[Federal Register Volume 68, Number 68 (Wednesday, April 9, 2003)]
[Proposed Rules]
[Pages 17316-17320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8646]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 762, 1941, 1943 and 1951

RIN 0560-AG81


2002 Farm Bill Regulations--Loan Eligibility Provisions

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) proposes to amend the 
regulations for direct and guaranteed farm operating loans (OL) to 
implement the provision of the Farm Security and Rural Investment Act 
of 2002 (2002 Act) relating to loan eligibility for applicants with 
prior debt forgiveness resulting from a disaster or emergency 
designated by the President. FSA is proposing that borrowers who are 
current on an FSA loan at the onset of a Presidentially-declared 
disaster or emergency, but who receive debt forgiveness on that loan 
following the disaster, would be eligible for OL loan assistance if all 
other regulatory requirements were met. FSA is also proposing to amend 
the regulations for direct farm ownership (FO) loans to comply with the 
2002 Act. FSA is proposing that applicants may qualify for a loan if 
they participated in the business operations of a farm or ranch for at 
least three of the past five years, rather than having operated a farm 
or ranch for that length of time. This portion of the rule is intended 
to make more borrowers eligible for FSA farm loan assistance. Finally, 
FSA is proposing to amend regulations concerning reamortization of 
amortized Shared Appreciation Agreement (SAA) recapture debt.

DATES: Comments on the rule must be received on or before June 9, 2003, 
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: Kathy Zeidler, Senior Loan Officer, 
USDA, FSA, Farm Loan Programs, Loan Making Division, STOP 0522, 1400 
Independence Avenue, SW., Washington, DC 20250-0522; telephone

[[Page 17317]]

(202) 720-5199; or e-mail [email protected]. Comments on the 
rule may be inspected by contacting Ms. Zeidler for arrangements during 
normal business hours. Persons with disabilities who require 
alternative means for communication (Braille, large print, audio tape, 
etc.) should contact the USDA Target Center at (202) 720-2600 (voice 
and TDD).

Notice and Comment

    This rule is issued as a proposed rule. Upon completion of the 
public comment period and consideration of the comments received, FSA 
will issue a final rule addressing the comments, announcing the final 
determination, and making the provisions effective.

Executive Order 12866

    This rule has been determined to be not significant under Executive 
Order 12866 and, therefore, has not been reviewed by the Office of 
Management and Budget (OMB).

Federal Assistance Programs

    The title and number of the Federal assistance programs, as found 
in the Catalog of Federal Domestic Assistance, to which the rule 
applies are:

10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and certified by signature of this 
document that 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 a substantial number of small entities to a 
greater extent than large entities. Therefore, a regulatory flexibility 
analysis was not performed.

Unfunded Mandates

    This rule contains no Federal mandates under Title II of the 
Unfunded Mandates Reform Act of 1995 (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.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988. This rule preempts State laws that are inconsistent with it. 
This rule is not retroactive. Before judicial action may be brought 
concerning this rule, administrative remedies must be exhausted.

Environmental Assessment

    The environmental impacts of this rule have been considered in 
accordance with the provisions of the National Environmental Policy Act 
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and the FSA 
regulations for compliance with NEPA, 7 CFR parts 799, and 1940, 
subpart G. FSA has completed an environmental evaluation and concluded 
that the rule requires no further environmental review. No 
extraordinary circumstances or other unforeseeable factors exist which 
would require preparation of an environmental assessment or 
environmental impact statement. A copy of the environmental evaluation 
is available for inspection and review upon request.

Executive Order 12372

    This rule is not subject to the provisions of Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials. See the notice related to 7 CFR part 3015 subpart V 
published at 48 FR 29115 (June 24, 1983).

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Paperwork Reduction Act

    The Agency's information collection requirements, currently 
approved under OMB control numbers 0560-0155, 0560-0157, and 0560-0167 
are not affected by the proposed rule.

Government Paperwork Elimination Act

    FSA is committed to compliance with the Government Paperwork 
Elimination Act and the Freedom to E-File Act, which require Government 
agencies in general and FSA in particular to provide the option of 
submitting information or transacting business electronically to the 
maximum extent possible. The forms and other information collection 
activities required for participation in the program are not yet fully 
implemented for the public to conduct business with FSA electronically. 
However, loan application forms are available electronically for 
downloading through the USDA eForms Web site at http://www.sc.egov.usda.gov.

Background

    Section 5319 of the 2002 Act provides another exception to the 
general rule prohibiting farm loans to borrowers who have received 
prior debt forgiveness. Under this provision, FSA farm loan borrowers 
who received debt forgiveness on not more than one occasion resulting 
directly and primarily from a major disaster or emergency designated by 
the President on or after April 4, 1996, under the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.), 
may be eligible for direct or guaranteed farm operating loans to pay 
annual farm or ranch operating expenses. Note that while FSA makes 
emergency loans also when emergencies are designated by the USDA 
Secretary or FSA Administrator (physical loss loans only), only 
Presidentially-designated emergencies trigger this exception. In 
developing the proposed rule, FSA reasoned that if a borrower is 
operating in an area where a disaster or emergency is designated by the 
President, and the borrower is current on their FSA loan obligations 
prior to the designation, any subsequent debt forgiveness can be 
``directly and primarily'' attributed to the major disaster or 
emergency. Therefore, the Agency is proposing that borrowers who are 
current on FSA loans at the onset of a Presidentially-declared disaster 
or emergency, but receive debt forgiveness on the loans within three 
years following the disaster, fall within the legislative exception 
and, therefore, would be eligible for OL loan assistance for paying 
annual farm operating expenses if all other loan requirements were met. 
The Agency specifically seeks comments on this issue.
    Section 5001 of the 2002 Act revised an eligibility requirement for 
FSA's direct FO loan program. Applicants may now be eligible for this 
program if they participated in the business operations of a farm or 
ranch for at least three years, rather than having operated a farm or 
ranch for that length of time. FSA has in place a policy in its direct 
OL program defining farm participation with regard to acceptable farm 
experience and on-the-job training. Because this policy was already in 
effect, it was expanded to cover the new participation requirement for 
direct FO loans through administrative notice. The policy notice issued 
to field offices clarified the participation requirement by stating 
that applicants who: (1) Owned, managed, or operated a farm or ranch 
business for at least three years worth of complete production and

[[Page 17318]]

marketing cycles; (2) have been employed as a farm manager or farm 
management consultant for at least three years worth of complete 
production and marketing cycles; or (3) participated in the operation 
of a farm or ranch by being raised or working on a farm or ranch and 
having had significant responsibility for the day-to-day decision-
making for at least three years' worth of complete production and 
marketing cycles meet the participation requirement. This rule proposes 
to amend FO regulations accordingly and to limit the three years of 
participation to the five years prior to the date the loan application 
is submitted. Only the last five years should be considered because 
this is consistent with OL eligibility requirements, which specify that 
applicants must have sufficient applicable educational and/or on-the-
job training or farming experience in managing and operating a farm or 
ranch (one year's complete production and marketing cycle within the 
last five years). Recent farming experience is a better indicator of 
future success.
    Section 5314 of the 2002 Act authorizes FSA to consider 
reamortization of amortized SAA recapture debt for up to 25 years from 
the date of the original amortization agreement when the borrower 
becomes delinquent on this non-program debt. To be eligible for this 
reamortization, the default must be due to circumstances beyond the 
borrower's control, and the borrower must have acted in good faith in 
attempting to repay the recapture amount. As this reamortization can be 
considered even when a borrower has no outstanding FLP loans, or when 
the SAA was triggered by all FSA loans being paid in full, FSA is 
proposing to amend 7 CFR 1951.901, 1951.907, 1951.909, and 1951.914 to 
comply with this requirement.

List of Subjects

7 CFR Part 762

    General--Agriculture, Loan programs--Agriculture.

7 CFR Part 1941

    Crops, Livestock, Loan programs--Agriculture, Rural areas, Youth.

7 CFR Part 1943

    Crops, Loan programs--Agriculture, Recreation, Water resources.

7 CFR Part 1951

    Account servicing, Credit, Debt restructuring, Loan programs--
Agriculture, Loan Programs--Housing and community development.
    Accordingly, 7 CFR is revised as follows:

PART 762--GUARANTEED FARM LOANS

    1. The authority citation for part 762 continues to read as 
follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989.

    2. Amend Sec.  762.102(b) by adding a definition of 
``Presidentially-designated emergency'' to read as follows:


Sec.  762.102  Abbreviations and definitions.

* * * * *
    (b) Definitions.
* * * * *
    Presidentially-designated emergency. A major disaster or emergency 
designated by the President under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.)
    3. Amend Sec.  762.120 by revising paragraph (a) to read as 
follows:


Sec.  762.120  Loan applicant eligibility.

* * * * *
    (a) Agency loss. (1) Except as provided in paragraph (a)(2) of this 
section, the loan applicant, and anyone who will execute the promissory 
note, has not caused the Agency a loss by receiving debt forgiveness on 
all or a portion of any direct or guaranteed loan made under the 
authority of the CONACT by debt write-down or write-off; compromise, 
adjustment, reduction, or charge-off under the provisions of section 
331 of the CONACT; discharge in bankruptcy; or through payment of a 
guaranteed loss claim on:
    (i) More than three occasions on or prior to April 4, 1996; or
    (ii) Any occasion after April 4, 1996.
    (2) The applicant may receive a guaranteed OL to pay annual farm 
and ranch operating and family living expenses, provided the applicant 
meets all other requirements for the loan, if the applicant and anyone 
who will execute the promissory note:
    (i) Received a write-down under section 353 of the CONACT;
    (ii) Is current on payments under a confirmed bankruptcy plan; or
    (iii) Received debt forgiveness on not more than one occasion after 
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for the county in which the applicant operates. 
Only applicants who were current on all existing direct and guaranteed 
FSA loans prior to the onset of a Presidentially-designated emergency 
and received debt forgiveness on that debt within three years after the 
onset of such emergency meet this exception.
* * * * *

PART 1941--OPERATING LOANS

    4. The authority citation for part 1941 continues to read as 
follows:

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

Subpart A--Operating Loan Policies, Procedures and Authorizations

    5. Amend Sec.  1941.4 by adding a definition of ``Presidentially-
designated emergency'' to read as follows:


Sec.  1941.4  Definitions.

* * * * *
    Presidentially-designated emergency. A major disaster or emergency 
designated by the President under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).
* * * * *
    6. Amend Sec.  1941.12 by revising paragraphs (a)(8) and (b)(11) to 
read as follows:


Sec.  1941.12  Eligibility requirements.

* * * * *
    (a) * * *
    (8) Agency loss. (i) Except as provided in paragraph (a)(8)(ii) of 
this section, the loan applicant, and anyone who will execute the 
promissory note, has not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the CONACT by debt write-down or write-off; 
compromise, adjustment, reduction, or charge-off under the provisions 
of section 331 of the CONACT; discharge in bankruptcy; or through 
payment of a guaranteed loss claim.
    (ii) The applicant may receive a direct OL loan to pay annual farm 
and ranch operating and family living expenses, provided the applicant 
meets all other requirements for the loan, if the applicant and anyone 
who will execute the promissory note:
    (A) Received a write-down under section 353 of the CONACT;
    (B) Is current on payments under a confirmed bankruptcy plan; or
    (C) Received debt forgiveness on not more than one occasion after 
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for the county in which the applicant operates. 
Only applicants who were current on all existing direct and guaranteed 
FSA loans prior to the onset of a Presidentially-designated emergency 
and received debt forgiveness on that debt within three

[[Page 17319]]

years after the onset of such emergency meet this exception.
* * * * *
    (b) * * *
    (11) Agency loss. (i) Except as provided in paragraph (b)(11)(ii) 
of this section, the loan applicant, and anyone who will execute the 
promissory note, has not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the CONACT by debt write-down or write-off; 
compromise, adjustment, reduction, or charge-off under the provisions 
of section 331 of the CONACT; discharge in bankruptcy; or through 
payment of a guaranteed loss claim.
    (ii) The applicant may receive a direct guaranteed OL loan to pay 
annual farm and ranch and operating and family living expenses, 
provided the applicant meets all other requirements for the loan, if 
the applicant and anyone who will execute the promissory note,
    (A) Received a write-down under section 353 of the CONACT;
    (B) Is current on payments under a confirmed bankruptcy plan; or
    (C) Received debt forgiveness on not more than one occasion after 
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for the county in which the applicant operates. 
Only applicants who were current on all existing direct and guaranteed 
FSA loans prior to the onset of a Presidentially-designated emergency 
and received debt forgiveness on that debt within three years after the 
onset of such emergency meet this exception.
* * * * *

PART 1943--FARM OWNERSHIP, SOIL AND WATER AND RECREATION

    7. The authority citation for part 1943 continues to read as 
follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989.

Subpart A--Direct Farm Ownership Loan Policies, Procedures, and 
Authorizations

    8. Amend Sec.  1943.4 by adding a definition of ``participated in 
the business operations of a farm or ranch'' to read as follows:


Sec.  1943.4  Definitions.

* * * * *
    Participated in the business operations of a farm or ranch. An 
applicant has participated in the business operations of a farm or 
ranch if the applicant has:
    (1) Been the owner, manager or operator of a farm business for the 
year's complete production and marketing cycle as evidenced by tax 
returns, FSA farm records or similar documentation;
    (2) Been employed as a farm manager or farm management consultant 
for the year's complete production and marketing cycle; or
    (3) Participated in the operation of a farm by virtue of being 
raised on a farm or worked on farm with significant responsibility for 
the day-to-day decisions for the year's complete production and 
marketing cycle.
* * * * *
    9. Amend Sec.  1943.12 by revising the introductory text in 
paragraphs (a)(6) and (b)(8) to read as follows:


Sec.  1943.12  Farm ownership loan eligibility requirements.

    (a) * * *
    (6) Have participated in the business operations of a farm or ranch 
for at least 3 years out of the 5 years prior to the date the 
application is submitted and satisfy at least one of the following 
conditions:
* * * * *
    (b) * * *
    (8) Have one or more members, constituting a majority interest in 
the business entity, who have participated in the business operations 
of a farm or ranch for at least 3 years out of the 5 years prior to the 
date the application is submitted and satisfy at least one of the 
following conditions:
* * * * *

PART 1951--SERVICING AND COLLECTIONS

    10. 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 S--Farm Loan Programs Account Servicing Policies

    11. Amend Sec.  1951.901 by revising the third sentence to read as 
follows:


Sec.  1951.901  Purpose.

    * * * Shared Appreciation amortized payments (SA) may be 
reamortized in accordance with Sec. Sec.  1951.907(e), 1951.909(c)(6) 
and 1951.909(e)(2).
* * * * *
    12. In Sec.  1951.907, revise the second and third sentences of 
paragraph (c), introductory text, redesignate paragraph (e) as (f) and 
add a new paragraph (e) to read as follows:


Sec.  1951.907  Notice of loan service programs.

* * * * *
    (c) * * * If the borrower submits an incomplete application, see 
paragraph (f) of this section for procedures on requesting additional 
information. Delinquent borrowers who have also violated their loan 
agreements with the agency will be handled in accordance with paragraph 
(f) of this section. * * *
* * * * *
    (e) The Agency will notify delinquent NP borrowers who have only SA 
amortization agreements that all items in paragraph (f)(5) of this 
section, with the exception of Attachment 2 or 4 of exhibit A and 
information for conservation contracts or debt settlement, must be 
submitted within 60 days or the account will be accelerated. If a 
complete application has not been submitted within 30 days, one 
additional notice will be sent to the NP borrower indicating the 
remaining information needed and the last day which it can be 
submitted.
* * * * *
    13. Amend Sec.  1951.909 by adding a new paragraph (c)(6) to read 
as follows:


Sec.  1951.909  Processing primary loan service program requests.

* * * * *
    (c) * * *
    (6) Non-Program borrowers who have only SA amortization agreements 
must meet the eligibility requirement in paragraph (c)(1) of this 
section, have acted in good faith in attempting to repay the recapture 
amount, and develop a feasible plan. Borrowers who do not meet the 
eligibility or feasibility requirements of this section will be 
notified of the adverse decision, and the account will be liquidated 
according to subpart J of this part.
* * * * *
    14. Amend Sec.  1951.914 by revising paragraphs (e), introductory 
text, and (e)(11) to read as follows:


Sec.  1951.914  Servicing shared appreciation agreements.

* * * * *
    (e) Shared appreciation amortization. Shared appreciation due under 
this section may be amortized to a nonprogram amortized payment unless 
the amount is due because of acceleration or the borrower ceases 
farming. The amount due may be amortized as an SA amortized payment 
under the following conditions:
* * * * *
    (11) If a borrower with an SA amortized payment also has 
outstanding Farm Loan Program loan(s) and becomes delinquent or 
financially distressed in accordance with Sec.  1951.906 or if a 
borrower with an SA amortized

[[Page 17320]]

payment has no outstanding Farm Loan Program loans and becomes 
delinquent on the SA amortized payment, the SA payment agreement may be 
reamortized in accordance with Sec.  1951.909.
* * * * *

    Dated: March 24, 2003.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
    Dated: April 1, 2003.
Thomas C. Dorr,
Under Secretary for Rural Development.
[FR Doc. 03-8646 Filed 4-8-03; 8:45 am]
BILLING CODE 3410-05-P