[Federal Register Volume 59, Number 26 (Tuesday, February 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2777]


[[Page Unknown]]

[Federal Register: February 8, 1994]


                                                    VOL. 59, NO. 26

                                          Tuesday, February 8, 1994
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DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Part 1945

RIN 0575-AB72

 

Revisions to the Direct Emergency Loan Instructions To Implement 
Administrative Decisions Pertaining to the Applicant Loan Eligibility 
Calculation, Appraisals, and Crop Insurance

AGENCY: Farmers Home Administration, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its 
emergency loan (EM) regulations to revise the applicant eligibility 
calculation and appraisal requirements and to require crop insurance. 
This action is necessary to ease the EM eligibility requirements, to 
expedite EM application processing time, and to reduce losses to 
family-size farmers and the Government. The intended effect is to 
provide assistance to a greater number of farmers affected by major 
disasters in a timely manner.

DATES: Written comments must be submitted on or before February 23, 
1994.

ADDRESSES: Submit written comments, in duplicate, to the Office of the 
Chief, Regulations Analysis and Control Branch, Farmers Home 
Administration, USDA, room 6348, South Agriculture Building, 14th 
Street and Independence Avenue SW., Washington, DC 20250. All written 
comments made pursuant to this notice will be available for public 
inspection during regular working hours at the above address.

FOR FURTHER INFORMATION CONTACT: David R. Smith, Senior Loan Officer, 
Farmer Programs Loan Making Division, Farmers Home Administration, 
USDA, room 5428, South Building, 14th Street and Independence Avenue 
SW., Washington, DC 20250, telephone (202) 720-5114.

SUPPLEMENTARY INFORMATION:

Classification

    We are issuing this proposed rule in conformance with Executive 
Order 12866, and the Office of Management and Budget (OMB) has 
determined that it is a ``significant regulatory action.'' Based on 
information compiled by the Department, OMB has determined that this 
proposed rule:
    (1) Would alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or rights and obligations of recipients thereof; 
and
    (2) Is a significant public policy issue as related to the 
direction of the EM loan program.

Intergovernmental Consultation

    For the reasons set forth in the final rule related to Notice, 7 
CFR part 3015, subpart V (48 FR 29115, June 24, 1983) and FmHA 
Instruction 1940-J, ``Intergovernmental Review of Farmers Home 
Administration Programs and Activities'' (December 23, 1983), Emergency 
Loans are excluded from the scope of Executive Order 12372, which 
requires intergovernmental consultation with State and local officials.

Programs Affected

    These changes affect the following FmHA program as listed in the 
Catalog of Federal Domestic Assistance: 10.404--Emergency Loans.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
Subpart G, ``Environmental Program.'' It is the determination of FmHA 
that the proposed action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, an Environmental Impact Statement is not required.

Civil Justice Reform

    This document has been reviewed in accordance with Executive Order 
(E.O.) 12778. It is the determination of FmHA that this action does not 
unduly burden the Federal Court System in that it meets all applicable 
standards provided in section 2 of the E.O.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been 
assigned OMB control number 0575-0090, in accordance with the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not 
revise or impose any new information collection or recordkeeping 
requirement from those approved by OMB.

Discussion of Proposed Rule

    It is the policy of this Department that rules relating to public 
property, loans, grants, benefits, or contracts shall be published for 
comment notwithstanding the exemption of 5 U.S.C. 553 with respect to 
such rules. FmHA is publishing this proposed rule with a 15-day comment 
period. This proposed rule relieves the restriction of considering 
disaster related assistance or compensation in the EM eligibility 
calculation. Furthermore, the Agency has concluded that the need to 
provide immediate assistance to farmers who have suffered severe 
production and physical losses as a result of natural disasters also 
justifies the shortened comment period under 5 U.S.C. 553(d) as 
discussed below.
    Major agricultural disasters during the 1993 crop year, including 
extensive flooding and rainfall in 9 Midwestern States and drought in 3 
Southeastern States, will result in a significant increase in demand 
for FmHA direct loan assistance. In the 9 flood states alone, over 8 
million acres of crops were lost or not planted in 1993. Estimates 
indicate that the 1993 floods were the second costliest weather 
disaster in the history of the United States. Preliminary estimates are 
that as many as 10,000 of the affected farmers may require financial 
assistance from FmHA.
    The need for a change in the regulations is immediate. Farmers have 
concluded 1993 operations, and are consulting with their lenders to 
plan for 1994. Farmers who have suffered severe production losses are 
in dire need of disaster program assistance to repay creditors and 
suppliers annual production loans, open supplier accounts, and 
installments due on intermediate and long term debts and to otherwise 
repair and continue their farming and ranching operations. FmHA is 
receiving loan requests at an increasing rate. The Agency wants to give 
the public an opportunity for input on the proposed change but FmHA 
needs regulations in place for spring planting, so a reasonable 
compromise was the 15-day comment period.
    Because of the scope of the situation and the impact on local, 
regional, and national economies, the Agency believes that an amendment 
to the regulations after a shortened comment period is the only way to 
assure that affected farmers receive the assistance they need on a 
timely basis to recover from these disasters. Any further delay in the 
timing of this amendment will reduce the Agency's ability to meet the 
needs of those affected, thus imposing additional hardships on those 
who have already suffered substantially from flood or drought, and 
jeopardizing individual and community financial recovery from these 
disasters. The proposal to require crop insurance on the coming year's 
crop as a condition of making EM loans is necessary to protect the 
borrower and the Government. The requirement and its exceptions, 
however, will not delay the making or reduce the number of EM loans.
    The making, supervision, and servicing of farm loans to FmHA 
borrowers is governed primarily by the Consolidated Farm and Rural 
Development Act (CONACT) (7 U.S.C. 1921 et seq.). In particular, 7 
U.S.C. 1970 provides that the Secretary, and through delegation FmHA, 
shall extend emergency loans ``to any applicant seeking assistance 
based on production losses if the applicant shows that a single 
enterprise which constitutes a basic part of the applicant's farming, 
ranching, or aquaculture operation has sustained at least a 30 per 
centum loss of normal per acre or per animal production,'' or a lesser 
per centum as determined by FmHA, as a result of the disaster and other 
eligibility criteria are met. Under the statute, FmHA also must make 
production loss loans based on 80 per centum, or such greater per 
centum as determined by FmHA, of the total actual production loss 
sustained by the eligible applicant.
    The existing emergency (EM) loan regulations state that all 
financial disaster assistance/compensation will be considered in 
determining the applicant's eligibility for EM assistance and again in 
calculating the maximum amount of loss loan entitlement. Once 
eligibility is established, then all single enterprises showing a 
production loss are considered in the calculation to determine the 
maximum loss loan entitlement.
    The Agency has concluded that modifications to the current 
provisions are in order. In the 13 years (since 2/13/80) that FmHA has 
employed the present calculation for determining eligibility, there 
have been numerous instances where producers would have suffered 
qualifying losses yet were deemed ineligible for an emergency loss loan 
only because the dollar loss was reduced by the amount of disaster 
related assistance/compensation so that the 30 percent loss level was 
not reached. Based on this experience, it is the Agency's opinion that 
the ability of FmHA to carry out the underlying intent of the program--
to provide loans to farmers who have suffered losses due to natural 
disasters and who cannot obtain credit from private sources--has been 
seriously hindered. For this reason, the Agency has concluded that it 
can best serve these farmers, and thereby meet the goals of the 
program, by revising its regulations as follows.
    The Agency proposes to amend 7 CFR part 1945, subpart D, 
Sec. 1945.163, by revising the applicant eligibility calculation to 
consider only the dollar loss of a single enterprise based on the 
difference in income between the disaster year and the normal year. 
Disaster related assistance/compensation would not be considered in the 
eligibility calculation. The maximum loss loan entitlement, however, 
still would be the sum of production losses to all enterprises less any 
disaster related assistance/compensation and costs not incurred. This 
change is necessary to respond to the extreme financial stress of many 
farmers affected by repetitive natural disasters.
    By changing the EM loan eligibility calculation, more applicants 
will be permitted to qualify for loan assistance. This revision to the 
regulation complies with the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act, 42 U.S.C. 5155, prohibiting the duplication 
of Federal disaster benefits. The amount of the individual EM loss loan 
entitlement will continue to be reduced by the amount of any disaster 
related assistance or compensation received or to be received by the 
applicant. The Agency considered limited legislative history related to 
EM loan legislation (Pub. L. 94-68, August 5, 1975) which suggested 
that a person who had Federal crop insurance which covered a portion of 
the disaster loss might become ineligible by not meeting the 20 percent 
damage test (now 30 percent). The legislative history, however, was 
found unpersuasive and insufficient to require the Agency to continue 
its practice of considering other disaster benefits at the point of EM 
eligibility when not specifically required by statute. The Agency 
proposes these changes with the belief that more farmers in need will 
be assisted and a prudent loan making program will be preserved within 
statutory constraints.
    The Agency also proposes to amend Sec. 1945.169 by requiring 
applicants to purchase multi-peril crop insurance when receiving EM 
loan assistance. CONACT section 321(b) states that an applicant shall 
be ineligible for EM loan assistance for crop losses to an annual crop 
planted or harvested after December 31, 1986, if crop insurance was 
available to the applicant under the Federal Crop Insurance Act. 
However, the Disaster Assistance Acts of 1988 and 1989; the Food 
Agriculture, Conservation, and Trade Act (FACT Act) of 1990; the Dire 
Supplemental Appropriations Act of 1991; and the Supplemental 
Appropriations, Transfers and Recessions Act of 1992 waived this crop 
insurance requirement for losses to annual crops planted for harvest in 
years 1988-1993.
    While these statutes waived the eligibility requirement, the 
Disaster Assistance Acts of 1988 and 1989 and the 1990 FACT Act 
required eligible EM applicants to agree to purchase crop insurance as 
a loan condition, subject to certain exceptions. (The loan would be 
made on the condition that the borrower obtain crop insurance in the 
future, if not already insured.) The Dire Supplemental Appropriations 
Act of 1991 and the Supplemental Appropriations, Transfers and 
Recessions Act of 1992 did not have this requirement. However, upon 
implementing changes required by the 1991 Act, the Agency 
administratively required eligible applicants to obtain crop insurance 
on their 1992 crop in order to receive an EM loan. This administrative 
language was inadvertently omitted when making regulation changes 
required by the 1992 Act.
    The Agency believes it is prudent for applicants to purchase crop 
insurance on the coming year's crop and proposes to once again require 
it as an EM loan condition. Currently, FmHA only encourages EM 
borrowers to obtain FCIC crop insurance or multi-peril crop insurance, 
if available. Most FmHA applicants have limited resources and are 
unable to fully recover from major disasters. Purchasing crop insurance 
will reduce the applicant's risk of incurring devastating losses, and 
will also protect the Government's interest. The Agency, however, has 
provided for two exceptions. If crop insurance is not available, the 
Agency will not require it. In addition, if the premium cost of the 
insurance would prevent the applicant from showing ability to repay the 
loan, the Agency will waive the requirement. The Agency wants to 
provide assistance to such applicants if they can otherwise project 
repayment ability. Thus, the crop insurance requirement will not delay 
the making of needed EM loans or limit the number of loans made since 
crop insurance is only a loan condition which will be waived in the two 
instances noted above.
    The Agency also proposes to amend Sec. 1945.175 by revising the 
requirement for two complete appraisals when the first appraisal 
reflects adequate security for the loan(s). Section 324 (d) of the 
CONACT states that farm security, including land, livestock, and 
equipment, for EM loans will be valued based on the higher of the value 
of the assets on the day before the Governor requests assistance and 
the value of the assets one year before such day. While the two values 
must be considered, the values need not be based on two complete 
appraisals.
    The proposed change indicates that when a real estate appraisal to 
establish the value on the day before the Governor's EM designation 
request reflects adequate security for the loan, the basis for the 
second value for one year and one day before the subject request will 
be documented in an attachment to the appraisal. When the first 
appraisal does not reflect adequate security only the applicable parts 
of a second Form FmHA 1922-1, ``Appraisal Report - Farm Tract,'' 
reflecting the changes between the two dates, will be completed to 
establish the value one year and one day before the Governor's request. 
In cases where there is a physical loss of real estate and funds will 
be used for development, the recommended market value will be as 
improved. This is consistent with general appraisal practices and 
current Form FmHA 1922-1 which includes a provision for the 
contributory value of buildings as improved.
    With respect to chattel appraisals, when the value one year and one 
day before the Governor's request reflects adequate security, the value 
one day before the Governor's request will be established on Form FmHA 
1945-15, ``Value Determination Worksheet,'' by a reasonable estimate. 
This change will reduce Agency processing time and cost in relation to 
Emergency loans.

List of Subjects in 7 CFR Part 1945

    Agriculture, Disaster assistance, Loan programs--Agriculture.

    Therefore, part 1945, chapter XVIII, title 7, Code of Federal 
Regulations, is amended as follows:

PART 1945--EMERGENCY

    1. The authority citation for part 1945 continues to read as 
follows:

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 
2.23; 7 CFR 2.70.

Subpart D--Emergency Loan Policies, Procedures and Authorizations

    2. Section 1945.163 is amended by revising paragraph (d) to read as 
follows:


Sec. 1945.163  Determining qualifying losses, eligibility for EM 
loan(s) and the maximum amount of each.

* * * * *
    (d) Compensation for losses. All financial assistance provided 
through any disaster relief program and all compensation for disaster 
losses received from any source by an EM loan applicant will reduce the 
applicant's loss by the amount of such compensation. All such 
compensation will be considered in determining the maximum amount of 
loss loan entitlement. Disaster related assistance/compensation will 
not be considered in the EM eligibility calculation. The amount of any 
disaster program benefits received from ASCS, including the Emergency 
Feed Assistance Program (EFAP), Emergency Conservation Program (ECP), 
and Disaster Program payments will be considered as compensation for 
losses (ASCS Deficiency Payments are not to be considered as 
compensation).
* * * * *
    3. Section 1945.169 is amended by revising paragraph (j) to read as 
follows:


Sec. 1945.169  Security.

    (j) Crop insurance. All recipients of EM loans must agree, as a 
condition of the loan, to obtain multi-peril crop insurance under the 
Federal Crop Insurance Act for the coming year's crop. When one of the 
conditions of paragraph (j)(1) of this section exists, the approval 
official will document in the applicant's file the basis for not 
requiring crop insurance.
    (1) Applicants will not be required to obtain crop insurance when 
any one of the following conditions exists:
    (i) Crop insurance is not available for the crop, i.e., there is no 
open season and no opportunity to acquire crop insurance.
    (ii) The financial projections on which the loan approval is based 
indicate that the premium cost of the required insurance would prevent 
the applicant from projecting a feasible plan, and thus disqualifying 
the applicant for loan assistance.
    (2) When crops are the primary source of repayment for EM loans, 
FmHA will require an ``Assignment of Indemnity'' on the borrower's crop 
insurance policy(ies).
    (3) When EM loans are based on physical losses only, crop insurance 
will only be required when loan funds will be used for annual 
production expenses. In such cases, the same conditions will apply as 
stated in paragraph (j)(1) of this section.
    (4) When the payment of crop insurance premiums is not required 
until after harvest, the premiums may be paid by releasing insured 
crop(s) sale proceeds, notwithstanding the limits of Secs. 1962.17 and 
1962.29(b) of subpart A of part 1962 of this chapter. If the borrower's 
crop losses are sufficient to warrant an indemnity payment, the premium 
due will be deducted by the insurance carrier from such payment. The 
FmHA County Office will maintain a record on Form FmHA 1905-12, 
``Monthly Expirations,'' of the dates which each borrower's crop 
insurance premium(s) is due. This is in accordance with FmHA 
Instruction 1905-A, a copy of which is available in any FmHA office.
    (5) When an applicant purchases the necessary crop insurance as a 
condition to receiving an EM loan and, after the EM loan is closed, 
allows the policy(ies) to lapse or be cancelled before completion of 
the production year, the borrower will become immediately liable for 
full repayment of all principal and interest outstanding on any EM loan 
made on the condition of obtaining crop insurance. The loan approval 
official will insert this requirement in item 41 of Form FmHA 1940-1, 
``Request for Obligation of Funds,'' which is signed by the applicant 
and the FmHA loan approval official.
* * * * *
    4. Section 1945.175 is amended by revising paragraphs (c)(2), and 
(c)(4) to read as follows:


Sec. 1945.175  Options, planning and appraisals.

(c) Appraisals.
* * * * *
    (2) Real estate appraisals will be completed as provided in subpart 
E of part 1922 of this chapter. However, the value of assets that 
secure EM loans associated with a disaster having any portion of its 
incidence period occurring on or after May 31, 1983, must be based on 
the higher of two values, all of which must be part of the file. These 
values will show:
    (i) The asset value on the day before a State Governor's, Indian 
Tribal Council's, or an FmHA State Director's first EM designation 
request, which is associated with the naming of one or more counties in 
a State as a disaster area where eligible farmers may qualify for EM 
loans; or the asset value one year (365 days) and one day before the 
designation request.
    (ii) Form FmHA 1922-1, will be completed to reflect the recommended 
market value (RMV) as of the day before the Governor's request.
    (A) When the value one day before the Governor's request reflects 
adequate security for the loan(s), the basis for arriving at the second 
value, one year and one day before the Governor's request, will be 
documented in an attachment to the appraisal.
    (B) When the first appraisal does not reflect adequate security 
only the applicable Part(s) 2, 3, 5, 6, 7, and 8 of a second Form FmHA 
1922-1, will be completed to reflect changes between the two dates, and 
establish a value one year and one day before the Governor's request.
    (C) In cases where there is a physical loss of real estate and 
funds will be used for development, the RMV will be as improved.
    (iii) The following types of real estate offered as collateral for 
securing EM loans will be appraised at the present market value only:
    (A) Farm real estate the applicant/borrower did not own on the date 
set forth in paragraph (c)(2)(i) of this section.
    (B) Real estate ``not owned'' by the applicant/borrower (for 
example, a relative if offering real estate as collateral for the 
proposed EM loan).
    (C) A single family dwelling located on a nonfarm tract.
    (D) Other types of real estate such as apartment houses and 
commercial buildings. The County Supervisor will request the assistance 
of the State Director in establishing the value of such real estate.
    (iv) Sales data utilized in the preparation of the necessary 
appraisal(s) should conform to the dates set forth in paragraph 
(c)(2)(i) of this section, to ensure a fair market value of the 
property is established. In addition, it should be confirmed that said 
sales resulted from reasonable sales efforts and that both the buyer 
and seller were willing, informed, and knowledgeable parties.
* * * * *
    (4) Chattel appraisals will be completed on Form FmHA 1945-15, 
``Value Determination Worksheet,'' (EM loans only) when chattels are 
taken as security. The property which will serve as security will be 
described in sufficient detail so it can be identified. Sources such as 
livestock market reports and publications reflecting values of farm 
machinery and equipment will be used as appropriate. The value of 
assets that secure EM loans associated with a disaster having any 
portion of the incidence period occurring on or after May 31, 1983, 
must be based on the higher of two values, all of which must be made 
part of the file. These values will be based on the time periods 
contained in paragraph (c)(2)(i) of this section.
    (i) In those cases where the value one year and one day before the 
Governor's request reflects adequate security, the appraiser or County 
Supervisor will reasonably estimate the value one day before the 
Governor's request.
    (ii) Chattels owned by the applicant, and nonfarm chattel property 
offered as security (such as planes, house trailers, boats, etc.) will 
be appraised at the present market value only. Chattels that the 
applicant/borrower did not own on the dates set forth in paragraph 
(c)(2)(i) of this section will be appraised at the present market value 
only.


    Dated: February 1, 1994.
Bob J. Nash,
Under Secretary for Small Community and Rural Development.
[FR Doc. 94-2777 Filed 2-7-94; 8:45 am]
BILLING CODE 3410-07-U