher. * * *
(5) Does not own real farm or ranch property or who, directly or
through interests in family farm entities, owns real farm or ranch
property, the aggregate acreage of which does not exceed 30 percent of
the average farm or ranch acreage of the farms or ranches in the county
where the property is located. * * *
* * * * *
Cash flow budget. * * * Cash flow budgets for loans under $125,000
do not require income and expenses itemized by categories.* * *
* * * * *
Entity. Cooperatives, corporations, partnerships, joint operations,
trusts, or limited liability companies.
* * * * *
Joint operation. Individuals that have agreed to operate a farm or
farms together as a business unit. The real and personal property may
be owned separately or jointly by the individuals.
* * * * *
3. Amend Sec. 762.110 in paragraphs (a) introductory text, (a)(1),
(a)(3), and (b) introductory text by removing ``$50,000'' everywhere it
appears and adding in its place ``$125,000.''
4. Amend Sec. 762.129 by revising paragraph (b)(2) and the last
sentence of paragraph (b)(3) and adding paragraph (b)(4) to read as
follows:
Sec. 762.129 Percent of guarantee and maximum loss.
* * * * *
(b) * * *
(2) When the purpose of an FO guarantee is to participate in the
downpayment loan program;
(3) * * * The guaranteed OL must be made during the period that a
borrower has the down payment loan outstanding; or
(4) When a guaranteed OL is made to a farmer or rancher whose farm
or ranch land is subject to the jurisdiction of an Indian tribe and
whose loan is secured by one or more security instruments that are
subject to the jurisdiction of an Indian tribe.
* * * * *
PART 764--EMERGENCY FARM LOANS
5. The authority citation for part 764 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
6. Amend Sec. 764.2 by revising the definitions of ``Disaster''
and ``Entity''
[[Page 7696]]
and by adding a definition of ``Quarantine'' to read as follows:
Sec. 764.2 Definitions.
* * * * *
Disaster means an event of unusual and adverse weather conditions,
other natural phenomena, or quarantine, that has substantially affected
producers of agricultural commodities by causing physical property or
production losses in a county, or similar political subdivision, that
triggered the inclusion of such county or political subdivision in the
disaster area designated by the Agency.
* * * * *
Entity means a partnership, corporation, cooperative, joint
operation, trust or limited liability company that is an operator of an
operation engaged in farming, ranching, or aquaculture activities at
the time the disaster occurs.
* * * * *
Quarantine means a quarantine imposed by the Secretary under the
Plant Protection Act or animal quarantine laws (as defined in section
2509 of the Food, Agriculture, Conservation and Trade Act of 1990).
* * * * *
PART 774--EMERGENCY LOAN FOR SEED PRODUCERS PROGRAM
7. The authority citation for part 774 continues to read as
follows:
Authority: Pub. L. 106-224.
8. Amend Sec. 774.18 by revising paragraphs (a)(1) and (b)(1) to
read as follows:
Sec. 774.18 Interest rate, terms and security requirements.
(a) Interest rate. (1) The interest rate on the loan will be zero
percent for 36 months or until the date of settlement of, completion
of, or final distribution of assets in the bankruptcy proceeding
involving AgriBiotech, whichever comes first.
* * * * *
(b) Terms. (1) Loans shall be due and payable upon the earlier of
the settlement of the bankruptcy claim or 36 months from the date of
the note.
* * * * *
PART 1910--GENERAL
9. The authority citation for part 1910 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Receiving and Processing Applications
10. Amend Sec. 1910.4 by revising the heading of paragraph (b),
adding a new sentence after the eighth sentence in paragraph (b) and
revising paragraph (b)(2) to read as follows:
Sec. 1910.4 Processing applications.
* * * * *
(b) Completed Farm Loan Programs applications and additional FSA
responsibilities. * * * Applicants who request a waiver of the direct
OL term limits in accordance with subpart A of part 1941 of this
chapter based on the facts that their land is subject to the
jurisdiction of an Indian tribe and their loan is secured by one or
more security instruments subject to the jurisdiction of an Indian
tribe, automatically consent to the Agency releasing information as
necessary to the Bureau of Indian Affairs to confirm these facts. * * *
(2) If the applicant is a cooperative, corporation, partnership,
joint operation, trust, or limited liability company:
(i) A complete list of entity members showing the address,
citizenship, principal occupation, and the number of shares and
percentage of ownership or of stock held in the entity by each member,
or the percentage of interest in the entity held by each member.
(ii) A current personal financial statement from each member of the
entity.
(iii) A current financial statement from the entity itself.
(iv) A copy of the entity's charter or any entity 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 entity members authorizing specified officers
of the entity to apply for and obtain the desired loan and execute
required debt, security, and other instruments and agreements.
* * * * *
PART 1924--CONSTRUCTION AND REPAIR
11. The authority citation for part 1924 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart B--Management Advice to Individual Borrowers and Applicants
12. Revise Sec. 1924.55 by removing the last sentence of the
introductory text, and by revising the heading, adding a first
sentence, and revising the last sentence of paragraph (e) to read as
follows:
Sec. 1924.55 Assessment of the agricultural operation.
* * * * *
(e) Annual review. For all borrowers, the assessment described
under this section will be reviewed on at least an annual basis to
monitor progress. * * * The year-end analysis under this section may be
treated as the required assessment review.
13. Revise the fourth sentence of Sec. 1924.74(b)(1) to read as
follows:
Sec. 1924.74 Borrower Training program.
* * * * *
(b) Processing--
(1) Agency review. * * * In the case of a cooperative, corporation,
partnership, joint operation, trust, or limited liability company, any
individual member holding a majority interest in the entity or who is
operating the farm must agree to complete the training on behalf of the
entity. * * *
* * * * *
PART 1941--OPERATING LOANS
14. The authority citation for part 1941 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Operating Loan Policies, Procedures and Authorizations
15. In part 1941, subpart A, revise all references to ``a
cooperative, corporation, partnership, or joint operation'' to read
``an entity.'' Also, revise all references to ``cooperative(s),
corporation(s), partnership(s) or joint operation(s)'' to read
``entities.''
16. In part 1941, subpart A, revise all references to ``members,
stockholders, partners, or joint operators'' to read ``members.'' Also,
revise all references to ``member's, partner's, stockholder's, or joint
operator's'' to read ``member's.'' And, revise all references to
``member, stockholder, partner, or joint operator'' to read ``member.''
17. Amend the first sentence of Sec. 1941.1 by removing the words
``farm cooperatives, private domestic corporation, partnerships, and
joint operations' and adding in their place the word ``entities.''
18. Amend Sec. 1941.4 by removing the number ``25'' from the first
sentence in paragraph (e) of the definition of ``Beginning farmer or
rancher'' and adding in its place the number ``30,'' by adding a
definition of ``entity,'' and by adding a sentence at the end of the
definition of ``financially viable operation'' to read as follows:
[[Page 7697]]
Sec. 1941.4 Definitions.
* * * * *
Entity. Cooperative, corporation, partnership, joint operation,
trust, or limited liability company.
* * * * *
Financially viable operation. * * * This definition only applies
when considering a term limit waiver under Sec. 1941.12.
* * * * *
19. Amend Sec. 1941.6 by revising paragraph (c) to read as
follows:
Sec. 1941.6 Credit elsewhere.
* * * * *
(c) Property and interest in property owned and income received by
an individual applicant, or an entity applicant and all of its members
as individuals will be considered and used by an applicant in obtaining
credit from other sources.
* * * * *
20. Amend Sec. 1941.12 by:
a. Removing paragraphs (a)(4) and (5);
b. Redesignating paragraphs (a)(6) through (11) as (a)(4) through
(9) respectively;
c. Revising the new paragraph (a)(6);
d. Removing paragraphs (b)(5)(iii) and (iv);
e. Redesignating paragraphs (b)(5)(v) and (vi) as (b)(5)(iii) and
(iv) respectively;
f. Revising paragraphs (b)(6)(i), (b)(7)(i), (b)(8)(iii) and
(b)(9);
The revised text reads as follows:
Sec. 1941.12 Eligibility requirements.
* * * * *
(a) * * *
(6)(i) Have not executed a promissory note for a direct OL loan in
more than 6 different calendar years prior to the calendar year that
the requested direct OL loan will close. This eligibility restriction
applies to anyone who signs the promissory note. Youth loans are not
counted as direct OL loans for the purpose of this paragraph. This
limitation does not apply to farmers or ranchers when their land is
subject to the jurisdiction of an Indian tribe, the loan is secured by
one or more security instruments subject to the jurisdiction of Indian
tribe, and the test for credit requirement in Sec. 1941.6 is met. On a
case-by-case basis, a one-time waiver to this eligibility restriction
may also be granted for a period of two years if the following
conditions are met:
(A) The applicant has a financially viable operation;
(B) The applicant applied for commercial credit from at least two
commercial sources;
(C) The applicant was unable to obtain a commercial loan (including
an Agency-guaranteed loan); and
(D) The applicant has successfully completed, or will complete
within one year, borrower training.
(ii) This determination is not subject to administrative appeal.
* * * * *
(b) * * *
(6) * * *
(i) The requirements of paragraphs (b)(5)(i), (ii) and (iv) of this
section must be met.
* * * * *
(7) * * *
(i) The requirements of paragraphs (b)(5)(i), (ii) and (iv) of this
section must be met by the entity and all its members.
* * * * *
(8) * * *
(iii) The majority interest holders of the entity meet the
requirements of paragraphs (b)(5)(i), (ii) and (iv) of this section.
(9)(i) Have no member of the entity who has executed a promissory
note for direct OL loans closed in more than 6 different calendar years
prior to the calendar year that the requested direct OL loan will
close. This eligibility restriction applies to anyone who signs the
promissory note. Youth loans are not counted as direct OL loans for the
purpose of this paragraph. This limitation does not apply to farmers or
ranchers when their land is subject to the jurisdiction of an Indian
tribe, the loan is secured by one or more security instruments subject
to the jurisdiction of an Indian tribe, and the test for credit
requirement in Sec. 1941.6 is met. On a case-by-case basis, a one-time
waiver to this eligibility restriction may also be granted for a period
of two years if the following conditions are met:
(A) The applicant has a financially viable operation;
(B) The applicant applied for commercial credit from at least two
commercial sources;
(C) The applicant was unable to obtain a commercial loan (including
an Agency-guaranteed loan); and
(D) The applicant has successfully completed, or will complete
within one year, borrower training.
(ii) This determination is not subject to administrative appeal.
* * * * *
Subpart B--Closing Loans Secured by Chattels
21. Amend Sec. 1941.54 by revising paragraph (b)(2) as follows and
removing paragraph (b)(3):
Sec. 1941.54 Promissory note.
* * * * *
(b) Signatures. * * *
(2) Entities. The promissory note(s) will be executed so as to
evidence liability of the entity as well as individual liability of all
members of the entity.
22. Amend Sec. 1941.57 by revising paragraph (a) to read as
follows:
Sec. 1941.57 Security instruments.
* * * * *
(a) Executing security instruments by borrowers. State supplements
will be issued, as necessary, to carry out the provisions of this
paragraph. In order to close the loan and obtain the desired lien,
security instruments will be executed by appropriate entity officials,
on behalf of an entity borrower. Any other signatures needed to assure
the required security will be obtained as provided in State
supplements. A cosigner will be required only when it has been
determined that the applicant cannot possibly meet the security
requirements for the loan request.
* * * * *
PART 1943--FARM OWNERSHIP, SOIL AND WATER AND RECREATION
23. The authority citation for part 1943 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Direct Farm Ownership Loan Policies, Procedures, and
Authorizations
24. In part 1943, subpart A, revise all references to ``a
cooperative, corporation, partnership, or joint operation'' to read
``an entity.'' Similarly, revise all references to ``cooperative(s),
corporation(s), partnership(s) or joint operation(s)'' to read
``entities.''
25. In part 1943, subpart A, revise all references to ``members,
stockholders, partners, or joint operators'' to read ``members.'' Also,
revise all references to ``member's, partner's, stockholder's, or joint
operator's'' to read ``member's.'' And, revise all references to
``member, stockholder, partner, or joint operator'' to read ``member.''
26. Amend Sec. 1943.1 by removing the words ``farm cooperatives,
private domestic corporations, partnerships, and joint operations'' and
adding in their place the words ``and entities.''
27. Amend Sec. 1943.4 by removing the number ``25'' from the first
sentence in paragraph (e) of the definition of ``Beginning farmer or
rancher'' and adding in its place the number ``30'' and
[[Page 7698]]
by adding a definition of ``entity'' to read as follows:
Sec. 1943.4 Definitions.
* * * * *
Entity. Cooperative, corporation, partnership, joint operation,
trust, or limited liability company.
* * * * *
28. Amend Sec. 1943.6 by revising paragraph (c) to read as
follows:
Sec. 1943.6 Credit elsewhere.
* * * * *
(c) Property and interests in property owned and income received by
an individual applicant, or an entity applicant and all of its members
as individuals, will be considered and used by an applicant in
obtaining credit from other sources.
* * * * *
29. Amend Sec. 1943.12 by:
a. Removing paragraphs (a)(4) and (a)(5);
b. Redesignating (a)(6) through (a)(11) as (a)(4) through (a)(9)
respectively;
c. Removing paragraphs (b)(4)(iii) and (b)(4)(iv);
d. Redesignating paragraphs (b)(4)(v) and (b)(4)(vi) as (b)(4)(iii)
and (b)(4)(iv); and
e. Revising paragraphs (b)(5)(i), (b)(6)(i) and (b)(7) to read as
follows:
Sec. 1943.12 Farm ownership loan eligibility requirements.
* * * * *
(b) * * *
(5) * * *
(i) The requirements of paragraphs (b)(4)(i), (ii) and (iv) of this
section must be met.
* * * * *
(6) * * *
(i) The requirements of paragraphs (b)(4)(i), (ii) and (iv) of this
section must be met by the entity applicant and all its members.
* * * * *
(7) If each member's ownership interest does not exceed the family
farm definition limits, their collective interests can exceed the
family farm definition limits only if:
(i) All of the members of the entity are related by blood or
marriage,
(ii) All of the members are or will be operators of the entity, and
(iii) The majority interest holders of the entity meet the
requirements of paragraphs (b)(4)(i), (ii) and (iv) of this section.
* * * * *
30. Amend Sec. 1943.14 by revising paragraphs (c), (d)(4) and
(e)(2)(i) to read as follows:
Sec. 1943.14 Downpayment FO loan program for beginning farmers or
ranchers.
* * * * *
(c) Loan purposes. Loans may be made to provide an amount equal to
40 percent of the purchase price or appraised value, whichever is
lower, of the farm or ranch to be acquired, unless the applicant
requests a lesser amount. The remaining balance of the purchase price
or appraised value, whichever is lower, not to exceed 50 percent, may
be guaranteed by the Agency.
(d) * * *
(4) The other financing for the balance of the purchase price is
amortized for less than 30 years and/or a balloon payment is scheduled
within the 15 years of the Agency loan.
(e) * * *
(2) Terms of loans. (i) Each loan made under this section shall be
amortized over a period of 15 years or less, at the option of the
borrower.
* * * * *
31. Amend Sec. 1943.16 by adding a new paragraph (e) to read as
follows:
Sec. 1943.16 Loan purposes.
* * * * *
(e) Refinance a bridge loan if the following conditions are met:
(1) The applicant obtained the loan to be refinanced to purchase a
farm after a direct FO was approved;
(2) Direct FO funds were not available to fund the loan at the time
of approval;
(3) The loan to be refinanced is temporary financing; and
(4) The loan was made by a commercial or cooperative lender.
32. Amend Sec. 1943.38 by removing the words ``Cooperatives or
corporations'' from paragraph (g)(3)(ii) and adding in their place the
word ``Entities,'' and by removing paragraph (g)(3)(iii).
PART 1951--SERVICING AND COLLECTIONS
33. The authority citation for part 1951 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31
U.S.C. 3716; 42 U.S.C. 1480.
Subpart J--Management and Collection of Nonprogram (NP) Loans
34. Amend Sec. 1951.463 by removing and reserving paragraph (e).
Subpart S--Farm Loan Programs Account Servicing Policies
35. Amend Sec. 1951.903 by removing the words ``recommended by the
County Committee (except where the debt has been discharged through
bankruptcy),'' from the second sentence of paragraph (b).
36. Amend Sec. 1951.909 by:
a. Revising paragraphs (a)(3), (e)(1)(xii), and (e)(2)(viii);
b. Redesignating paragraph (e)(2)(ix) as (e)(2)(x);
c. Adding new paragraph (e)(2)(ix);
d. Revising paragraph (i)(2)(i).
The revised and added text reads as follows:
Sec. 1951.909 Processing primary loan service programs requests.
(a) * * *
(3) If a completed application includes a request for a waiver from
the training required by paragraph (c)(5) of this section, the Agency
will, prior to any offer of Primary Loan Servicing, evaluate the
borrower's knowledge and ability in production and financial management
and determine the need for additional training as set out in Sec.
1924.74 of this chapter.
* * * * *
(e) * * *
(1) * * *
(xii) Interest rates of consolidated and/or rescheduled loans will
be as follows:
(A) The interest rate for loans made at the regular interest rate
will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) The lowest interest rate for that type of loan on the date of
restructure; or
(3) The lowest original loan note rate on any of the original notes
being consolidated and/or rescheduled.
(B) The interest rate for loans made at the limited resource
interest rate will be the lesser of:
(1) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(2) The limited resource interest rate for that type of loan on the
date of restructure; or
(3) The lowest original loan note rate on any of the original notes
being consolidated and/or rescheduled.
(C) OL loans that were not assigned a limited resource rate when
the loan was received, may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate; and
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section.
* * * * *
[[Page 7699]]
(2) * * *
(viii) Interest rates of reamortized loans will be as follows:
(A) The interest rate for loans made at the regular interest rate
will be the lesser of:
(1) The interest rate for that type of loan on the date a complete
servicing application was received;
(2) The interest rate for that type of loan on the date of
restructure; or
(3) The original loan note rate of the note being reamortized.
(B) The interest rate of FO or SW loans made at the limited
resource interest rate will be the lesser of:
(1) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(2) The limited resource interest rate for that type of loan on the
date of restructure; or
(3) The original loan note rate on the note being reamortized.
(C) FO or SW loans that were not assigned a limited resource rate
when the loan was received, may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate;
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section; and
(3) For SW loans, the loan funds were used for soil and water
conservation and protection purposes as set forth in Sec. 1943.66
(a)(1) through (a)(5) of this chapter.
(D) SA payment agreement will be reamortized at the current SA
amortization rate in effect on the date of approval or the rate on the
original payment agreement, whichever is less.
(ix) If there are no deferred installments, the first installment
payment under the reamortization will be at least equal to the interest
amount which will accrue on the new principal between the date the
Promissory Note is processed and the next installment due date. The
amount of outstanding accrued interest and any outstanding protective
advances made on the loan will be added to the principal at the time of
reamortization (the date the new note is signed by the borrower).
Protective advances are not authorized for the payment of prior or
junior liens except real estate tax liens.
* * * * *
(i) * * *
(2) * * *
(i) If the administrative appeal process results in a determination
that the borrower is eligible for Primary Loan Servicing, the servicing
official will process the request pursuant to this section. The
servicing official will use the information the appeal officer used in
making the decision on the appeal, unless stated otherwise in the final
appeal decision letter. In cases of debt restructuring resulting from
appeals, the interest rate will be determined in accordance with
paragraphs (e)(1)(xii) and (e)(2)(viii) of this section as applicable.
If implementation of the appeal decision would cause writedown or
writeoff of more than $300,000 because of interest accrued after the
adverse decision, the servicing official will process the action so as
to complete the transaction.
* * * * *
37-38. Amend Exhibit A to subpart S as follows:
a. In Attachment 1, Section I, Subsection 4, the paragraph entitled
``Interest Rate for Loan Servicing'' is revised.
b. In Attachment 1, Section V, the paragraphs entitled ``Approval
Requirements'' are revised.
The revised text reads as follows:
Exhibit A--Notice of the Availability of Loan Servicing and Debt
Settlement Programs for Delinquent Farm Borrowers
* * * * *
Interest Rate for Loan Servicing
When loans are consolidated, rescheduled, or reamortized, the
interest rate of the new loan will be either the interest rate on the
original loan, the interest rate on the date you submit a complete
application for loan servicing, or the interest rate for that type of
loan on the date of restructure, whichever is less. If you meet the
eligibility requirements, you may be able to get the limited resource
interest rate on OL, SW, or FO loans, if the loan was not originally
approved with a limited resource rate. For information about current
interest rates, contact the FSA county office.
* * * * *
Approval Requirements
If you sell your collateral, you must apply the proceeds from the
sale to your FSA account before you can be considered for debt
settlement. In the case of compromise or adjustment, however, you may
keep your collateral if you are unable to pay your total FSA debt and
pay FSA the present market value of your collateral along with any
additional amount you are able to pay as determined by FSA. You will be
allowed to retain a reasonable equity in essential nonsecurity property
to continue your normal operations and meet minimum family living
expenses. FSA will not finance a compromise or adjustment offer.
The County Committee will be consulted on all debt settlements of
FLP loans. FSA must find that the statements on your application are
true, and that you do not have assets or income in addition to what you
stated in your application. You must also have not previously received
any form of debt forgiveness from FSA on any other direct farm loan. If
you qualify, your application must also be approved by the FSA State
Executive Director or the FSA Administrator depending on the amount of
the debt to be settled.
* * * * *
PART 1955--PROPERTY MANAGEMENT
39. The authority citation for part 1955 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Liquidation of Loans Secured by Real Estate and
Acquisition of Real and Chattel Property
40. Amend Sec. 1955.10 by revising paragraphs (f)(2) and (f)(3) to
read as follows:
Sec. 1955.10 Voluntary conveyance of real property by the borrower to
the Government.
* * * * *
(f) * * *
(2) Consolidated Farm and Rural Development Act (CONACT) loans to
individuals. If the Agency indebtedness plus any prior liens exceeds
the market value of the property, the indebtedness cannot be satisfied
but a credit can be given equal to the market value less prior liens.
Debt settlement will be considered in accordance with subpart B of part
1956 of this chapter.
(i) Crediting accounts. The Agency will credit an account by an
amount equal to the market value less prior liens, unless the borrower
is Native American. Native American borrower-owners will be credited
with the fair market value or the Agency debt against the property,
whichever is greater, provided:
(A) The borrower-owner is a member of a tribe or the tribe, and
(B) The property is located within the confines of a federally
recognized Indian reservation.
(ii) Agency approval. The same procedure outlined in paragraphs
[[Page 7700]]
(f)(1)(i) through (f)(1)(iii) of this section will be followed for
approving the voluntary conveyance. The conveyance will be accepted in
full satisfaction of the indebtedness unless the market value of the
property to be conveyed is less than the total of Government
indebtedness and prior liens, and the borrower has agreed to accept a
credit in the amount of the market value of the security property less
prior liens, if any.
(3) Loans to organizations. When an offer of voluntary conveyance
is received from an organization borrower, and the market value of the
property being conveyed (less prior liens, if any) is less than the
Government debt, full consideration must be given to the borrower's
present situation and future prospects for paying all or a part of the
debt.
* * * * *
41. Remove Exhibits G and G-1 to subpart A.
Subpart B--Management of Property
42. Amend Sec. 1955.63 by revising paragraphs (a) and (b) to read
as follows:
Sec. 1955.63 Suitability determination.
* * * * *
(a) Determination. The Agency will classify property that secured
loans or was acquired under the CONACT as ``suitable property'' or
``surplus property'' in accordance with the definitions found in Sec.
1955.53.
(b) Grouping and subdividing farm properties. To the maximum extent
practicable, the Agency will maximize the opportunity for beginning
farmers and ranchers to purchase inventory properties. Farm properties
may be subdivided or grouped according to Sec. 1955.140, as feasible,
to carry out the objectives of the applicable loan program. Properties
may also be subdivided to facilitate the granting or selling of a
conservation easement or the fee title transfer of portions of a
property for conservation purposes. The environmental effects of such
actions will be considered pursuant to subpart G of part 1940 of this
chapter.
* * * * *
Subpart C--Disposal of Inventory Property
43. Amend Sec. 1955.107 by revising paragraphs (a)(2)(i), (b)
introductory text, (b)(1), and (b)(2) to read as follows:
Sec. 1955.107 Sale of FSA property (CONACT).
* * * * *
(a) * * *
(2) * * *
(i) Sale to beginning farmers/ranchers. Not later than 135 days
from the date of acquisition, FSA will sell suitable farm property,
with a priority given to applicants who are classified as beginning
farmers or ranchers, as defined in Sec. 1955.103, as of the time of
sale.
* * * * *
(b) Surplus property and suitable property not sold to a beginning
farmer or rancher. Except where a lessee is exercising the option to
purchase under the Homestead Protection provision of subpart S of part
1951 of this chapter, surplus property will be offered for public sale
by sealed bid or auction within 15 days from the date of acquisition in
accordance with Sec. 1955.147 or Sec. 1955.148. Suitable farm
property which has been advertised for sale to a beginning farmer or
rancher in accordance with paragraph (a) of this section, but has not
sold within 135 days from the date of acquisition will be offered for
public sale by sealed bid or auction to the highest bidder as provided
in paragraph (b)(1) of this section. All prospective buyers will be
notified in writing as part of the property advertisement of the
presence of any highly erodible land, converted wetlands, floodplains,
wetlands, or other special characteristics of the property that may
limit its use or cause an easement to be placed on the property.
(1) Advertising surplus property. FSA will advertise surplus
property for sale by sealed bid or auction within 15 days from the date
of acquisition or, for those suitable properties not sold to beginning
farmers or ranchers in accordance with this section, within 135 days of
the date of acquisition.
(2) Sale by sealed bid or auction. Surplus real estate must be
offered for public sale by sealed bid or auction and must be sold no
later than 165 days from the date of acquisition to the highest bidder.
Preference will be given to a cash offer which is at least *percent of
the highest offer requiring credit. (*Refer to Exhibit B of RD
Instruction 440.1 (available in any Agency office) for the current
percentage.) Equally acceptable sealed bid offers will be decided by
lot.
* * * * *
44. Amend Sec. 1955.137 by revising the first sentences of
paragraphs (b)(3)(ii) and (b)(3)(iii) to read as follows:
Sec. 1955.137 Real property located in special areas or having
special characteristics.
* * * * *
(b) * * *
(3) * * *
(ii) After receiving the wetland determination from NRCS, FSA will
review the determination for each inventory property and determine if
any of the wetlands or converted wetlands identified by NRCS were
considered cropland on the date the property was acquired or were used
for farming at any time during the period beginning on the date 5 years
before the property was acquired and ending on the date the property
was acquired. * * *
(iii) After FSA has completed the determination of whether the
wetlands or converted wetlands located on an inventory property were
used for cropland or farming, the U.S. Fish and Wildlife Service (FWS)
will be contacted. * * *
* * * * *
PART 1956--DEBT SETTLEMENT
45. The authority citation for part 1956 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42
U.S.C. 1480.
Subpart B--Debt Settlement--Farm Loan Programs and Multi-Family
Housing
46. Remove and reserve Sec. 1956.57 (f).
47. Amend Sec. 1956.70 by revising paragraph (b)(3) introductory
text to read as follows:
Sec. 1956.70 Cancellation.
* * * * *
(b) * * *
(3) Debtors discharged in bankruptcy. If there is no security for
the debt, debts discharged in bankruptcy shall be cancelled by use of
the appropriate Agency form with the attachments noted below. No
attempt will be made to obtain the debtor's signature. If the debtor
has executed a new promise to pay prior to discharge and has otherwise
accomplished a valid reaffirmation of the debt in accordance with
advice from OGC, the debt is not discharged.
* * * * *
48. Amend Sec. 1956.84 by revising paragraph (e) to read as
follows:
Sec. 1956.84 Approval or rejection.
* * * * *
(e) Appeal rights. A debtor whose debt settlement offer is rejected
will be notified of appeal rights pursuant to 7 CFR part 11.
* * * * *
49. Revise Sec. 1956.96 to read as follows:
[[Page 7701]]
Sec. 1956.96 Delinquent adjustment agreements.
A 90-day extension for making the payments may be given by the
Agency when the circumstances of the case justify an extension. A
decision not to extend the time for making payments is not appealable.
If the debtor is delinquent under the terms of the adjustment agreement
and is likely to be financially unable to meet the terms of the
agreement, the Agency may cancel the existing agreement and process a
different type of settlement more consistent with the debtor's
repayment ability, provided the facts in the case justify such action.
The cancellation of an adjustment agreement is appealable. If an
agreement is cancelled, any payments received shall be retained as
payments on the debt owed at the time of the adjustment agreement.
PART 1962--PERSONAL PROPERTY
50. The authority citation for part 1962 continues 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
51. Amend Sec. 1962.41 by removing paragraph (f) and revising
paragraph (e) to read as follows:
Sec. 1962.41 Sale of chattel security or EO property by borrowers.
* * * * *
(e) Unpaid debt. If the sale of all security results in less than
full payment of the debt, the borrower may request debt settlement of
the remaining debt. The servicing official will consult with the County
Committee before determining if the borrower's account can be debt
settled in accordance with subpart B of part 1956 of this chapter.
52. Amend Sec. 1962.46 by revising paragraph (g)(5)(ii) to read as
follows:
Sec. 1962.46 Deceased borrowers.
* * * * *
(g) * * *
(5) * * *
(ii) If only a portion of the debt is assumed, the amount assumed
equals the amount as determined by OGC which could be collected from
the assets of the estate of the deceased borrower, including the value
of any security or EO property.
* * * * *
PART 1965--REAL PROPERTY
53. The authority citation for part 1965 continues 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 Loan Programs
Loans and Certain Note-Only Cases
54. Amend Sec. 1965.26 by removing paragraphs (f)(6) and (g) and
revising paragraphs (c)(2)(iv) introductory text and (f)(5) to read as
follows:
Sec. 1965.26 Liquidation action.
* * * * *
(c) * * *
(2) * * *
(iv) The Agency approves the compromise or adjustment offer in
accordance with subpart B to part 1956 of this chapter and the borrower
makes a settlement offer according to the following:
* * * * *
(f) * * *
(5) If the sale of all security results in less than full payment
of the debt, the borrower may submit a request for debt settlement. The
servicing official will consult with the County Committee before
determining if the borrower's account can be debt settled in accordance
with subpart B of part 1956 of this chapter.
* * * * *
55. Amend Sec. 1965.27 by removing and reserving paragraphs
(b)(19) and (g)(6), revising paragraph (f), amending paragraph (h) by
removing the words ``County Supervisor'' wherever they appear and
adding in their place the words ``Agency'' and revising the fifth
sentence of paragraph (h)(1) to read as follows:
Sec. 1965.27 Transfer of real estate security.
* * * * *
(f) Release of transferor from liability. The borrower may be
released from personal liability when all of the real estate security
is transferred under paragraph (c) or (d) of this section and the total
outstanding debt or that portion of the debt equal to the present
market value of the security is assumed. Release shall not be granted
to any borrower or cosigner who was liable for any FLP direct loan
which was reduced or terminated in a manner resulting in a loss to the
Government. When the total outstanding debt is not assumed, any request
for debt settlement will be processed in accordance with subpart B of
part 1956.
* * * * *
(h) * * *
(1) * * * The Agency will consider the following:
* * * * *
Dated: January 31, 2003.
J. B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
Dated: February 4, 2003.
Thomas C. Dorr,
Under Secretary for Rural Development.
[FR Doc. 03-3562 Filed 2-14-03; 8:45 am]
BILLING CODE 3410-05-P