[Federal Register Volume 68, Number 186 (Thursday, September 25, 2003)]
[Rules and Regulations]
[Pages 55299-55304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24177]



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  Federal Register / Vol. 68, No. 186 / Thursday, September 25, 2003 / 
Rules and Regulations  

[[Page 55299]]



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: Final rule.

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

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

DATES: This rule is effective on October 27, 2003.

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, SW., 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 under Executive 
Order 12866.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601, 
the Agency has determined that there will not be a significant economic 
impact on a substantial number of small entities. All Farm Service 
Agency direct loan borrowers and all entities affected by this rule are 
small businesses according to the North American Industry 
Classification System, and the United States Small Business 
Administration. There is no diversity in size of the entities affected 
by this rule and the costs to comply with it are the same for all 
entities. FSA stated its finding in the proposed rule at 67 FR 41869, 
June 20, 2002, that the rule will not have a significant economic 
impact on a substantial number of small entities, and received no 
comments on this finding.
    In the U.S. there are 86,000 FSA direct farm loan borrowers. In 
this final rule FSA is streamlining the Disaster Set-Aside (DSA) 
program, which postpones one delinquent loan installment to the end of 
the loan term. This rule somewhat limits the DSA program by increasing 
the security requirements, tightening the application timeframes and 
authorizing the program only for borrowers whose financial stress was 
caused by a designated natural disaster. While borrowers whose 
financial stress had been caused by low commodity prices had at one 
time been eligible for the DSA program, this authority applied only to 
low commodity prices in 1999, with an application deadline of August 
31, 2000. This rule removes the low commodity price assistance aspect 
of the program. However, this authority previously expired on its own 
terms on August 31, 2000.
    While the effect of these rule changes is to make fewer individuals 
eligible for the DSA program, the small entities affected by these 
changes may be eligible to receive more extensive debt restructuring 
known as Primary Loan Servicing (PLS), including reduced interest rates 
and debt writedown, to alleviate financial stress from designated 
natural disasters and/or low commodity prices. In FY 2002, 5,000 farm 
borrowers received PLS, the Agency's statutorily mandated debt 
restructuring tool. The DSA program, which is regulatory only, was used 
for only 834 farms. With these changes, FSA estimates that 10 percent 
of these farms may no longer receive DSA assistance. However, without 
DSA assistance, the farms may then qualify for more wide ranging 
assistance under the PLS Program. The Agency estimates that the costs 
of applying for PLS may be greater than applying for DSA. However, 
Agency employees routinely assist farmers applying for PLS assistance, 
and the assistance that may be received will more than offset the 
costs. The eligibility standards for the two programs are similar. 
However, PLS assistance will more probably result in a farm becoming a 
viable small business. Therefore, the costs of compliance from this 
rule are deemed not significant. Accordingly, pursuant to section 
605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Agency 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.

Environmental Evaluation

    The environmental impacts of this proposed 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 of Environmental Quality (40 CFR Parts 1500-
1508), and the FSA regulations for compliance with NEPA, 7 CFR part 
1940, subpart G. FSA completed an environmental evaluation and 
concluded 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 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.

[[Page 55300]]

Executive Order 12372

    For reasons contained in the notice related to 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983), the programs within this rule 
are excluded from the scope of E.O. 12372, which requires 
intergovernmental consultation with State and local officials.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to assess the effects of their regulatory 
actions on State, local, and tribal governments or the private sector 
of $100 million or more in any 1 year. When such a statement is needed 
for a rule, section 205 of the UMRA requires FSA to prepare a written 
statement, including a cost and benefit assessment, for proposed and 
final rules with ``Federal mandates'' that may result in such 
expenditures for State, local, or tribal governments, in the aggregate, 
or to the private sector. UMRA generally requires agencies to consider 
alternatives and adopt the more cost effective or least burdensome 
alternative that achieves the objectives of the rule.
    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

    Notice of this information collection package was published in a 
Proposed rule (67 FR 41869, June 20, 2002) under the provisions of 44 
U.S.C. chapter 35. The information collections required for this 
regulation have been assigned OMB control number 0560-0164. The 
Information Collections associated with this rule have been approved by 
OMB until May 31, 2006.

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 Final Rule

    In response to the proposed rule published June 20, 2002 (67 FR 
41869-41872), a total of nine comments were received from FSA 
employees, farm interest groups, and state government officials. 
Comments and suggestions focused primarily on the timeframes for DSA 
application submission and processing. However, most aspects of the 
proposed rule did receive comments with some commentors disagreeing 
with all changes. Instead they recommended changes that would expand 
the program into multiple set-asides on each loan without requiring a 
designated disaster. All comments were considered and will be 
addressed. Many of the comments have been adopted. The Agency's 
obligation to offer and consider eligibility for primary loan 
servicing, required by statute (section 331D of the Consolidated Farm 
and Rural Development Act (CONACT)) and 7 CFR part 1951, subpart S, as 
the applicable method for resolving delinquent account servicing is 
being considered in the final rule. The public comments are summarized 
as follows:

Timeframe for Complete DSA Application and Processing of DSA

    Since DSA is not required by statute, the Agency must ensure that 
it 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 proposed to amend the requirements for DSA to 
require that:
    (1) DSA applications must be made prior to the borrower becoming 
delinquent on the loans;
    (2) DSA will not be authorized if the borrower has already 
submitted an application for primary loan servicing; and
    (3) Only primary loan servicing will be considered when a borrower 
becomes 90 days past due.
    All nine commentors indicated that the requirement for a DSA 
application to be complete prior to the borrower becoming past due 
allows inadequate time for disaster declarations and borrower 
consideration of servicing options. One commentor stated that a 
borrower's need for DSA could span two or more years and that primary 
loan servicing is cumbersome and time consuming. This respondent did 
not indicate what timeframe would be appropriate. The Agency notes 
however, that this amount of time would well exceed all statutory 
timeframes for the servicing of delinquent loans. Two commentors 
indicated that the deadline to submit a DSA application should be 
extended until the borrower is 90 days past due. This suggestion was 
accepted and adopted in sections 1951.952 and 1951.954(a)(5) of the 
final rule.
    All commentors also felt that some flexibility should be allowed 
for processing DSA applications after FSA provides delinquent borrowers 
with initial notification of primary loan servicing and during the 
processing of the Primary Loan Servicing (PLS) application. It was 
stated that this would allow the borrower to choose between servicing 
options and several comments were submitted on this section of the 
rule. One commentor objected to the affirmative statement made in the 
rule that the ``DSA will not be used to circumvent the servicing 
available under subpart S of this part.'' Two comments also indicated 
that borrowers should have some type of ``safety net'' beyond a strict 
deadline, if FSA does not meet its time limit for processing a DSA 
application. One commentor believed that a 120 day time limit should be 
imposed with SED consideration required beyond that point. In 
evaluating all the above comments, it must also be considered that PLS 
is dictated by statute and FSA and the borrower must meet certain 
timeframes. However, after consideration of these comments, we believe 
that the extension of the DSA timeframes is warranted. Therefore, to 
address the PLS processing timeframes and DSA application deadline 
issues, the final rule provides that DSA consideration may continue 
until a complete PLS application must be submitted. This will require 
that DSA consideration and closing be completed prior to the borrower 
becoming 165 days past due. (FSA notifies a borrower 15 days after the 
borrower is 90 days past due of all PLS options, and the borrower then 
has 60 days to submit a complete PLS application. 15 + 90 + 60 = 165). 
In sections 1951.954(a)(5) and 1951.954(a)(6) of 7 CFR, timeframes for 
both the borrower and the Agency have been lengthened accordingly 
beyond those proposed to ensure that adequate time exists for 
application submission, processing and completion.

Additional Security Requirements

    Additional security requirements were proposed to ensure the 
availability of collateral throughout the term of the loan if the 
borrower is not current at the time of the DSA. This is consistent with 
the requirements of 7 CFR 1951.910(b) and, since payments can be set 
aside for

[[Page 55301]]

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 adequacy 
and availability of security during the entire term of the loan.
    Three commentors disagreed with the requirement for additional 
security while five others supported the requirement. Two commentors 
disagreed because they believed this would add psychological burden on 
the borrowers in a time of natural disaster. This comment related 
mainly to the proposed short timeframes which coincided with the 
occurrence of a disaster. The final rule lengthens these timeframes to 
allow the borrowers ample time to be considered for DSA without 
interfering with statutory requirements regarding PLS. However, the 
same commentors believed that the security requirement would adversely 
affect other creditors and local communities by circumventing lien 
priority considerations and payments to other creditors. The Agency 
believes that the rule has no effect on lien priorities. State laws 
will continue to govern perfected liens. Also, Agency regulations 
requiring the release of normal income proceeds for essential family 
living or farm operating expenses remain unchanged. Finally, commentors 
felt that local Agency officials would abuse their discretion in the 
determination of required security. In drafting this rule the Agency 
included specific security requirements in section 1951.957(b)(4) which 
lessen the possibility that local offices will abuse their discretion. 
However, the rule allows enough flexibility in security requirements to 
minimize disruptions to the farm operation while protecting the Agency 
from an inordinate amount of financial risk.
    Two of the supportive commentors advocated reducing the additional 
security requirement to a maximum of 150 percent of the outstanding 
loan amount (although one of the two thought the requirement for 
additional security should include non-delinquent borrowers). Another 
supporter wanted to use the 150 percent requirement but increase the 
amount required to 150 percent of the total debt (including prior 
liens) on the residence instead of just the FSA debt. After considering 
these comments, the additional security requirements contained in 
section 1951.957(b)(4) will not be revised. These requirements are the 
same as the existing security requirements for delinquent borrowers 
serviced under the primary loan servicing program contained in 7 CFR 
1951.910(b). That regulation requires that delinquent borrowers provide 
the best lien obtainable on all assets that the borrower owns but 
adopts the exclusions contained in 7 CFR 1941.19(c). Generally items 
excluded from the FLP security are real or chattel property which would 
prevent the borrower from obtaining credit from other sources; could 
subject the Agency to additional costs as creditor; or are used for 
subsistence purposes. These security requirements and their exceptions 
have been contained in FPL's regulations since 1992 and are well 
understood by borrowers and FLP employees. Adopting these security 
requirements in the 1951-T process will assure consistency in FPL's 
loan servicing programs.

Submission of Historical Information

    While two commentors supported the historical information 
requirements and development of a farm business plan, three other 
commentors disagreed with the requirement for submission of 5 years of 
financial records, including records from the time period of the 
disaster. Although clarified, these requirements were contained in the 
previous regulation by 7 CFR 1951.953(c)(2) and 1951.954(a)(6). Section 
1951.953(c)(2) of the proposed rule simply clarified these 
requirements, which ensures that cash flow projections are supported by 
adequate historical data. This policy is consistent with FSA's current 
loan making (7 CFR 1910.4(b)(6)) and loan servicing regulations (7 CFR 
1951.906, definition of a feasible plan) which generally require 
production and expense records for the previous five years, if the 
borrower has been farming during that time period.

Submission of Information as Required for Agency Consideration

    Two commentors do not agree with the requirement that the borrower 
provide ``any documentation required to support the cash flow 
projection.'' However, this language is in section 1951.954(a)(6) of 
the current regulation. It is essential for the development of an 
accurate farm business plan, as the Agency has no way to foresee any 
and all financial and production aspects of all operations that could 
need assistance. This language simply allows FSA to obtain 
documentation on aspects of an operation that are unique and cannot be 
foreseen or codified in the regulation. In order to ensure the future 
viability of the farming operation, save borrower equity, and reduce 
government losses, eligibility requirements for DSA continue to require 
borrowers to develop a cash flow projection. The authority to request 
applicable documentation will, therefore, be retained.

Elimination of Legacy Language Regarding Low Commodity Prices and 
Second DSA

    The proposed rule stated that language referring to past authority 
which allowed DSA due to low commodity prices and a second DSA for that 
purpose would be removed. Two commentors believe that this authority 
should be retained. One commentor supported the removal of the low 
commodity price language but preferred that the use of the words 
``natural disaster'' be changed to ``disaster'' to allow FSA discretion 
on its use for economic disasters. FSA's current regulation at 7 CFR 
1951.953 provides authorization for the DSA program for economic 
disasters based on low commodity prices through 1999 only, and requires 
that applications for that program be received by August 31, 2000. 
Because this aspect of the DSA program has expired, FSA in implementing 
the final rule will be deleting an expired authority. FSA believes that 
adverse economic conditions are more appropriately serviced through the 
statutorily mandated loan servicing program contained in 7 CFR part 
1951, subpart S. That regulation, in section 1951.909(c)(1)(iv), 
authorizes a sequenced loan servicing program, starting with the least 
costly rescheduling/reamortization program through the most costly debt 
writedown program which allows debt restructuring of the present value 
of the loans to the net recovery value of the security and any non-
essential assets, when adverse economic factors, not limited to an 
individual case, such as low market prices for agricultural commodities 
as compared to production costs reduce repayment ability. If FSA 
believes an additional regulatory program for economic disasters is 
required in future years, it will reactivate the 1951-T authority 
through the rulemaking process.

Limitation of Installments on Which DSA Can Be Used

    The proposed rule stated that the amount that may be setaside would 
be limited to the amount the borrower is unable to pay the Agency from 
the production and marketing period in which the disaster occurred. It 
further limited DSA to the first scheduled annual installment due 
immediately after the disaster occurred. Three

[[Page 55302]]

commentors disagreed with this provision and stated that this would not 
always allow a borrower to get a DSA if the disaster occurred late in 
the year or the disaster declaration was delayed. Because the process 
of declaring a disaster can be lengthy, FSA has modified the final rule 
in section 1951.954(b)(3) to allow the set-aside of either the first or 
second installment due after the disaster occurred.

Limitation of DSA to Borrowers Who Are Unable To Pay FSA Debt

    The proposed rule stated that the amount set-aside would be limited 
to the amount that the borrower is unable to pay the Agency. Payments 
to other creditors were not considered. Three commentors disagreed with 
this provision and stated that this could cause a borrower to wait 
until the last minute to pay the FSA debt as the amount of other debt 
could not be set aside. However, as noted above, provisions of 7 CFR 
part 1962, subpart A, require the release of normal income security 
proceeds for essential family living and farm operating expenses until 
the account is accelerated. Lien priorities remain unchanged. Thus, 
funds due FSA can be released to other creditors for these purposes. 
Therefore, this limitation will be retained. It further insures that 
the amount of debt that is set-aside is minimized, and the resulting 
balloon payment and interest accrual to the borrowers account are also 
minimized.

Elimination of Cost Recoverable Set-Aside

    The proposed rule would eliminate the set-aside of cost recoverable 
items. These costs, such as property taxes, are the borrower's 
responsibility but may have been paid by the Government to protect its 
lien position. Non-payment of such costs is a violation of loan 
agreements, including the Promissory Note, and places the account in 
nonmonetary default, requiring the account to be serviced in accordance 
with 7 CFR 1951.907(d). Two commentors disagreed with this proposal and 
stated that farm advocates are concerned that it can take over a year 
for a non-monetary default to be ``removed from a borrower's record'' 
even after it is paid. Failure to comply with borrower training 
requirements was stated as an example. However, the proposed rule deals 
specifically with cost recoverables, and cost recoverables do not 
include borrower training requirements. One commentor agreed with the 
proposal and suggested it be made part of the eligibility requirements 
instead of the limitations.
    Based on the adverse affect on the Agency caused by a borrower's 
failure to pay the recoverable cost item, and the Agency's continuing 
need to service these items either by payment or costly servicing under 
7 CFR 1951, subpart S, the final rule adopts the proposed rule.

Elimination of Language Regarding Interest Accrual

    Two commentors indicated that the last sentence in section 
1951.954(b)(5) as proposed duplicates the language already in sections 
1951.957(b)(2) and 1951.957(b)(3). However, they preferred the due date 
being expressed as ``with the final installment'' instead of the 
current language ``on or before the final due date.'' The duplicative 
language is removed. However, the Agency believes that all borrowers 
with a DSA would be well served to pay the set-aside as soon as 
possible to eliminate additional interest and reduce the final balloon 
payment even if this occurs prior to the final installment coming due. 
Therefore, the current language in section 1951.957(b)(3) is retained.

Eligibility Regarding Post-Disaster Primary Loan Servicing

    Presently, section 1951.954(a)(11) limits set-aside to those 
borrowers who have not been restructured using primary loan servicing 
since the disaster. One commentor indicated that the criteria should be 
changed to limit eligibility to those who have not been restructured 
since the disaster designation. Since PLS restructures debt using the 
latest information from a borrower, and any recent disaster, whether 
designated or not, would be considered in restructuring loans if it 
impacted the borrower's operations, no change from existing policy is 
required.

DSA Notification

    While borrower notification of DSA is not contained in the CFR (it 
is addressed in the Agency internal Instruction section 1951.953), four 
comments were received indicating some interest in the topic. At 
present, the Agency provides notification, to any non-accelerated 
borrower who has not been restructured after a disaster and who may be 
eligible for DSA, of all disaster designations in effect in that county 
or a contiguous county in any quarter in which a new designation is 
established. Two commentors appeared to favor regular quarterly 
notification to the public about all designations in effect, and stated 
that the Agency's notification process should be codified in the CFR. 
However, one of the other commentors stated that an initial 
notification with no quarterly notification would be adequate. Another 
commentor favored the initial notification but did not express any 
opinion regarding the quarterly notification requirements. Based on the 
range of the four comments received, the Agency has decided that this 
procedural requirement will not be published in the CFR. The Agency's 
notification policy is available upon request at any local office. 
Also, a fact sheet on the DSA program including the notification, is 
contained on the FSA webpage at: http://www.fsa.usda.gov/pas/publications/facts/html/debtset02.htm. Additional guidance to Agency 
employees on notification will be considered when the Agency 
instruction is revised.

DSA Expansion

    While not specifically addressed in the proposed rule, two 
commentors indicated that they would favor multiple set-asides on each 
loan without restructuring and a DSA program for guaranteed loans. The 
Agency understands the commentors desire to have as many avenues as 
possible to correct defaults. However, these suggestions exceed the 
scope of what FSA considered in the proposed rule, and adopting these 
comments would increase the risk of loss on direct loans. Guaranteed 
loans are serviced by private lenders under 7 CFR 762 and not by FSA. 
Lenders utilize the guaranteed program because servicing actions are 
the lenders' option. FSA does not dictate to lenders how to service the 
loans, and current guaranteed loan regulations already provide many 
options including deferral and debt writedown. Further, our experience 
with lenders indicates that these options provide all the tools that 
commercial lenders would realistically ever use in servicing the 
account. Thus, these changes are not under consideration, and they will 
not be included in the final rule.

Second Set-Aside Payment Application

    Two commentors stated that the instructions on payment application 
when a borrower has obtained two set-asides should be retained for 
those borrowers that have received two set-asides in the past. As some 
existing borrowers do have two set-asides, this language will be 
retained in section 1951.957(b)(7). However, section 1951.954(a)(2) 
makes it clear that present authority is limited to setting aside one 
installment on each loan.

List of Subjects in 7 CFR Part 1951

    Accounting, Credit, Disaster assistance, Loan programs-agriculture,

[[Page 55303]]

Loan programs-housing and community development, Low and moderate 
income housing.

0
Accordingly, 7 CFR part 1951 is amended as follows:

PART 1951-SERVICING AND COLLECTIONS

0
1. The authority citation for part 1951 continues 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

0
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. * * *

0
3. Revise Sec.  1951.952 to read as follows:


Sec.  1951.952  General.

    DSA is a program whereby borrowers who are current or less than 90 
days past due on all FLP loans, may apply 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.

0
4. Revise Sec.  1951.953 to read as follows:


Sec.  1951.953  Notification and request for DSA.

    (a) [Reserved]
    (b) Deadline to apply. Subject to Sec.  1951.954(a)(5), 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.

0
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 area 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 
under the DSA program 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 borrowers inability to make 
the upcoming scheduled FSA payments must be for reasons which are not 
within the borrower's control.
    (4) All nonmonetary defaults must have been resolved. This means 
that even though the borrower has acted in good faith, the borrower may 
still be in default for reasons, such as, but not limited to: no longer 
farming; prior lienholder foreclosure; bankruptcy or under court 
jurisdiction; not properly maintaining chattel and real estate 
security; not properly accounting for the sale of security; or not 
carrying out any other agreement made with the Agency.
    (5) The borrower must be current or less than 90 days past due 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 of this chapter are not 
eligible.
    (6) The borrower must not be 165 or more days past due when Exhibit 
A of Agency Instruction 1951-T (available in any FSA office) is 
executed.
    (7) As a direct result of the designated natural disaster, the 
borrower does not 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 1924.56. The borrower will provide 
any documentation required to support the cash flow projection.
    (9) After the amount for each loan is set-aside, all FLP and NP 
farm type loans of the borrower must be current.
    (10) The borrower's FLP loans have not been accelerated.
    (11) 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 
or second scheduled annual installment due after the disaster occurred 
and the amount may not exceed the installment set-aside.
    (4) The amount set-aside may not exceed the amount the borrower was 
unable to pay FSA due to the disaster. Borrowers are required to pay 
any portion of an installment that they are able to pay.
    (5) The amount set-aside will equal the unpaid balance remaining on 
the installment at the time the borrower signs Exhibit A of Agency 
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).

0
6. Amend Sec.  1951.957 by revising paragraphs (a) and (b)(4) to read 
as follows.


Sec.  1951.957  Eligibility determination and processing.

    (a) Eligibility determination. (1) Within 30 days 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 Agency Instruction 1951-T (available in any FSA 
office).

[[Page 55304]]

    (2) The borrower has 45 days to sign Exhibit A of Agency 
Instruction 1951-T (available in any FSA office) for each loan 
installment set-aside approved. Subject to Sec.  1951.954(a)(6), the 
Agency may provide for a longer period of time 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 immediately available.
    (b) * * *
    (4) If the borrower is not current on all FLP loans when Exhibit A 
of Agency 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; provided:
    (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.; or
    (v) When the property is subsistence livestock, cash, special 
collateral accounts the borrower uses for the farming operation or for 
necessary living expenses, retirement accounts, personal vehicles 
necessary for family living or farm operating purposes, household goods 
and small tools and small equipment such as hand tools and lawn mowers, 
and other similar items.
* * * * *


Sec.  1951.1000  [Removed and reserved]

0
7. Remove and reserve Sec.  1951.1000.

    Signed in Washington, DC, on September 17, 2003.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 03-24177 Filed 9-24-03; 8:45 am]
BILLING CODE 3410-05-P