[Federal Register Volume 65, Number 177 (Tuesday, September 12, 2000)]
[Proposed Rules]
[Pages 54973-54981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23226]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 65, No. 177 / Tuesday, September 12, 2000 / 
Proposed Rules  

[[Page 54973]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1945

RIN 0560-AF72


Streamlining of the Emergency Farm Loan Program Loan Regulations

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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

SUMMARY: The Farm Service Agency (FSA) proposes to amend regulations to 
streamline the Emergency loan requirements to make them clearer and to 
reduce administrative burdens on FSA and borrowers.

DATES: Comments on the proposed rule must be received on or before 
November 13, 2000 to be assured of consideration. Comments on the 
information collection requirements of this rule must be received on or 
before November 13, 2000 to be assured of consideration.

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

FOR FURTHER INFORMATION CONTACT: Mike Hinton, Branch Chief, Loan Making 
Division, Farm Loan Programs, Farm Service Agency, United States 
Department of Agriculture, STOP 0522, 1400 Independence Avenue, SW, 
Washington, DC 20250-0522 telephone (202) 720-1632; or e-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant under Executive 
Order 12866 and has been reviewed by the Office of Management and 
Budget.

Regulatory Flexibility Act

    This rule will not have a significant economic impact on a 
substantial number of small entities. New provisions included in this 
rule will not impact small entities to a greater extent than large 
entities. Therefore, this action is determined to be exempt from the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 605) and no 
Regulatory Flexibility Analysis was prepared.

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.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G. It has been determined that this action does not affect the 
quality of human environment. Therefore, an Environmental Impact 
Statement is not required.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, civil justice reform. All State and local laws and regulations 
that are in conflict with this rule will be preempted. No retroactive 
effect will be given to this rule. It will not affect agreements 
entered into prior to the effective date of the rule. The 
administrative appeal provisions published at 7 CFR parts 11 and 780 
must be exhausted before bringing any action for judicial review.

Executive Order 12372

    The programs within this rule are excluded from the scope of 
Executive Order 12372, which requires intergovernmental consultation 
with State and local officials. See the Notice related to 7 CFR part 
3015, subpart V (48 FR 29115, June 24, 1983).

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
established requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments or the 
private sector. This rule contains no Federal mandates, as defined in 
Title II of the UMRA, for State, local, and tribal governments or the 
private sector. Therefore, this rule is not subject to the requirements 
of sections 202 and 205 of UMRA.

Paperwork Reduction Act of 1995

    In accordance with section 3507(j) of the Paperwork Reduction Act 
of 1995 (44 U.S.C. chapter 35), the information collection and 
recordkeeping requirements included in the proposed rule have been 
submitted for approval to OMB.
    Title: Emergency Loans.
    OMB Control Number: 0560-0159.
    Expiration Date: March 31, 2001.
    Abstract: The information collected under this rule is needed for 
FSA to effectively make and service Emergency loans. The reporting 
requirements imposed by the proposed rule are necessary to administer 
Emergency loans in accordance with statutory requirements of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.) 
consistent with commonly performed lending practices.
    In order to apply for an Emergency loan, the applicant must provide 
information regarding the farming operation, financial condition, 
ability to obtain other credit, plans for how it intends to repay the 
loan, and loan security. If the borrower seeks loan servicing, the 
borrower must provide information regarding the financial condition of 
the borrower.
    The purpose of the proposed rule is to streamline the requirements 
for making an Emergency loan to enable FSA to more rapidly and 
efficiently make Emergency loans to qualified applicants.
    Type of Request: Revision and Extension of a Currently Approved 
Information Collection Package.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 2.94 hours per loan application.
    Respondents: Farmers and ranchers: 4,664.

[[Page 54974]]

    Estimated Number of Respondents: 6,895.
    Estimated Number of Responses per Respondent: 2.34.
    Estimated Total Annual Burden on Respondents: 13,714 hours.
    Comments are solicited on the proposed information collection and 
recordkeeping to assist FSA to: (a) Evaluate whether the collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) evaluate the accuracy of FSA's estimate of burden 
including the validity of the methodology and assumptions used; (c) 
enhance the quality, utility and clarity of the information to be 
collected; and (d) minimize the burden of the collection of information 
on those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology.
    Comments regarding this information collection should be sent to 
the Desk Officer for Agriculture, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Washington, DC 20503 and to 
Mike Hinton, Branch Chief, Loan Making Division, Farm Loan Programs, 
Farm Service Agency, United States Department of Agriculture, STOP 
0522, 1400 Independence Avenue, SW, Washington, DC 20250-0522. A 
comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication of the proposed rule. 
Comments regarding paperwork burden will be summarized and included in 
the request for OMB approval of the information collection. All 
comments will also become a matter of public record.

Federal Assistance Programs

    These changes affect the following FSA program as listed in the 
Catalog of Federal Domestic Assistance under No. 10.404--Emergency 
Loans.

Background

    The current Emergency loan program has been in effect since 1978. 
There have been numerous changes to the program in subsequent years. 
The Agency has reviewed the current regulations and determined that 
they should be streamlined to reduce the burden on the applicant. 
Recent statutory changes also have required revisions to the 
regulations to ensure that they reflect statutory requirements.
    The proposed rule will revise the documentation requirement of the 
credit elsewhere test to reduce the burden of this requirement on 
applicants in accordance with section 322 of the Consolidated Farm and 
Rural Development Act (Act) (7 U.S.C. 1962). The current regulations 
contain requirements regarding obtaining written rejections of credit 
from the local community that exceed those required by the Act. Under 
the proposed rule, these requirements have been reduced to more 
accurately reflect the minimum requirements of the Act and to focus 
these requirements on applications for larger loans and from applicants 
with substantial net worth. This proposed rule provides that in the 
case of loans in excess of $300,000 where the applicant's net worth is 
in excess of $1,000,000, the applicant must obtain three written 
declinations of credit and at least one of which must be from a lender 
outside the normal trade area of the applicant. The purpose for 
requiring a declination of credit outside the normal trade area is to 
ensure that an applicant with a substantial net worth seeking a large 
loan has made the fullest effort to obtain credit from another source 
within the reasonable proximity. For the remaining applicants, the 
requirements for obtaining written declinations of credit have been 
reduced to two in the case of loans in excess of $300,000 and to one in 
the case of loans less than $300,000. The proposed rule also will add a 
provision that permits waiver of the documentation of credit elsewhere 
when the loan is for less than $100,000, if the Agency determines this 
requirement would pose an undue burden on the applicant and credit is 
not likely to be available based on the applicant's circumstances.
    The proposed rule also will simplify the process for calculating 
qualifying production losses for which an applicant may seek an 
Emergency loan. The current regulation has a very complex set of 
formulas for determining qualifying production losses. As a result, the 
current process consumes substantial amounts of time for FSA and the 
applicant before FSA can determine if the applicant is eligible and, if 
eligible, how much may be borrowed. The Agency proposes to calculate 
the eligible production loss as the difference between the production 
level for the disaster year and the production history for the crops on 
the farm. The production history for the farm will be based on crop 
insurance and FSA data. In cases where sufficient production history is 
not available, the 3 year county production average for the crop will 
be used. In addition, in order to provide more assistance to borrowers, 
the proposed rule will exercise FSA discretion in section 329 of the 
Act (7 U.S.C. 1970) to increase the loan level for production loss 
Emergency loans from 80 percent to 100 percent of the eligible 
production loss.
    The proposed rule provides that a borrower may use the proceeds of 
a production loss Emergency loan for the purposes of replacing working 
capital lost as a result of the disaster. In the current regulation, 
replacement of working capital is not a specifically stated authorized 
use of loan funds. Over the years, however, FSA has determined that in 
responding to a disaster a borrower not only may experience a loss in 
production of the crop, but also may have to devote working capital set 
aside for the production of crops for other purposes in response to the 
disaster. Section 323 of the Act (7 U.S.C. 1963) provides that 
Emergency loans can be used for the same purposes as operating and real 
estate loans. Section 312 (a)(10) of the Act (7 U.S.C. 1942 (a)(10)), 
in turn, provides that operating loans may be used for ``other farm, 
ranch, or home needs''. The proposed rule clarifies that production 
loss Emergency loans may be used for other farm, ranch, or home needs, 
including but not limited to the replacement of working capital lost.
    Under the proposed rule, livestock losses will be treated as a 
physical loss instead of a production loss as under the current rule. 
This change will simplify the loss calculation for livestock by 
allowing FSA to value the livestock lost instead of attempting to apply 
a production formula which is more applicable to crop production than 
to the production of livestock. This change also will remove livestock 
and livestock products losses from the requirement that they must reach 
a 30 percent yield loss threshold as required for all production 
losses. This change is based on the conclusion that yield loss 
thresholds are not readily determinable or relevant in the livestock 
context. Therefore, FSA has determined to simply use the loss of 
livestock or production itself as the basis for determining the loss 
for loan eligibility purposes.
    The proposed rule will make a conforming change to the use of loan 
proceeds in the case of farming operations that have suffered a 
physical loss of livestock. The proposed rule will allow the borrower 
to pay essential family household expenses from the proceeds of a 
physical loss Emergency loan. Under the current rule, livestock 
operations are able to pay essential family household expenses from 
loan proceeds because the losses are treated

[[Page 54975]]

as production losses. The proposed rule will retain the ability for 
those with production loss loans to use loan proceeds for essential 
family household expenses; however, under the proposed rule, since 
livestock and livestock product losses are treated as physical losses, 
a change was needed to allow such livestock operations to use physical 
loss loan proceeds to pay essential family household expenses.
    The proposed rule will specifically allow the costs of restoring 
perennials the produce an agricultural commodity to their pre-disaster 
condition as an eligible purpose for physical loss loans for the losses 
to chattel. Exhibit D to 7 CFR part 1945, subpart D, currently provides 
that such loans may be used to pay the costs for restoring or 
rehabilitating damaged citrus trees over a period of up to five years. 
Section 1945.163 (b) further provides that actual physical loss from 
income producing trees includes the cost of reestablishing the trees; 
such loss from trees grown for timber is based on the value of the 
trees at the time of the disaster less their salvage value, and such 
loss to growing crops or pasture is the cost of reestablishing the 
crops or pasture. After replacing such perennials after a disaster, the 
borrower may incur additional costs for several years until the 
perennials are able to produce agricultural commodities. Therefore, the 
proposed rule clearly states that the proceeds of physical loss loans 
for chattels may be used to pay costs necessary to restore perennials 
which were damaged by the disaster and that produce agricultural 
commodities.
    The proposed rule will modify the requirements regarding security 
for Emergency loans. Section 802 of the Agriculture, Rural Development, 
Food and Drug Administration, and Related Agencies Appropriation Act, 
1999, amended section 324(d) of the Act to prohibit FSA from rejecting 
an Emergency loan applicant because the applicant failed to pledge a 
particular amount of collateral, if FSA is reasonably certain the 
applicant can repay the loan. However, section 324(d) also allows FSA 
to require the applicant to pledge available collateral as security for 
the loan.
    Therefore, the proposed rule will eliminate the requirement that an 
Emergency loan must be secured by a particular amount of collateral. 
The proposed rule will require the applicant to demonstrate an ability 
to repay the loan on an on-going operational basis, excluding special 
one-time sources of income or expenses. Because the ability to repay is 
a method for determining whether the loan will be repaid, the proposed 
rule has tightened the requirements concerning the farm plan supporting 
the loan application. This determination will be based on a farm plan 
which must indicate the loan will be repaid based upon the applicant's 
production and income history. The plan must also indicate how pricing 
risks will be addressed through the use of marketing contracts, 
hedging, options, or revenue insurance and include a marketing plan or 
similar risk management practice. Further, the applicant must 
demonstrate that it has had positive net cash income in at least 1 of 
the immediately preceding 5 years. The proposed rule also will provide 
that if the applicant is using the applicant's ability to repay the 
loan as security, FSA shall require that the applicant pledge all 
available assets (including personal assets for both individuals and 
members of entities).
    The proposed rule will include changes regarding the insurance 
requirements to protect FSA's interests in loan security. The proposed 
rule will retain the current requirement that a borrower must obtain at 
least catastrophic risk protection of crop insurance or waive future 
emergency crop loss assistance for each crop that is a basic part of an 
applicant's total farming operation, if available, in writing. However, 
the proposed rule will add an exception that a borrower must obtain 
crop insurance on all growing crops used to provide adequate security, 
if available as determined by the Agency. This additional insurance 
requirement is being imposed to provide further protection for FSA with 
respect to growing crops being used to meet adequate security 
requirements. For all types of insurance required for an Emergency 
loan, the proposed rule also requires the borrower to list FSA as loss 
payee for the insurance indemnity payment or as a beneficiary of a 
mortgage loss payable clause. This change will ensure that FSA is able 
to obtain the portion of such insurance proceeds that represented 
security for the loan if an insurance indemnity is paid. The proposed 
rule will require that in the case of crop insurance, the borrower must 
execute an assignment of indemnity in favor of FSA. Such an assignment 
will also ensure that FSA will be able to collect the portion of such 
indemnity payments in which it has an interest.
    The proposed rule also will eliminate the limitations on the amount 
given to the applicant at loan closing for essential family household 
expenses. Instead of limiting the amount the borrower may use for this 
purpose to a set amount, the proposed rule will allow FSA to be more 
flexible in determining the amount needed by the individual applicant 
for essential family household expenses during the farm plan period. 
Under this change, the farm plan will need to indicate that part of the 
loan proceeds will be used for essential family household expenses.
    The proposed rule will provide more flexibility in the requirements 
regarding an applicant whose operation changed between the time that 
the disaster took place and the time the loan application is submitted. 
Under the current rule, the changed farming operation cannot be larger 
than the farming operation that existed at the time of the disaster. 
The proposed rule will allow a farming operation to increase in size, 
however, the loan amount will reflect the percentage of the former 
farming operation in the new operation and in no case can the loan 
amount exceed the amount the former operation would have been eligible 
to receive. To further simplify this process, the proposed rule also 
will remove the formula for adjusting the loan amount for the new 
farming operation based on the changes in ownership from the former 
farming operation.
    The proposed rule will retain two eligibility requirements from the 
previous regulation regarding managerial ability and honest endeavor. 
Prior to amendments made to the Act by the Department of Agriculture 
Reorganization Act of 1994 (1994 Act) (Pub. L. 103-354), these 
requirements were statutory eligibility requirements. Even though these 
statutory requirements were eliminated by section 227 of the 1994 Act, 
FSA has retained them administratively as requirements of the Emergency 
loan program. The basis for retaining these provisions stems from the 
determination that these requirements give FSA critical information in 
determining whether an applicant will be able to repay the loan and 
meet all other conditions of the loan. Managerial ability of the 
applicant is a critical element in determining whether the applicant 
will be able to successfully manage the operation to generate 
sufficient revenue to repay the loan. The requirement of honestly 
endeavoring to carry out the conditions of the loan is a critical 
element in determining whether an applicant will repay the loan and 
meet all other loan conditions. The requirement assures that applicants 
will completely and truthfully represent their farming operation for 
the purpose of determining loan eligibility. The requirement also 
assures that the borrower will operate the farming operation in a 
manner consistent with

[[Page 54976]]

Emergency loan purposes and will not unnecessarily jeopardize FSA's 
security interests. With respect to this requirement, the proposed rule 
will provide FSA with the authority to consider whether the applicant 
has properly fulfilled its obligations with other parties including 
other Federal Agencies in good faith. This provision is not intended to 
address situations beyond the applicant's control or isolated and 
inadvertent mistakes made by the applicant. FSA believes that an 
examination of such information will give it more critical information 
about the applicant to determine whether the applicant will operate the 
farming operation in a manner consistent with the requirements of the 
loan.
    FSA also proposes to add the eligibility requirement that an 
applicant's property must not be subject to a Federal judgement lien. 
This amendment is required by Federal debt collection procedure, 28 
U.S.C. 3201(e). Until such judgment is paid in full or otherwise 
satisfied, the debtor is not eligible for any Federal loan or grant 
assistance under this provision.
    The proposed rule also will amend the Emergency loan regulations to 
reflect the consolidation of the Farm Loan Program portions of the 
former Farmers Home Administration with the Agricultural Stabilization 
and Conservation Service into FSA pursuant to the Department of 
Agriculture Reorganization Act of 1994. FSA further will amend the 
current regulation to add, for clarity, definitions of the following 
terms: ``Act,'' ``agricultural commodity,'' ``allowable costs,'' 
``applicant,'' ``chattel,'' ``chattel or real estate essential to the 
farming operation,'' ``debt forgiveness,'' ``disaster,'' ``disaster 
area,'' ``disaster yield,'' ``essential family household expenses,'' 
``entity,'' ``Farm Loan Program loan,'' ``farmer,'' ``livestock,'' 
``non-essential assets,'' ``normal production yield,'' ``owner,'' 
``physical losses,'' ``security value,'' and ``trust.''
    In addition to these changes, the proposed rule generally will 
eliminate provisions in the current regulations that address certain 
administrative functions of FSA, the details of which do not directly 
affect loan making decisions or administrative burdens of the 
applicant.

List of Subjects in 7 CFR Part 1945

    Agriculture, Credit, Disaster assistance, Loan programs--
Agriculture.

    Accordingly, 7 CFR part 1945 is proposed to be amended as follows:

PART 1945--EMERGENCY

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

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1980.

    2. Add subpart B to read as follows:
Subpart B--Emergency Loans
Sec.
1945.51   Purpose.
1945.52   Definitions.
1945.53   Emergency loan funds uses.
1945.54   Eligibility requirements.
1945.55   Limitations.
1945.56   Interest rate.
1945.57   Loan terms.
1945.58   Repayment and Security requirements.
1945.59   Appraisal and valuation requirements.
1945.60   Insurance for loan security.
1945.61   Charges and fees.

Subpart B--Emergency Loans


Sec. 1945.51  Purpose.

    The purpose of the Emergency Loan Program is to provide financial 
assistance to family farmers that have suffered losses as the result of 
a disaster so that they can return to normal farming operations as soon 
as possible after the disaster. Specifically, this subpart describes 
the policies and procedures of the Agency for making Emergency loans to 
operators of such farms.


Sec. 1945.52  Definitions.

    Act means the Consolidated Farm and Rural Development Act (7 U.S.C. 
1921 et seq.).
    Additional security means any real estate or chattel that provides 
security in excess of the amount of security value equal to the loan 
amount, excluding security described in Sec. 1945.58(g).
    Adequate security means any real estate and chattel that is 
required to provide a security value at least equal to the loan amount.
    Agency means the Farm Service Agency, including its employees, 
State and area committee members, and any successor agency.
    Agricultural commodity means livestock, grains, cotton, oilseeds, 
dry beans, tobacco, peanuts, sugar beets, sugar cane, fruit, vegetable, 
forage, tree farming, nursery crops, nuts, aquacultural species, and 
other agricultural commodities as determined by the Agency.
    Allowable costs means those costs for replacement or repair that 
are supported by acceptable documentation, including but not limited to 
written estimates, invoices, and bills.
    Applicant means an individual or entity (including each owner of 
the entity unless the context requires otherwise) operating a farming 
operation at the time of the disaster, who is requesting assistance 
from the Agency under this subpart. All requirements of applicants 
apply to owners of the entity individually and collectively unless the 
context clearly requires otherwise.
    Aquacultural species means aquatic organisms (including fish, 
mollusks, crustaceans or other invertebrates, amphibians, reptiles, or 
aquatic plants) raised in a controlled or selected environment which 
the applicant has exclusive rights to use.
    Basic part of an applicant's total farming operation means an 
agricultural commodity production enterprise of an applicant's farming 
operation which normally generates sufficient income to be considered 
essential to the success of such farming operation.
    Borrower means an individual or entity which has an outstanding 
obligation to the Agency under any Farm Loan Program loan, without 
regard to whether the loan has been accelerated. A borrower includes 
all parties liable for such obligation owed to the Agency, including 
collection-only borrowers, except for debtors whose total loans and 
accounts have been voluntarily or involuntarily foreclosed, sold, or 
conveyed; or who have been discharged of all such obligations owed to 
the Agency.
    Chattel means any property that is not real estate.
    Chattel or real estate essential to the farming operation means 
chattel or real estate that would be necessary for the applicant to 
continue operating the farm after the disaster in a manner similar to 
the manner in which the farm was operated immediately prior to the 
disaster, as determined by the Agency.
    Corporation means a private domestic entity recognized as a 
corporation and authorized as a corporation under the laws of the State 
or States in which the entity does business.
    County means a local administrative subdivision of a State or 
similar political subdivision of the United States.
    Debt forgiveness means reducing or terminating a debt under the Act 
in a manner that results in a loss to the Agency (excluding a 
consolidation, rescheduling, reamortization, or deferral), through:
    (1) Writing down or writing off a debt pursuant to 7 U.S.C. 2001;
    (2) Compromising, adjusting, reducing, or charging off a debt or 
claim pursuant to 7 U.S.C. 1981; or

[[Page 54977]]

    (3) Paying a loss pursuant to 7 U.S.C. 2005 on a Farm Loan Program 
loan guaranteed by the Agency.
    Disaster means an event of unusual and adverse weather conditions 
or other natural phenomena 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 pursuant to subpart A of this part.
    Disaster area means the county(ies) , declared/designated as a 
disaster area for Emergency loan assistance as a result of disaster 
related losses. This includes counties named as contiguous to those 
counties declared/designated as disaster areas.
    Disaster yield means the per acre yield of an agricultural 
commodity on the farming operation during the production period when 
the disaster occurred.
    Essential family household expenses means the expenses associated 
with providing food, clothing, and shelter necessary to maintain the 
borrower and the immediate family of the borrower.
    Established farmer means a farmer who is an operator of the farming 
operation (in the case of a farming operation operated by an entity, 
its owners as a group) who:
    (1) Actively participated in the operation and the management, 
including but not limited to, exercising control over, making decisions 
regarding, and establishing the direction of, the farming operation at 
the time of the disaster;
    (2) Spends a substantial portion of time in carrying out the 
farming operation;
    (3) Planted the crop, or purchased or produced the livestock on the 
farming operation;
    (4) In the case of an entity, is primarily engaged in farming and 
has over 50 percent of its gross income from all sources from its 
farming operation based on the farming operation's projected cash flow 
for the next crop year or the next 12 month period, as mutually 
determined; and
    (5) Is not:
    (i) A corporation with a majority interest held by one or more 
estates, trusts, other corporations, partnerships, or joint operations;
    (ii) A partnership or joint operation with a majority interest held 
by an estate, trust, corporation, another partnership or another joint 
operation; or
    (iii) An integrated livestock, poultry, or fish processor who 
operates primarily and directly as a commercial business through 
contracts or business arrangements with farmers, except a grower under 
contract with an integrator or processor may be considered an 
established farmer, provided the operation is not managed by an outside 
full-time manager or management service and such loans shall be based 
on the applicant's share of the agricultural production as set forth in 
the contract.
    Entity means a partnership, corporation, cooperative or joint 
operation that is an operator of an operation engaged in farming, 
ranching, or aquaculture activities at the time the disaster occurs.
    Family farm means family farm as defined in Sec. 1941.4 of this 
chapter.
    Farm Loan Program loan means a Farm Ownership loan, Operating loan, 
Emergency loan, Soil and Water loan, or Economic Emergency loan made or 
guaranteed by the Agency pursuant to the Act.
    Farmer means individuals, cooperatives, corporations, partnerships 
or joint operations who are farmers, ranchers, or aquaculture operators 
actively engaged in their operation at the time a disaster occurs.
    Feasible plan means feasible plan as defined in Sec. 1943.4.
    Household contents means the essential household items necessary to 
maintain viable living quarters such as: stove, refrigerator, furnace, 
couch, chairs, tables, beds, lamps, clothes, etc. The term excludes all 
luxury items including jewelry, furs, antiques, paintings, etc.
    Hazard insurance means coverage against losses due to fire, 
windstorm, lightning, hail, explosion, business interruption, riot, 
civil commotion, aircraft, land vehicles, marine vehicles, smoke, 
builders risk, public liability, property damage, flood or mudslide, 
workman's compensation, or any similar insurance that is available and 
needed to protect the security, or which is required by law.
    Livestock means a member of the animal kingdom, or product thereof, 
as determined by the Agency.
    Majority interest means an ownership interest of 50 percent or more 
of the entity.
    Non-essential asset means non-essential asset as defined in 
Sec. 1951.906 of this chapter.
    Nonfarm enterprise means nonfarm enterprise as defined in 
Sec. 1941.4 of this chapter.
    Normal production yield means:
    (1) The per acre actual production history of the crops produced by 
the farming operation determined pursuant to the Federal Crop Insurance 
Act (7 U.S.C. 1501 et seq.) and part 400, subpart G of this title for 
the production year during which the disaster occurred;
    (2) When the actual production history is not available and the 
operator has been a Farm Loan Program borrower with respect to that 
farming operation for the 3 years prior to the year of the disaster the 
prior 3 year average per acre yield for the crops will be determined 
using the Agency Farm Loan Program production records for the farming 
operation when such records are available and the disaster yield for 
the years when such records are not available; or
    (3) When the actual production history for the farming operation is 
not available and the operator has not been a Farm Loan Program 
borrower for the prior 3 years, the per acre average of the county 
average production for the crops for the 3 years prior to the 
production year during which the disaster occurred.
    Owner means those persons with an interest in the entity as a 
stockholder, partner, member, or joint operator.
    Physical loss means damage or destruction with respect to real 
estate or chattel, excluding annual growing crops.
    Production loss means damage or destruction with respect to annual 
growing crops.
    Security value means the value of real estate or chattels (less the 
value of any prior liens) used as security for a loan under this 
subpart as of the date of the closing of the loan.
    Trust means an organization that under applicable State law meets 
the criteria of being a trust of any kind, but excluding trusts that 
under applicable State law also meet the criteria of being a farm 
cooperative, private domestic corporation, partnership, or joint 
operation.
    United States means each of the several States, the Commonwealth of 
Puerto Rico, the Virgin Islands of the United States, Guam, American 
Samoa, and the Commonwealth of the Northern Mariana Islands.
    Working capital means cash available to conduct normal daily 
farming or ranching operations including but not limited to feed, seed, 
fertilizer, pesticides, farm or ranch supplies, cooperative stock, and 
cash rent.


Sec. 1945.53  Emergency loan funds uses.

    (a) Physical losses.
    (1) Real estate losses. Emergency loans may be used to address the 
needs of the farming operation associated with physical losses of real 
estate that were the result of a disaster to:
    (i) Acquire or enlarge the farm, as specified in Sec. 1943.16(a) of 
this chapter,

[[Page 54978]]

as long such acquisition or enlargement does not cause the farm to 
exceed the requirements for a family farm;
    (ii) Make capital improvements to the family farm, as specified in 
Sec. 1943.16(b) of this chapter;
    (iii) Pay for activities to promote soil and water conservation and 
protection on the family farm as specified in Sec. 1943.16(c) of this 
chapter;
    (iv) Pay loan closing costs related to acquiring, enlarging, or 
improving the family farm as specified in Sec. 1943.16(d) of this 
chapter that an applicant cannot pay from other sources;
    (v) Replace land or water resources on the family farm which 
resources cannot be restored;
    (vi) Pay costs associated with land and water development for 
conservation or use purposes;
    (vii) Establish a new site for farm dwelling and service buildings 
outside of a flood or mudslide area; and
    (viii) Replace land from the family farm that was sold or conveyed, 
if such land is necessary for the farming operation to be effective.
    (2) Chattel losses. Emergency loans may be used to address the 
needs of the farming operation associated with the physical losses of 
chattel that were the result of a disaster to:
    (i) Purchase livestock and farm equipment, including but not 
limited to quotas, and cooperative stock for credit, production, 
processing, or marketing purposes;
    (ii) Pay customary costs associated with obtaining, planning, and 
closing a loan that an applicant cannot pay from other sources (e.g. 
fees for legal, architectural, and other technical services, but not 
fees for agricultural management consultation and preparation of Agency 
forms);
    (iii) Repair or replace essential household contents damaged in the 
disaster;
    (iv) Pay the costs to restore perennials, which produce an 
agricultural commodity, to the stage of development the damaged 
perennials had obtained prior to the disaster;
    (v) In the case of a farming operation that has suffered livestock 
losses, pay essential family household expenses; and
    (vi) Refinance a loan (in the case of a Farm Loan Program loan debt 
as long as the applicant has not refinanced the loan more than 4 
times).
    (b) Production losses. Emergency loans may be used to address the 
losses of the farming operation associated with production of 
agricultural commodities (except the losses associated with the loss of 
livestock) of the farming operation that were the result of a disaster 
to:
    (1) Pay costs associated with reorganizing the family farm to 
improve its profitability;
    (2) Pay annual operating expenses, which includes, but is not 
limited to, feed, seed, fertilizer, pesticides, farm or ranch supplies, 
cooperative stock, and cash rent;
    (3) Pay costs associated with Federal or State-approved standards 
under the Occupational Safety and Health Act of 1970 (29 U.S.C. 655 and 
667) if the applicant can show that compliance with the standards will 
cause substantial economic injury;
    (4) Pay training costs required or recommended by the Agency;
    (5) Pay essential family household expenses;
    (6) Refinance a debt (in the case Farm Loan Program loan debt as 
long as the applicant has not refinanced the loan more than 4 times); 
and
    (7) Replace lost working capital.


Sec. 1945.54  Eligibility requirements.

    (a) General borrower eligibility requirements. To be eligible for 
an Emergency loan:
    (1) Legal capacity. An applicant must have the legal capacity to 
incur the obligation of the loan.
    (2) Citizenship.
    (i) Applicant that is an individual. The individual applicant must 
be a citizen of the United States or an alien lawfully admitted to the 
United States for permanent residence as determined by the U.S. 
Immigration and Naturalization Service.
    (ii) Applicant that is an entity. If the applicant is an entity, 
the majority interest of the applicant must be held by individuals who 
are citizens of the United States or aliens lawfully admitted to the 
United States for permanent residence, as determined by the U.S. 
Immigration and Naturalization Service.
    (3) Family farm and nonfarm enterprise. The applicant's farming 
operation must qualify as a family farm and must not be a nonfarm 
enterprise.
    (4) Established farmer. An applicant must be an established farmer.
    (5) Owner and operator requirements.
    (i) Loans for physical losses to real estate. In the case of a loan 
for a purpose specified in Sec. 1945.53(a)(1), an applicant must be:
    (A) the owner and operator of the farming operation; or
    (B) an operator of the farming operation whose lease on the 
affected real estate would exceed the term of the loan and give the 
Agency prior notification of the termination of the lease during the 
term of the loan, and whose lessor would give the Agency a mortgage on 
the real estate as security for the loan.
    (ii) Loans for physical losses to chattel. In the case of a loan 
for a purpose specified in Sec. 1945.53(a)(2), an applicant must be the 
operator of the farming operation.
    (iii) Loans for production losses. In the case of a loan for a 
purpose specified in Sec. 1945.53(b), an applicant must be the operator 
of the farming operation.
    (6) For entity applicants:
    (i) If the owners holding a majority interest in the entity 
applicant are related by blood or marriage, at least one of such 
related owners must operate the family farm.
    (ii) If the owners holding a majority interest in the entity 
applicant are not related by blood or marriage, the majority interest 
holders must all operate the family farm.
    (iii) If the entity applicant has an operator interest in any other 
farming operation, that farming operation must not be larger than a 
family farm.
    (7) Intent to continue farming. An applicant must demonstrate the 
intent to continue the farm operation after the disaster.
    (8) Credit history. The applicant must demonstrate a credit history 
satisfactory to the Agency. The Agency may use credit reports or any 
other available information to make this determination.
    (9) Availability of credit elsewhere. An applicant must be unable 
to obtain sufficient credit elsewhere at reasonable rates and terms. To 
establish this, the applicant must obtain written declinations of 
credit from legally organized commercial lending institutions within 
reasonable proximity of the applicant that specify the reasons for the 
declination as follows:
    (i) In the case of a loan in excess of $300,000 and the net worth 
of the applicant is $1,000,000 or greater, three written declinations 
of credit, one of which is from a lender outside the normal trade area 
of the applicant, are required;
    (ii) In the case of a loan in excess of $300,000 and the net worth 
of the applicant is less than $1,000,000, two written declinations of 
credit are required;
    (iii) In the case of a loan of $300,000 or less, one written 
declination of credit is required; and
    (iv) In the case of a loan of $100,000 or less, the Agency may 
waive the requirement for obtaining a written declination of credit, if 
the Agency determines that it would pose an undue burden on the 
applicant, the applicant certifies that they cannot get credit

[[Page 54979]]

elsewhere, and based on the applicant's circumstances credit it not 
likely to be available.
    (10) Prior debt forgiveness. An applicant must not have received 
debt forgiveness from the Agency on more than one occasion before April 
4, 1996, or any time on or after April 4, 1996.
    (11) Federal judgement lien. An applicant's property must not be 
subject to a Federal judgement lien.
    (12) Managerial ability. An applicant must have sufficient 
managerial ability to assure reasonable prospects of loan repayment, as 
determined by the Agency. The applicant must demonstrate this 
managerial ability by education, on-the-job training, or farming 
experience within the last 5 years that covers an entire production 
cycle.
    (13) Borrower training. The applicant must agree to meet the 
borrower training requirements in accordance with Sec. 1924.74 of this 
chapter.
    (14) Prior drug convictions. An applicant cannot have been 
convicted under Federal or State law of planting, cultivating, growing, 
producing, harvesting, or storing a controlled substance, as defined in 
part 1308 of title 21 during the current crop year or the previous 4 
crop years.
    (15) Honestly endeavor. The applicant must demonstrate to the 
Agency that the applicant will honestly endeavor to carry out the 
conditions of the loan. The Agency will determine whether the applicant 
will make a sincere effort to repay the loan, devote the effort 
required to carry out the terms and conditions of the loan, and deal 
with the Agency in good faith. This includes the applicant providing 
current, complete, and truthful information when applying for 
assistance. In making this determination, the Agency may examine 
whether the applicant has properly fulfilled its obligations to other 
parties, including other agencies of the Federal Government.
    (b) Additional Emergency loan eligibility requirements.
    (1) Timely loan application. A loan application must be received by 
the Agency not later than 8 months after the date the disaster is 
declared or designated in the county of the applicant's farming 
operation.
    (2) Qualifying losses.
    (i) Loss must occur in a disaster area. An applicant may seek an 
Emergency loan only with respect to a family farm that had production 
or physical losses as a result of a disaster in a disaster area.
    (ii) Eligible production loss. For production loss loans, an 
applicant must have a disaster yield that is at least 30 percent below 
the normal production yield of the crop, as determined by the Agency, 
that comprises a basic part of an applicant's total farming operation.
    (iii) Eligible physical loss. For physical loss loans, an applicant 
must have suffered disaster-related damage to chattel or real estate 
essential to the farming operation, or to household items that must be 
repaired or replaced.
    (3) Changes in ownership structure. The ownership structure of a 
family farm may change between the time of a qualifying loss and the 
time an Emergency loan is closed. In such case, all of the following 
requirements must be met:
    (i) The applicant, in its new form, including all owners must meet 
all applicable eligibility requirements contained in this section;
    (ii) The new individual applicant, or all owners of a new entity 
applicant must have had an ownership interest in the farming operation 
at the time of the disaster; and
    (iii) The amount of the loan will be based on the percentage of the 
former farming operation transferred to the new applicant and in no 
event will the individual portions aggregated equal more than would 
have been authorized for the former farming operation.
    (4) Requirement of insurance. Emergency loan funds may not be used 
for physical loss purposes (excluding losses to livestock) unless that 
physical property was covered by general hazard insurance at the time 
that the damage caused by the natural disaster occurred. The level of 
the coverage in effect at the time of the disaster must have been the 
tax or cost depreciated value, whichever is less. Chattel property must 
have been covered at the tax or cost depreciated value, whichever is 
less, when such insurance was readily available and the benefit of the 
coverage (the lesser of the property's tax or cost depreciated value) 
was greater than the cost of the insurance.


Sec. 1945.55  Limitations.

    (a) General limitations.
    (1) Highly erodible soil and wetlands conservation. The Agency will 
not make a loan under this subpart for any purpose that contributes to 
erosion of highly erodible land or the conversion of wetlands to 
produce an agricultural commodity.
    (2) Construction. Any construction financed by the Agency must 
comply with applicable Federal, State, local, and industry building 
standards.
    (b) Restriction on loan amount. An Emergency loan may not exceed 
the lesser of:
    (1) The amount of credit necessary to restore the family farming 
operation to its pre-disaster condition;
    (2) In the case of a physical loss loan, the total eligible 
physical losses caused by the disaster; or
    (3) In the case of a production loss loan, 100 percent of the total 
actual production loss sustained by the applicant calculated pursuant 
to paragraph (d) of this section.
    (c) Maximum cumulative loan principal. The maximum cumulative 
Emergency loan principal that any individual, entity, or owner of an 
entity may have outstanding is $500,000.
    (d) Production losses. The applicant's actual production loss with 
respect to a crop is calculated as follows:
    (1) Subtract the applicant's disaster yield from the applicant's 
normal production yield to determine the applicant's per acre 
production loss;
    (2) Multiply the applicant's per acre production loss by the number 
of acres of the farming operation devoted to the crop to determine the 
volume of the production loss;
    (3) Multiply the volume of the applicant's production loss by the 
market price for such crop as determined by the Agency to determine the 
dollar value for the production loss; and
    (4) Subtract any other disaster related compensation received by 
the applicant for the production loss.
    (e) Physical loss.
    (1) Amount of loss. The applicant's total eligible physical losses 
is calculated as follows:
    (i) Add the allowable costs associated with replacing or repairing 
chattel covered by hazard insurance (excluding labor, machinery, 
equipment, or materials contributed by the applicant to repair or 
replace chattel);
    (ii) Add the allowable costs associated with repairing or replacing 
real estate, covered by hazard insurance;
    (iii) Add the value of replacement livestock (such valuation will 
be based on a national or regional valuation of species or product 
classification whichever the Agency determines is more accurate);
    (iv) Add the allowable costs to restore perennials, which produce 
an agricultural commodity, to the stage of development the damaged 
perennials had obtained prior to the disaster;
    (v) Add, in the case of an applicant that is an individual, the 
allowable costs associated with repairing or replacing essential 
household contents, not to exceed $20,000; and
    (vi) Subtract any other disaster related compensation or insurance 
indemnities received by the applicant for the loss or damage to the 
chattel or real estate.

[[Page 54980]]

    (2) Documentation. In the case of physical losses associated with 
livestock, the applicant must have written documentation of the 
inventory of livestock and records of livestock product sales 
sufficient to allow the Agency to value such livestock or livestock 
products just prior to the loss.


Sec. 1945.56  Interest rate.

    The interest rate applicable for an Emergency loan will be the 
lower of the interest rate at the time of either loan approval or loan 
closing and in no event shall exceed 8 percent annually.


Sec. 1945.57  Loan terms.

    (a) Basis for repayment. The Agency schedules repayment of 
Emergency loans based on the useful life of the loan security, the 
applicant's repayment ability, and the type of loss.
    (b) Minimum payment requirement. The repayment schedule must 
include at least one payment every year.
    (c) Repayment of loans for annual operating expenses. Emergency 
loans for annual operating expenses must be repaid within 12 months, 
except the Agency may extend this term to not more than 18 months to 
accommodate the production cycle of the agricultural commodities of the 
farming operation.
    (d) Repayment of loans for production or physical losses to 
chattel. The repayment schedule for loans for production losses or 
physical losses to chattel (including but not limited to assets with an 
expected life between 1 and 7 years) may not exceed 7 years. If 
necessary to improve the repayment ability of the loan and real estate 
security is available, the term of the loan may be extended up to a 
total length not to exceed 20 years.
    (e) Repayment of loans for physical losses to real estate. The 
repayment schedule for loans for physical losses to real estate is 
based on repayment ability of the applicant and the useful life of the 
security, but in no case will the term of repayment exceed 40 years.


Sec. 1945.58  Repayment and security requirements.

    (a) General requirements
    (1) Ability to repay. The applicant must submit a feasible plan 
that demonstrates the applicant's ability to repay the loan. The plan 
must demonstrate that the applicant will meet all other credit needs.
    (2) Sufficient equity. An applicant must have sufficient equity in 
the security pledged for an Emergency loan to provide adequate security 
for the loan except as permitted in paragraph (h) of this section. The 
applicant must provide additional security, if available, not to exceed 
150 percent of the loan amount.
    (3) Interests in property not owned by the applicant. Interests in 
property not owned by the applicant (such as leases that provide a 
mortgageable value, water rights, easements, mineral rights, and 
royalties) can be offered as security for the loan and will be 
considered in determining whether adequate security is available.
    (b) Real estate loans. In the case of an Emergency loan for real 
estate purposes, the loan shall be secured at a minimum by the real 
estate that is being purchased, repaired, replaced, refinanced, or 
improved with the loan funds.
    (c) Chattel and production loans. In the case of an Emergency loan 
for chattel purposes (including production purposes), the loan shall be 
secured, at a minimum, by the chattel that is being purchased, 
repaired, replaced, refinanced, or produced with the loan funds.
    (d) Agency lien position
    (1) Real estate security. If real estate is pledged as security for 
a loan, the Agency must obtain a first lien, if available, on the real 
estate. When a first lien is not available, the Agency may take a 
junior lien under the following conditions:
    (i) The prior lien does not contain any provision that may 
jeopardize the Agency's interest or the applicant's ability to repay 
the loan to the Agency;
    (ii) Prior lienholders agree to notify the Agency of acceleration 
and foreclosure whenever State law or other arrangements do not require 
such notice; and
    (iii) The applicant must agree to obtain permission from the Agency 
prior to granting any additional security interests in the real estate.
    (2) Real estate held under a purchase contract. If the real estate 
offered as security is held under a recorded purchase contract:
    (i) An applicant must provide a security interest in the real 
estate;
    (ii) An applicant and the purchase contract holder must agree in 
writing that any insurance proceeds received to compensate for real 
estate losses will be used only to replace or repair the damaged real 
estate;
    (iii) An applicant must refinance the existing purchase contract, 
or demonstrate that financing is not available, if an acceptable 
contract of sale cannot be negotiated or the purchase contract holder 
refuses to agree to apply all the insurance proceeds to repair or 
replace the damaged real estate and wants to retain some of the 
proceeds as an extra payment on the balance owed;
    (iv) The purchase contract must not be subject to summary 
cancellation on default and must not contain any provisions that are 
contrary to the Agency's best interests; and
    (v) The contract holder must agree in writing to notify the Agency 
of any breach by the purchaser, and give the Agency the option to 
rectify the conditions that amount to a breach within 30 days after the 
date the Agency receives written notice of the breach.
    (3) Chattel security. If chattel property is pledged as security 
for a loan the Agency must obtain a first lien on the chattel that is 
being purchased, repaired, replaced, refinanced, or produced with the 
loan funds.
    (e) Same security for multiple loans. The same property may be 
pledged as security for more than one Farm Loan Program loan.
    (f) Lack of adequate security. When adequate security is not 
available because of the disaster, the loan application may be approved 
if the Agency determines based on the plan required in paragraph (a)(1) 
of this section there is a reasonable assurance that the applicant has 
the ability to repay the loan (based on an on-going operational basis, 
excluding special one-time sources of income or expenses) provided:
    (1) The applicant has pledged as collateral for the loan, all 
available personal and business collateral, except those items listed 
in paragraphs (h)(1) and (h)(2) of this section;
    (2) The farm plan, approved by the Agency, indicates the loan will 
be repaid based upon the applicant's production and income history; 
addresses applicable pricing risks through the use of marketing 
contracts, hedging, or options and includes a marketing plan or similar 
risk management practice; and
    (3) The applicant has had positive net cash farm income in at least 
1 of the past 5 years.
    (g) Conditions for taking other assets as security.
    (1) Conditions. In addition to the requirements for adequate and 
additional security, the Agency will take a security interest in other 
assets (other than assets listed under the exceptions in paragraph (h) 
of this section), if available, when:
    (i) An applicant has non-essential assets that are not being 
converted to cash to reduce the loan amount; or
    (ii) The real estate security and chattel security do not provide 
adequate security for the loan.
    (2) List of other assets. Other assets may include:

[[Page 54981]]

    (i) A pledge of real estate or chattel by a third party;
    (ii) Patents, copyrights, life insurance, stocks, other securities, 
and membership in cooperatives, owned by the applicant;
    (iii) Assets owned by an applicant that cannot be converted to cash 
without jeopardizing the farm operation; and
    (iv) Non-essential assets owned by the applicant with an aggregate 
value in excess of $5,000.
    (h) Exceptions to security requirements. The Agency will not take a 
security interest in certain property in the following situations:
    (1) The property proposed as security has environmental 
contamination, restrictions, or historical impact that could impair the 
value or expose the Agency to potential liability;
    (2) The Agency cannot obtain a valid lien on the security;
    (3) An applicant's personal residence and appurtenances are on a 
parcel of land separate and apart from that real estate being used as 
adequate security for the loan; or
    (4) An applicant's other assets are used for farming or for 
essential living expenses and are not needed for security purposes and 
may include but not limited to subsistence livestock, cash or special 
cash collateral accounts, retirement accounts, personal vehicles, 
household goods, and small tools and equipment such as hand tools, 
power lawn mowers.
    (i) Requirements for security.
    (1) For loans over $25,000, title clearance is required when real 
estate is taken as security.
    (2) For loans of $25,000 or less, when real estate is taken as 
security, a certification of ownership in real estate is required. 
Certification of ownership may be in the form of an affidavit which is 
signed by the applicant, names the record owner of the real estate in 
question and lists the balances due on all known debts against the real 
estate. Whenever the loan approving official is uncertain of the record 
owner or debts against the real estate security, a title search is 
required.


Sec. 1945.59  Appraisal and valuation requirements.

    (a) Establishing value for real estate. Real estate appraisals 
conducted pursuant to this subpart may be completed by designated 
appraisers or contract appraisers and shall conform to the Uniform 
Standards of Professional Appraisal Practice guidelines and standards 
in accordance with part 761 of this title.
    (b) Establishing value for agricultural commodities and equipment. 
When the Agency obtains valuations of agricultural commodities and 
equipment, such valuations shall be as follows:
    (1) The security value of the annual agricultural commodities 
production (excluding livestock) is presumed to be 100 percent of the 
amount loaned for annual operating and essential family household 
expenses; and
    (2) The value of livestock and equipment will be market value as 
determined by the Agency.
    (c) Assets damaged by the disaster. In the case of farm assets 
damaged by the disaster, the value of such security shall be 
established immediately before the disaster occurred.


Sec. 1945.60  Insurance for loan security.

    (a) Adequacy of insurance. An applicant must obtain insurance, 
consistent with this section, equal to the lesser of the value, of the 
security at the time of the closing of the loan, or the principal of 
the loan.
    (b) Hazard insurance. All security (except growing crops) must be 
covered by hazard insurance.
    (c) Flood or mudslide insurance. Real estate security located in 
flood or mudslide prone areas, as determined by the Agency, must be 
covered by flood or mudslide insurance.
    (d) Crop insurance.
    (1) Requirement to obtain crop insurance. Except as provided in 
paragraph (d)(2) of this section, prior to the closing of the loan 
under this subpart, the applicant must have obtained at least the 
catastrophic risk protection level of crop insurance coverage for the 
crop during the crop year for which the loan is sought for each crop 
which is a basic part of an applicant's total farming operation, if 
such insurance is available, unless the applicant executes a written 
waiver of any emergency crop loss assistance with respect to such crop.
    (2) Exception. Growing crops used to provide adequate security must 
be covered by crop insurance if such insurance is available.
    (e) Indemnities. A borrower must:
    (1) List the Agency as loss payee for the insurance indemnity 
payment or as a beneficiary of a mortgagee loss payable clause; and
    (2) In the case of crop insurance, execute an assignment of 
indemnity in favor or the Agency.


Sec. 1945.61  Charges and fees.

    The applicant must pay all filing, recording, notary, and lien 
search fees necessary to process and close a loan. The applicant may 
pay or be reimbursed for these fees from Emergency loan funds.

Subpart D--[Removed]

    4. Subpart D is removed.

    Signed at Washington, DC, on August 30, 2000.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 00-23226 Filed 9-11-00; 8:45 am]
BILLING CODE 3410-05-P