[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Proposed Rules]
[Pages 41869-41872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15506]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1951

RIN 0560-AG56


Prompt Disaster Set-Aside Consideration and Primary Loan 
Servicing Facilitation

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: Farm Service Agency (FSA) is proposing to amend its 
regulations for the Disaster Set-Aside (DSA) program to provide the 
disaster set-aside more quickly to those who can benefit most from the 
program. The proposed changes also will reduce the Government's risk 
associated with the delay in debt collection by adding security 
requirements.

DATES: Comments on the proposed rule and the information collection 
requirements of this rule must be submitted by August 19, 2002, to be 
assured of consideration.

ADDRESSES: Submit written comments to Director, Farm Loan Programs, 
Loan Servicing and Property Management Division, United States 
Department of Agriculture, Farm Service Agency, 1250 Maryland Ave., 
SW., Washington, DC 20024-0523. Comments will be available for public 
inspection weekdays from 8 a.m. to 4:15 p.m., Eastern Standard Time, at 
the above address.

FOR FURTHER INFORMATION CONTACT: Michael Cumpton, Farm Loan Programs, 
Loan Servicing and Property Management Division, United States 
Department of Agriculture, Farm Service Agency, STOP 0523, 1400 
Independence Avenue, S.W, Washington, DC 20250-0523, telephone (202) 
690-4014; electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:   

Executive Order 12866

    This rule has been determined to be not significant and has not 
been reviewed by the Office of Management and Budget.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and

[[Page 41870]]

certified by signature of this document that this rule will not have a 
significant economic impact on a substantial number of small entities 
because new provisions included in this rule will not impact small 
entities to a greater extent than large entities. Therefore, a 
regulatory flexibility analysis was not performed.

Environmental Evaluation

    It is the determination of FSA that this action is not a major 
Federal action significantly affecting the environment. Therefore, in 
accordance with the National Environmental Policy Act of 1969 and 7 CFR 
part 1940, subpart G, an Environmental Impact Statement is not 
required.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. In accordance with this Executive order: 
(1) All State and local laws and regulations that are in conflict with 
this rule will be preempted; (2) except as specifically stated in this 
rule, no retroactive effect will be given to this rule; and (3) 
administrative proceedings in accordance with 7 CFR part 11 must be 
exhausted before seeking judicial review.

Executive Order 12372

    Executive Order 12372 requires intergovernmental consultation with 
State and local officials to coordinate Federal assistance and 
development projects. In accordance with the notice related to 7 CFR 
part 3015, subpart V, published June 24, 1983 (48 FR 29115), the 
programs within this rule are excluded from the scope of this Executive 
Order.

The Unfunded Mandates Reform Act of 1995

    This rule contains no Federal mandates, as defined under title II 
of the UMRA, for State, local, and tribal governments or the private 
sector. Thus, this rule is not subject to the requirements of sections 
202 and 205 of UMRA.

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.

Paperwork Reduction Act

    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: 7 CFR part 1951-T--Disaster Set-Aside Program.
    OMB Control Number: 0560-0164.
    Expiration Date: January 31, 2003.
    Abstract: The DSA program is designed to assist borrowers in 
financial distress who operated a farm or ranch in a political 
subdivision, typically a county, that was declared or designated a 
disaster area. DSA allows eligible borrowers who are unable to make 
payments to quickly eliminate their immediate financial stress. Under 
this program, FSA Farm Loan Program (FLP) borrowers can receive 
immediate financial relief by moving one annual installment for each 
loan to the end of the loan term. The installment set-aside will be the 
one due immediately after the disaster. FSA will collect information on 
the borrower's asset values, expenses and income.
    Type of Request: Revision and Extension of a Currently Approved 
Information.
    Collection Estimate of Burden: Public reporting burden for this 
collection of information is estimated to average 2.26 hours per DSA 
request.
    Respondents: Farms, businesses and individuals.
    Estimated Total Burden Hours: 4,938.
    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 David Spillman, Branch 
Chief, Direct Loan Servicing, Farm Loan Programs, Farm Service Agency, 
United States Department of Agriculture, STOP 0523, 1400 Independence 
Avenue, SW, Washington, DC 20250-0523. 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 programs as listed in the 
Catalog of Federal Domestic Assistance:

10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans

Discussion of the Proposed Rule

    The DSA program was first made available to the Agency's FLP 
borrowers beginning October 21, 1994, because of the heavy flooding in 
the Midwest and extreme drought in the South. Since that time, 
approximately 27,500 borrowers have received DSA assistance. The 
overall popularity of the program can be attributed to the relatively 
small amount of paperwork required in applying for and processing DSA 
requests.
    A random review of the case files of borrowers who have received a 
DSA indicates that this program is sometimes being utilized to set-
aside payments which are scheduled one to two years from the time of 
the actual disaster. This rule limits the amount set-aside to the 
amount that the borrower is unable to pay the Agency from the 
production and marketing period in which the disaster occurred. 
Payments to other creditors are not considered. This will ensure that 
the amount of debt that is set-aside is minimized, and the resulting 
balloon payment and interest accrual are minimized. In addition, cases 
have been noted in which income that could have been used to pay the 
FSA debts was instead released for the purchase of capital items. DSA 
has also been used on accounts which would seem to have required 
primary loan servicing. Most of these delinquent accounts are more 
properly served by rescheduling and reamortizing the existing debt. 
This allows all future payments to be adjusted to an amount the 
operation can be expected to pay, instead of simply deferring a 
delinquent payment and leaving all remaining payments due as scheduled.
    The proposed rule also removes references to second set-asides and 
set-asides due to low commodity prices since there is no longer 
authority for DSA to be utilized in this manner. This change will 
clarify the actions the Agency may take during designated disasters.
    Since this program is not required by statute, the Agency must 
ensure that it

[[Page 41871]]

does not hinder the statutory primary loan servicing requirements which 
are codified in 7 CFR part 1951, subpart S. To ensure the future 
viability of farming operations, save borrower equity and reduce 
Government losses, FSA proposes to amend eligibility requirements for 
DSA to require that:
    (1) DSA applications must be made prior to the borrower becoming 
delinquent on the loans;
    (2) DSA is not authorized if the borrower has submitted an 
application for primary loan servicing; and
    (3) Only primary loan servicing, will be considered after a 
borrower becomes 90 days past due.
    These changes will ensure that a borrower with serious financial 
difficulties (already delinquent on loans to the Government) will 
receive notice of the full benefits of loan restructure as required by 
section 331D of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1981d). Timeframes for both the borrower and the Agency have 
been shortened to ensure that adequate time exists for application 
submission, processing and completion within these time frames.
    The proposed rule enhances consistency with primary loan servicing 
requirements at 7 CFR 1951.906 and 7 CFR 1951.909(c) by ensuring that 
borrowers obtaining a disaster set-aside have acted in good faith in 
complying with agreements made with the Government and are unable to 
pay the debt for reasons which are beyond their control.
    The proposed rule also eliminates the set-aside of cost recoverable 
items. These costs, such as property taxes, are the borrower's 
responsibility but have been paid by the Government. Non-payment of 
such costs is a violation of the terms of the Promissory Note and 
places the account in nonmonetary default, requiring the account to be 
serviced in accordance with 7 CFR 1951.907(d). This provision requires 
the sending of primary loan servicing notices. If the borrower applies 
for such servicing, however, the borrower will be ineligible for 
disaster set-aside. The borrower is expected to cure any non-monetary 
default to be eligible for disaster set-aside.
    Additional security requirements to ensure the availability of 
collateral throughout the term of the loan are also proposed if the 
borrower is not current at the time of the set-aside. This is 
consistent with the requirements of 7 CFR 1951.910(b) and, since 
payments can be set aside for the full term of the loan (which could be 
up to 40 years on a real estate loan or 15 years on a chattel loan), it 
is essential that the Government take all measures possible to ensure 
the continued availability of security during the entire term of the 
loan.
    Currently, 7 CFR 1951.954(a) requires that a cash flow projection 
be developed for the coming year which shows that all debts and 
expenses can be paid. This proposed rule specifies documentation needed 
for development of a cash flow (five years of financial and production 
history) as part of a complete application under Sec. 1951.953 to 
insure that the Sec. 1951.954 requirement is met.

List of Subjects in 7 CFR Part 1951

    Accounting, Credit, Disaster assistance, Loan programs-agriculture, 
Loan programs-housing and community development, Low and moderate 
income housing.
    Accordingly, 7 CFR part 1951 is proposed to be 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. 1932 Note; 7 U.S.C. 1989; 31 
U.S.C. 3716; 42 U.S.C. 1480.

Subpart T--Disaster Set-Aside Program

    2. Amend Sec. 1951.951 by revising the second sentence to read as 
follows:


Sec. 1951.951  Purpose.

    * * * The DSA program is available to Farm Loan Program (FLP) 
borrowers, as defined in subpart S of this part, who suffered losses as 
a result of a natural disaster. * * *
    3. Revise Sec. 1951.952 to read as follows:


Sec. 1951.952  General.

    DSA is a program whereby borrowers who are current on all FLP 
loans, but unable to make the next installment coming due, may be 
permitted to move the scheduled annual installment for each eligible 
FLP 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 a 
natural disaster. DSA will not be used to circumvent the servicing 
available under subpart S of this part.
    4. Revise Sec. 1951.953 to read as follows:


Sec. 1951.953  Notification and request for DSA.

    (a) [Reserved]
    (b) Deadline to apply. All FLP borrowers liable for the debt must 
request DSA within 8 months from the date the natural disaster was 
designated in accordance with 7 CFR part 1945, subpart A.
    (c) Information needed for a complete application.
    (1) A written request for DSA signed by all parties liable for the 
debt;
    (2) Actual production, income, and expense records for the past 
five years, including the production and marketing period in which the 
natural disaster occurred; and
    (3) Other information requested by the servicing official when 
needed to make an eligibility determination.
    5. Revise Sec. 1951.954 to read as follows:


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:
    (i) Operated a farm or ranch in a county designated a natural 
disaster or a contiguous county as provided in 7 CFR part 1945, subpart 
A, and;
    (ii) Been a borrower and operated the farm or ranch at the time of 
the disaster period.
    (2) A borrower cannot have more than one installment set aside on 
each loan. If all previously approved set-asides are paid in full, or 
cancelled through restructuring under subpart S of this part, the set-
aside will no longer exist and the loan may again be considered for 
DSA.
    (3) The borrower must have acted in good faith as defined in 
Sec. 1951.906 of subpart S of this part and the borrower's inability to 
make the upcoming scheduled FSA payments must be for reasons which are 
not within the borrower's control.
    (4) All non-monetary 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.
    (5) The borrower must be current on all FLP loans at the time the 
application for DSA is complete. Borrowers paying under a debt 
settlement adjustment agreement in accordance with subpart B of part 
1956 are not eligible.
    (6) The borrower must not become 90 days past due before Exhibit A 
of FmHA Instruction 1951-T (available in any FSA office) is executed.
    (7) As a direct result of the designated natural disaster, the 
borrower does not

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have sufficient income available to pay all family living and operating 
expenses, other creditors, and FSA. This determination will be based on 
the borrower's actual production, income and expense records for the 
disaster or affected 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.
    (8) For the next business accounting year, the borrower must 
develop a positive cash flow projection showing that the borrower will 
at least be able to pay all operating expenses and taxes due during the 
year, essential family living expenses and meet scheduled payments on 
all debts, including FLP debts. The cash flow projection must be 
prepared in accordance with 7 CFR Sec. 1924.56. The borrower will 
provide any documentation required to support the cash flow projection.
    (9) After the scheduled installments are set-aside, all FLP and NP 
farm type loans must be current.
    (10) The borrower's FLP loan has not been accelerated.
    (11) The borrower does not have a loan servicing application 
pending under subpart S of this part.
    (12) The borrower's FLP loans have not been restructured under 
subpart S of this part since the natural disaster occurred.
    (b) Loan limitation requirements. (1) The loan must have been 
outstanding at the time of the natural disaster.
    (2) The term remaining on the loan receiving DSA equals or exceeds 
2 years from the due date of the installment being set-aside.
    (3) The installment that may be set-aside is limited to the first 
scheduled annual installment due immediately after the disaster 
occurred.
    (4) The amount of set-aside shall be limited to the amount the 
borrower was unable to pay FSA from the production and marketing period 
in which the disaster occurred. Borrowers are required to pay any 
portion of an installment that they are able to pay.
    (5) 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 FSA 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 may not be set aside and the account 
must be serviced in accordance with Sec. 1951.907(d). The amount set 
aside will accrue interest from the time of the set-aside and will be 
due with the final installment.
    6. Amend Sec. 1951.957 as follows:
    a. Revise paragraphs (a), (b)(4), and (b)(7); and
    b. Remove paragraph (c).


Sec. 1951.957  Eligibility determination and processing.

    (a) Eligibility determination. (1) Upon receipt of a complete DSA 
application, the Agency official will determine if the borrower meets 
the requirements set forth in Sec. 1951.954. Approval shall be 
contingent upon the borrower's continuing eligibility through the 
signing of Exhibit A of FmHA Instruction 1951-T (available in any FSA 
office).
    (2) The borrower has up to 30 days to sign Exhibit A of FmHA 
Instruction 1951-T (available in any FSA office) for each loan 
installment set-aside approved. The Agency may provide for a longer 
period of time not to exceed 30 additional days under extenuating 
circumstances, such as where the Agency's approval is contingent upon 
the borrower paying a portion of the FLP payments from proceeds that 
may not be available until after the initial 30 day period.
    (b) * * *
    (4) If the borrower is not current on all FLP loans when Exhibit A 
of FmHA Instruction 1951-T (available in any FSA office) is executed, 
the borrower, and all obligors in the case of an entity, must execute 
and provide to the Agency a best lien obtainable on all of their assets 
except:
    (i) When taking a lien on such property will prevent the borrower 
from obtaining credit from other sources;
    (ii) When the property could have significant environmental 
problems or costs;
    (iii) When the Agency cannot obtain a valid lien;
    (iv) When the property is the borrower's personal residence and 
appurtenances and:
    (A) They are located on a separate parcel, and
    (B) The real estate that serves as collateral for the Agency loan 
plus crops and chattels are valued at greater than or equal to 150 
percent of the unpaid balance due on the loan;
    (v) When the property is subsistence livestock, cash, special 
collateral accounts the borrower uses for the farming operation, 
retirement accounts, personal vehicles necessary for family living, 
household goods, or small equipment such as hand tools and lawn mowers; 
or
* * * * *
    (7) Payments applied to the amount set-aside will be applied first 
to interest and then to principal.


Sec. 1951.1000  [Removed and Reserved]

    7. Remove and reserve Sec. 1951.1000.

    Signed in Washington, DC, on May 31, 2002.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 02-15506 Filed 6-19-02; 8:45 am]
BILLING CODE 3410-05-P