[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Rules and Regulations]
[Pages 46753-46758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22228]



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DEPARTMENT OF AGRICULTURE
Rural Housing and Community Development Service
Rural Business and Cooperative Development Service
Rural Utilities Services
Consolidated Farm Service Agency

7 CFR Part 1951

RIN 0560-A


Disaster Set-Aside Program

AGENCY: Rural Housing and Community Development Service, Rural Business 
and Cooperative Development Service, Rural Utilities Service, and 
Consolidated Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Consolidated Farm Service Agency (CFSA) is amending its 
regulations to implement the ``Disaster Set-Aside (DSA) Program.'' This 
rule makes the Disaster Set-Aside Program a permanent servicing option 
available to all CFSA Farm Credit Programs borrowers affected by a 
natural disaster. Under this program, the distressed borrower will have 
the opportunity to move the next scheduled annual installment to the 
end of the loan term. The intended effect is to service disaster 
victims in an efficient and timely manner while keeping them in 
business.

EFFECTIVE DATE: Final rule effective September 8, 1995.

FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Loan Officer, 
Consolidated Farm Service Agency, USDA, Farm Credit Programs Loan 
Servicing and Property Management Division, Room 5449, 14th Street and 
Independence Avenue SW., Washington, DC 20250-0774, Telephone (202) 
720-1659.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and therefore has not been reviewed by the Office 
of Management and Budget.

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), Emergency 
Loans, Farm Ownership Loans, and Farm Operating Loans are excluded, 
with the exception of nonfarm enterprise activity, from the scope of 
Executive Order 12372, which requires intergovernmental consultation 
with state and local officials. The Soil and Water Loan Program, 
however, is subject to and has complied with the provisions of 
Executive Order 12372.

Programs Affected

    These changes affect the following 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
10.410--Low Income Housing Loans
10.418--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 agency has 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, an Environmental Impact Statement is not required.

Civil Justice Reform

    This final 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 regulations of 
the agency at 7 CFR subpart B of part 1900 and any additional 
regulations to be published by the Department of Agriculture to 
implement the provisions of the National Appeals Division as mandated 
by the Department of Agriculture Reorganization Act of 1994 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 requirements contained in these 
regulations have been previously 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-

[[Page 46754]]
0163 in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3507). This final rule does not revise or impose any new information 
collection or recordkeeping requirements from those approved by OMB.

Discussion of Final Rule

    The DSA Program was made available to CFSA Farm Credit (FC) 
Programs borrowers through an interim rule published in the Federal 
Register (59 FR 53079) October 21, 1994, with a 30 day comment period 
ending November 21, 1994. The program was designed to assist CFSA FC 
borrowers who were financially distressed because of a natural disaster 
that hit their area in 1993. The financial distress was nationwide due 
to heavy flooding in the Midwest and extreme drought in the South. The 
Agency estimated that considerably more borrowers were affected by 
disasters in 1993 than in any of the previous five years. In order to 
assist farmers suffering from delinquencies and possible farm failures, 
the Agency developed this servicing tool, DSA, that could provide 
immediate financial assistance without a massive amount of paperwork 
and restrictive requirements.
    Under the DSA program, distressed borrowers may be permitted to 
move their next scheduled FC annual installment to the end of the loan 
term to be paid with the final installment. In order to be determined 
distressed, the borrower's net income must have been reduced as a 
result of the disaster causing insufficient income to be available to 
pay all family living and operating expenses, debts to other creditors, 
and CFSA FC payments. As of June 30, 1995, 6,800 borrowers affected by 
a 1993 disaster received DSA assistance.
    Because of the overall success of the program and the many 
favorable comments received from borrowers, farm advocacy groups and 
others, the Agency has amended the regulation to allow DSA to be a 
permanent servicing tool available to all CFSA FC borrowers affected by 
a natural disaster.

Discussion of Revisions and Comments

    In response to the interim rule, five respondents provided twenty-
one comments, two respondents being from farm advocacy groups and three 
from employees within the Agency. Revisions were made for clarification 
in answer to comments. The regulations have also been revised to remove 
administrative procedures. These procedures will instead be available 
in the agency's internal instructions. Forms and exhibits are available 
in any CFSA local or state office.
    Five comments were received in regard to extending the DSA program 
to assist borrowers affected by disasters after 1993. Three of the 
respondents recommended the program be available as a permanent 
servicing option following all natural disasters while one respondent 
recommended only extending the program to include 1994 disasters. Only 
one respondent recommended the program end after assisting farmers 
affected by the 1993 disasters. After careful consideration and 
favorable public response from farm advocacy groups and borrowers, the 
Agency has decided to make the DSA program available as a permanent 
servicing option to all borrowers affected by a disaster. By making 
this program available, the Agency believes that borrowers who would 
not be able to obtain emergency loans under subpart D of part 1945 of 
this chapter because of percent of loss or lack of collateral, or who 
cannot receive servicing under subpart S of part 1951, may be able to 
defer their FC payments in order to stay in business and avoid 
liquidation. It is also feasible to conclude that if the FC 
installments are set-aside, any Emergency loan the borrower is eligible 
for and still needs could be used to pay other creditors or provide for 
annual operating expenses. The Agency believes that borrowers eligible 
for this program will receive immediate financial relief from their FC 
payment obligations in a more expedient manner than under subpart S of 
part 1951. For example, the application process is simple and easy, 
unlike the primary loan servicing application under subpart S of part 
1951 which requires extensive documentation by both the borrower and 
the servicing official. There are no additional security requirements 
to deter the borrower from requesting DSA and the Agency's position is 
more secure as no debt is written off. Also, based on the actual number 
of borrowers who received set-aside, the Agency was able to provide 
financial assistance within a few days whereas under subpart S of part 
1951, it takes an average of 90 days to process an application and 
restructure a loan.
    Because this program is promulgated pursuant to section 331A of the 
Consolidated Farm and Rural Development Act (CONACT) (see discussion in 
the interim rule at 59 Fed. Reg. 53080, October 21, 1994), the Agency 
does not consider the program to be a primary loan service program as 
defined in section 343(b)(3) of the CONACT, which would require the 
program to be part of the 1951-S process. This would be 
counterproductive to the purpose of the DSA program which is intended 
to provide immediate financial relief for one installment only. 
Moreover, this rule, like the interim rule in section 1951.957, states 
that borrowers cannot receive both 1951-T and 1951-S servicing when 
applications for both programs are pending. If DSA is granted, the one 
delinquent installment eligible for set-aside is serviced and the 
borrower is no longer delinquent. If 1951-S primary loan servicing is 
provided, the delinquency is cured by restructuring with or without 
debt writedown. At any event, as stated in section 1951.957(a)(2), 
borrowers may resubmit an application in accordance with 1951-S of this 
part for additional servicing after DSA has been received.
    Since the DSA program will be made available to cover future 
disasters, the Agency has imposed a limitation that restricts future 
set-aside on a loan if there is already a payment still set-aside. If 
the borrower received set-aside on three of four loans and later 
requests set-aside because of another disaster, the borrower may only 
receive set-aside on the loan that does not already have a payment set-
aside. If the set-aside is paid in full, or the loan with set-aside is 
later restructured under subpart S of part 1951, the set-aside will no 
longer exist and therefore the loan could again be considered for DSA 
under future disasters. This limitation was imposed to restrict a 
continual build up of payments being set-aside to the end of the loan 
when restructuring the debt under subpart S of part 1951 would have 
been the most effective servicing action.
    One respondent recommended that attorneys for borrowers in 
bankruptcy be notified of the DSA program with a copy to the borrower. 
The Agency did not adopt this comment. The letter sent to the borrower 
is for information only. It is not specifically addressed to the 
borrower nor does it require the borrower to do anything that if not 
done, will cause the Agency to liquidate. Furthermore, borrowers in 
bankruptcy are not serviced under this subpart while under court 
jurisdiction. Agency regulations for servicing borrowers who have filed 
bankruptcy petitions are found in subpart A of part 1962.
    One respondent suggested that the regulation and the informational 
letter be clarified to state that if a determination cannot be made 
based on the borrower's actual records, the borrower may have to 
provide evidence that all expenses and/or debts could not 

[[Page 46755]]
be paid as projected. The same respondent suggested that for borrowers 
whose crop is not harvested until the following year, that actual 
records for both the disaster year and the year in which the income is 
received be submitted to the Agency. The Agency adopted the first 
comment by adding a statement that other information may be requested 
by the servicing official when needed to make an eligibility 
determination. Instances when other information may be needed are when 
the borrower did not have a plan already prepared for the disaster year 
or the disaster affected the following year's production in which a 
plan or actual records for that year may be needed. No changes were 
made as a result of the second comment since the regulation already 
requires the borrower to provide actual records for the production/
marketing period in which the disaster occurred. This requirement 
should cover those commodities produced in one year and marketed the 
next. The Agency has also clarified in the eligibility requirements 
that consideration may be given to loss of income in the following year 
as a result of the disaster causing insufficient income to pay all 
expenses and debts for that year. An example may be that the borrower's 
feed was destroyed causing the borrower to purchase poorer quality feed 
which in turn caused a decrease in milk production.
    Two respondents recommended the regulation be clarified to state 
that the borrower must have been a borrower at the time of the disaster 
and continued to be a borrower to the present time. Another respondent 
recommended that set-aside only be granted on loans outstanding at the 
time of the disaster. The Agency has adopted these suggestions by 
requiring that the borrower must have been a borrower and the loan 
being set-aside must have been outstanding at the time of the disaster. 
This clarification further enforces the intent of the program to assist 
borrowers who were affected by a disaster and were unable to make their 
payments; or if they were able to make their FC payments, they could 
not pay all their other creditors. If a borrower was not a borrower at 
the time of the disaster, then there were no payments to the Agency 
that could not be paid as a result of the disaster. If the Agency made 
a loan to the borrower after the disaster, a feasible farm and home 
plan would have been developed in order for the Agency to approve a 
loan and the affects of the disaster should have already been taken 
into consideration when the plan was developed. It is not the Agency's 
intent to make a loan to a borrower and then turn around and set-aside 
the first installment unless the loan was made prior to the disaster. 
The Agency has also clarified that borrowers paying under a debt 
settlement adjustment in accordance with subpart B of part 1956 are not 
eligible for DSA as these such borrowers are liquidating their debt, 
not continuing with it.
    One respondent recommended that the regulation clarify that 
borrowers in bankruptcy who are still under court jurisdiction are 
considered in non-monetary default and are not eligible for the DSA 
program. The Agency has adopted this recommendation by clarifying that 
borrowers in bankruptcy or under court jurisdiction are considered in 
nonmonetary default. Borrowers under a confirmed plan who are still 
under court jurisdiction may obtain similar type servicing with a 
modification of their bankruptcy plan through the bankruptcy court as 
set forth in subpart A of part 1962. The Agency chose to exclude 
borrowers in bankruptcy from this subpart's servicing because the 
intent of the program was to expedite the servicing process to resolve 
the borrower's immediate financial distress. If the borrower is in 
bankruptcy, court approval is needed, thereby causing additional delays 
in servicing the borrower.
    One respondent recommended an exception to allow borrowers who were 
restructured after the disaster to receive DSA if the restructure did 
not take into account the impact of the reduction in income or increase 
in expenses caused by the disaster. In other words, the impact was not 
known until harvest season and therefore the restructure did not cure 
the borrower's financial distress caused by the disaster. While this 
comment may be well taken since the DSA program was not available until 
October 21, 1994, these borrowers situations should have already been 
resolved through the exception authority or considered for 1951-S 
servicing. Therefore, the Agency did not revise its regulations to 
incorporate this specific exception. Because the Agency believes that 
there will be few of these cases in the future, it prefers to rely on 
its general exception authority contained in section 1951.959 for those 
few cases which may arise.
    One respondent recommended that borrowers who received a confirmed 
bankruptcy plan after the disaster and are no longer under court 
jurisdiction should not be eligible for DSA as this is similar to a 
borrower being restructured under subpart S of part 1951. The Agency 
did not adopt this comment because generally speaking it has been the 
Agency's policy to recognize that the Bankruptcy Code provides entirely 
different relief than the Agency's regulations. For example, section 
1951.909(e)(4)(vi) states that a writedown received in bankruptcy will 
not count toward a borrower's lifetime limit of one writedown nor will 
it count in the $300,000 per borrower limit.
    Three respondents recommended the Agency allow up to the third 
annual installment to be set-aside in the event the borrower has 
already paid the installment due after the disaster and the very next 
installment. The Agency understands the concerns of the respondents. 
The regulation was published in late October 1994 with borrowers being 
notified soon thereafter. By this date, many borrowers who were 
affected by the disaster had already paid their installment due after 
the 1993 disaster, such as their January 1, 1994 installment, and 
because they were on an assignment to pay periodic payments throughout 
the year such as from milk production or hog sales, their January 1, 
1995 installment was paid or almost paid by the time the regulation was 
issued. The same is true for borrowers not on an assignment who paid 
early in the year from production sales. It is understandable that even 
though the FC payments were paid, they still may not have been able to 
pay their other creditors because of the loss they suffered from the 
1993 disaster. Borrowers not on an assignment or who did not pay early 
received full benefit of the DSA program because the income they 
received was paid to other creditors instead of paying their FC 
payments. Therefore, in order to provide all borrowers recovering from 
a disaster with the same opportunity to apply and receive DSA, the 
Agency has revised the regulations to allow borrowers who were affected 
by a disaster in 1994 to set-aside the next installment due, up to the 
third installment due after the disaster occurred. For all disasters 
thereafter, only the installment due immediately after the disaster or 
the very next one after that will be set-aside.
    Two respondents recommended that the regulation be clarified to 
limit the amount set-aside to the amount the borrower cannot pay or by 
how much the borrower needs set-aside to develop a feasible cash flow 
for the next year. This is consistent with subpart B of part 1924 in 
which the borrower must pay the FC payments if able to do so, and 
subpart A of part 1962 for required use of security proceeds. The 
Agency has adopted this comment by limiting the amount to be set-aside 
by the lesser of the amount the borrower was unable to pay CFSA during 
the production/

[[Page 46756]]
marketing period in which the disaster occurred, or the amount the 
borrower was unable to pay other creditors and/or expenses, rounded up 
to the nearest whole installment. Expenses which the borrower is unable 
to pay may include the following year's operating and family living 
expenses if the income or commodities lost from the disaster year would 
have been used for these purposes, or if normal income security from 
the disaster year is approved for release under subpart A of part 1962 
or otherwise authorized under subpart B of part 1924 for these 
purposes. Under no circumstances will a portion of the installment be 
set-aside leaving a balance still due. The portion not set-aside must 
be paid by the borrower on or before the date exhibit A to FmHA 
Instruction 1951-T (available in any CFSA local or state office) is 
signed.
    One respondent recommended that the regulation be revised to allow 
for at least 30 days for the borrower to sign the addendum instead of 
up to 30 days. This would allow the Agency some flexibility in cases 
where the Agency's approval is contingent upon the borrower doing 
something to be eligible, such as paying a portion of the FC payments 
from proceeds that may not be available until after the 30 day period 
expires. The Agency has adopted this comment by revising the regulation 
to allow the County Supervisor to provide for a longer period of time 
to sign the addendum not to exceed 90 days under extenuating 
circumstances.
    Two comments were received from one respondent to revise the 
addendum to only state the total amount set-aside on the loan since the 
Agency's accounting system does not allow the servicing official to 
calculate the amount of principal and interest that can be set-aside, 
and to state that if the borrower receives set-aside, the borrower's 
primary and preservation loan servicing application will be withdrawn, 
instead of just the primary loan servicing application. The Agency has 
adopted these comments.
    The Agency also added another condition for cancelling and 
reversing DSA. The interim rule required cancellation when the borrower 
is later restructured with primary loan servicing. It also allowed for 
reversal of the DSA prior to the first scheduled annual installment 
coming due after the DSA is granted when a writedown, buyout, or 
operating loan assistance is needed. This rule requires cancellation 
when it is determined that the DSA was unauthorized because it was not 
provided in accordance with these regulations. If the Agency cancels 
DSA because the assistance was unauthorized, borrowers will be notified 
of the reasons for the decision, and provided with an opportunity to 
appeal. By reserving the authority to cancel DSA when it is 
unauthorized, the Agency is clarifying inherent Government authority to 
reverse transactions which are not in accordance with existing law. The 
Agency has discovered several instances of unauthorized assistance 
under the interim rule. It is in the public interest to correct these 
errors.
    The Agency has also removed all reference to the 1993 disaster year 
from this rule since the time period for borrowers affected by a 1993 
disaster has passed. (The interim rule allowed until July 1, 1995 to 
apply). Borrowers affected by a 1994 disaster through the date the 
final rule is published will have 8 months from the date they are 
notified of DSA to apply. For all future disasters, borrowers will have 
8 months from the date the county is designated a disaster area, which 
is consistent with the time period to apply for an Emergency Loan in 
accordance with subpart A of part 1945.

List of Subjects in 7 CFR Part 1951

    Account servicing, Credit, Loan programs--Agriculture, Loan 
programs--Housing and community development, Low and moderate income 
housing loans--Servicing, Debt restructuring.

    Accordingly, part 1951, Chapter XVIII, title 7, Code of Federal 
Regulations is amended as follows:

PART 1951--SERVICING AND COLLECTIONS

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

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

    2. Subpart T, Secs. 1951.951 through 1951.1000, is revised to read 
as follows:

PART 1951--SERVICING AND COLLECTIONS

Subpart T--Disaster Set-Aside Program

Sec.
1951.951  Purpose.
1951.952  General.
1951.953  Notification and request for DSA.
1951.954  Eligibility and loan limitation requirements.
1951.955  -1951.956 [Reserved]
1951.957  Eligibility determination and processing.
1951.958  Cancellation and reversal of DSA.
1951.959  Exception authority.
1951.960  -1951.999 [Reserved]
1951.1000  OMB control number.

Subpart T--Disaster Set-Aside Program


Sec. 1951.951  Purpose.

    This subpart sets forth the policies and procedures for the 
Disaster Set-Aside (DSA) Program. The DSA program is available to Farm 
Credit (FC) Programs borrowers, as defined in subpart S of this part, 
who suffered losses as a result of a natural disaster. FC loans that 
may be serviced under this subpart include Farm Ownership (FO), 
Operating (OL), Soil and Water (SW), Emergency (EM), Economic Emergency 
(EE), Special Livestock (SL), Economic Opportunity (EO), Softwood 
Timber (ST), Recreation (RL), and Rural Housing loans for farm service 
buildings (RHF). Nonprogram (NP) farm type loans may be serviced under 
this subpart for borrowers who also have FC loans.


Sec. 1951.952  General.

    DSA is a program whereby borrowers who are current or not more than 
one installment behind on any and all FC loans may be permitted to move 
one scheduled annual installment for each eligible FC loan to the end 
of the loan term. The intent of this program is to relieve some of the 
borrower's immediate financial stress caused by the disaster and avoid 
foreclosure by the Government. DSA is not intended to circumvent the 
servicing available under subpart S of this part.


Sec. 1951.953  Notification and request for DSA.

    (a) Notification. The Consolidated Farm Service Agency (CFSA) 
servicing office will notify FC borrowers of the availability of DSA 
and how to apply within 30 days from the date the servicing office is 
notified of the disaster designation as determined in accordance with 
subpart A of part 1945. Only FC borrowers who were borrowers at the 
time of the disaster and operated a farm or ranch in a county 
designated a disaster area or contiguous county will be notified. Those 
borrowers whose FC loan has been accelerated, restructured after the 
disaster, or who only have NP loans will not be notified. Notification 
of the DSA program will not affect the notification requirements 
contained in subpart S of this part.
    (b) Deadline to apply. All FC borrowers liable for the debt must 
request DSA within 8 months from the date the disaster was designated, 
except borrowers affected by a disaster occurring in years 1994 and 
1995 where counties or contiguous counties were designated prior to the 
date of this subpart will have 8 months from the 

[[Page 46757]]
date of DSA notification. Borrowers may only be considered for DSA one 
time for each disaster.
    (c) Information needed to apply.
    (1) A written request for DSA signed by all parties liable for the 
debt; and
    (2) Actual production, income, and expense records for the 
production and marketing period in which the disaster occurred. Other 
information may be requested by the servicing official when needed to 
make an eligibility determination.
Sec. 1951.954  Eligibility and loan limitation requirements.

    (a) Eligibility requirements. The following requirements must be 
met to be eligible for DSA:
    (1) The borrower must have operated a farm or ranch in a county 
designated a disaster area or a county contiguous to such an area. The 
borrower must have been a borrower and operated the farm or ranch at 
the time of the disaster.
    (2) The borrower must have acted in good faith as defined in 
Sec. 1951.906 of subpart S of this part.
    (3) All nonmonetary defaults must have been resolved. This means 
that even though the borrower has acted in good faith, the borrower may 
still be in default for reasons, such as, but not limited to: no longer 
farming, prior lienholder foreclosure, bankruptcy or under court 
jurisdiction, not properly maintaining chattel and real estate 
security, not properly accounting for the sale of security, or not 
carrying out any other agreement made with the Agency.
    (4) The borrower must be current or not more than one installment 
behind on any and all FC loans at the time the scheduled installment 
will be set-aside. Borrowers paying under a debt settlement adjustment 
agreement in accordance with subpart B of part 1956 are not eligible.
    (5) As a direct result of the disaster, sufficient income was not 
available to pay all family living and operating expenses, debts to 
other creditors, and CFSA. This determination will be based on the 
borrower's actual production and income and expense records for the 
disaster year and any other records required by the servicing official. 
Compensation received for losses shall be considered as well as 
increased expenses incurred because of the disaster. Consideration will 
also be given to insufficient income for the next production and 
marketing period following the disaster if the borrower establishes 
that production will be reduced or expenses increased as a result of 
the disaster.
    (6) After the scheduled installments are set-aside, all FC and NP 
farm type loans must be current.
    (7) The borrower's FC loan has not been accelerated nor has the 
borrower's debt been restructured under subpart S of this part since 
the disaster occurred.
    (b) Loan limitation requirements.
    (1) The loan must have been outstanding at the time of the 
disaster.
    (2) Only one unpaid installment for each FC loan may be set-aside. 
If there is an installment still set-aside from a previous disaster, 
the loan is not eligible for DSA. If the set-aside is later paid in 
full, or cancelled through restructuring under subpart S of part 1951, 
the set-aside will no longer exist and therefore the loan may be 
considered for DSA under future disasters.
    (3) The term remaining on the loan receiving DSA equals or exceeds 
2 years from the due date of the installment being set-aside.
    (4) The amount set-aside shall be limited to the lesser of the 
amount the borrower is unable to pay CFSA from the production and 
marketing period in which the disaster occurred, or the amount the 
borrower is unable to pay other creditors and/or expenses rounded up to 
the nearest whole installment. Expenses which the borrower is unable to 
pay may include the following year's operating and family living 
expenses if the income or commodities lost from the disaster year would 
have been used for these purposes, or if normal income security from 
the disaster year is approved for release under subpart A of 7 CFR part 
1962 or otherwise authorized under subpart B of 7 CFR part 1924 for 
these purposes. Under no circumstances will a portion of the 
installment be set-aside leaving a balance still due. The portion not 
set-aside must be paid by the borrower on or before the date exhibit A 
of FmHA Instruction 1951-T (available in any CFSA office) is signed.
    (5) The installment that may be set-aside is limited to the first 
scheduled annual installment due immediately after the disaster 
occurred, unless that installment is paid, then the next scheduled 
annual installment after that may be set-aside. For borrowers affected 
by a 1994 disaster who already paid both of these installments, the 
third scheduled installment to come due after the disaster may be set-
aside.
    (6) The amount set-aside will be the unpaid balance remaining on 
the installment at the time the borrower signs exhibit A of FmHA 
Instruction 1951-T (available in any CFSA office.) This amount will 
include the unpaid interest and any principal that would be credited to 
the account as if the installment were paid on the due date taking into 
consideration any payments applied to principal and interest since the 
due date. Recoverable cost items charged to FO, SW, and RHF loans may 
be set-aside with the annual installment. Cost items identified with a 
loan number different from the parent loan cannot be set-aside.


Secs. 1951.955-1951.956  [Reserved]


Sec. 1951.957  Eligibility determination and processing.

    (a) Eligibility determination. Upon receipt of a DSA request, the 
County Supervisor will determine whether the borrower meets the 
requirements set forth in 1951.954. Approval shall be contingent upon 
the borrower's continuing eligibility through the signing of Exhibit A.
    (1) The borrower has up to 30 days to sign exhibit A of FmHA 
Instruction 1951-T (available in any CFSA office), for each loan 
installment set-aside. The County Supervisor may provide for a longer 
period of time not to exceed 90 days under extenuating circumstances, 
including but not limited to situations where the Agency's approval is 
contingent upon the borrower doing something to be eligible, such as 
paying a portion of the FC payments from proceeds that may not be 
available until after the 30 day period.
    (2) Pending requests for primary loan servicing will continue to be 
considered in accordance with subpart S of this part. However, 
borrowers are not eligible for servicing under both programs. The 
application for the program not received will automatically be 
withdrawn at the time the installment is set-aside or the loan 
restructured, whichever is applicable. The automatic withdrawal is not 
appealable because the borrower is no longer delinquent. If the 
borrower again becomes delinquent or in financial distress, or requests 
primary loan servicing, the borrower will be notified or the request 
processed in accordance with subpart S of this part.
    (b) Processing.
    (1) [Reserved.]
    (2) Interest will accrue on any principal amount set-aside at the 
same rate charged the non-set-aside portion. Interest will not accrue 
on the interest portion set-aside. Limited resource interest rate 
changes will affect the principal set-aside.
    (3) The amount set-aside, including interest accrual on any 
principal set-aside, will be due on or before the final due date of the 
loan.
    (4) There are no additional security requirements attached to the 
DSA program. All existing security instruments will remain in effect. 

[[Page 46758]]

    (5) [Reserved.]
    (6) [Reserved.]
    (7) Payments applied to the amount set-aside will be applied first 
to interest and then principal.
    (c) Adverse determination. If the borrower becomes more than one 
installment behind on any FC loan while processing the DSA request, or 
while an appeal is being considered, and the second installment cannot 
be paid current prior to exhibit A of FmHA Instruction 1951-T 
(available in any CFSA office) being signed, the DSA request will be 
denied.


Sec. 1951.958  Cancellation and reversal of DSA.

    (a) Reasons for cancellation. The set-aside may be reversed and 
exhibit A of FmHA Instruction 1951-T cancelled under the following 
described situations:
    (1) The loan is later restructured with primary loan servicing, 
(the total unpaid balance must be restructured);
    (2) If prior to the first scheduled installment due date after set-
aside, the servicing official determines that the current borrower, if 
delinquent, would qualify for a writedown or net recovery buyout in 
accordance with subpart S of part 1951, or operating loan assistance in 
accordance with Sec. 1941.14 of subpart A of 7 CFR part 1941; or
    (3) When it has been determined that the borrower was provided 
unauthorized DSA assistance. (The set-aside will be cancelled after all 
appeal rights are exhausted. The set-aside will be removed from the 
account and the payment terms of the original promissory note will be 
retained as if DSA was never granted. Borrowers financially distressed 
or delinquent after reversal of the set-aside will be serviced in 
accordance with subpart S of this part).
    (b) Reserved.


Sec. 1951.959  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart which is not inconsistent 
with the authorizing statute or other applicable law if it is 
determined that application of the requirement or provision would 
adversely affect the Government's interest. The Administrator will 
exercise this authority upon the request of the State Director with the 
recommendation of the Deputy Administrator for Farm Credit Programs, or 
upon request initiated by the Deputy Administrator for Farm Credit 
Programs.


Secs. 1951.960-1951.999  [Reserved]


Sec. 1951.1000  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0575-0163. Public reporting burden for this collection 
of information is estimated to be 15 minutes per response, including 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Office OIRM, Room 404-W, Washington DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB# 0575-0163), Washington, DC 20503.

    Dated: August 31, 1995.
Eugene Moos,
Under Secretary, Farm and Foreign Agricultural Services.
[FR Doc. 95-22228 Filed 9-7-95; 8:45 am]
BILLING CODE 3410-07-U