[Federal Register Volume 75, Number 171 (Friday, September 3, 2010)]
[Rules and Regulations]
[Pages 54005-54016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22070]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 75, No. 171 / Friday, September 3, 2010 / 
Rules and Regulations  

[[Page 54005]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 764, 765, and 766

RIN 0560-AI04


Conservation Loan Program

AGENCY: Farm Service Agency, USDA.

ACTION: Interim final rule.

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

SUMMARY: The Farm Service Agency (FSA) is implementing the new 
Conservation Loan (CL) Program authorized by the Food, Conservation, 
and Energy Act of 2008 (the 2008 Farm Bill). This interim rule adds the 
CL Program provisions to the existing direct and guaranteed loan 
regulations. These provisions will provide CL Program eligibility and 
servicing options for the direct and guaranteed loans made through the 
CL Program.

DATES: Effective Date: This rule is effective September 3, 2010.
    Comment Date: We will consider comments on this rule and on the 
information collection activities that we receive by November 2, 2010.

ADDRESSES: We invite you to submit written comments on this interim 
rule and on the information collection. In your comment, include the 
volume, date, and page number of this issue of the Federal Register. 
You may also send comments about the information collection requests to 
the Desk Officer for Agriculture, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Washington, DC 20503. You may 
submit comments by any of the following methods:
     E-mail: [email protected].
     Fax: (202) 720-6797.
     Mail: Director, Loan Making Division, FSA, USDA, 1400 
Independence Avenue, SW., Stop 0522, Washington, DC 20250-0522.
     Hand Delivery or Courier: Deliver comments to FSA, LMD, 
1280 Maryland Avenue, SW., Suite 240, Washington, DC 20024.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Comments may be inspected in the Office of the Director, LMD, FSA, 
at 1280 Maryland Avenue, SW., Suite 240, Washington, DC, Monday through 
Friday between 8 a.m. and 4:30 p.m., except holidays.

FOR FURTHER INFORMATION CONTACT: Connie Holman, Senior Loan Officer, 
LMD, FSA; telephone: (202) 690-0756; fax: (202) 720-6797; e-mail: 
[email protected]. Persons with disabilities or 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).

SUPPLEMENTARY INFORMATION: 

Background

    Currently, FSA's Farm Loan Programs (FLP) regulations do not 
specifically address financing needs for approved conservation 
practices. Section 5002 of the 2008 Farm Bill (Pub. L. 110-246) amends 
section 304 of the Consolidated Farm and Rural Development Act (CONACT) 
(7 U.S.C. 1924) to authorize the Secretary to make or guarantee 
qualified conservation loans to eligible borrowers to cover the cost of 
carrying out a qualified conservation project. FSA is inserting CL 
Program provisions in the existing direct and guaranteed loan 
regulations and is therefore amending 7 CFR parts 761, 762, 764, 765, 
and 766 to include the CL program. This rule provides definitions, 
eligibility requirements, and program uses that will be specific only 
to the CL Program. The CL Program will also contain several specific 
exceptions that differ from many of FSA's more stringent traditional 
loan program requirements such as family farm requirements, test for 
credit, and graduation based on section 304 of the CONACT. In addition, 
in many cases FSA will partner with cost share programs provided by the 
Natural Resources and Conservation Service (NRCS), USDA, to provide 
funding for the implementation of qualified conservation practices as 
outlined in an approved conservation plan developed by NRCS.

Farm Loan Programs, General Program Administration

    The FLP General Program Administration regulations in 7 CFR part 
761 include regulations addressing general provisions, supervised bank 
accounts, supervised credit, allocation of FLP funds to State offices. 
The regulations in 7 CFR part 761 provide the general and 
administrative regulations for both guaranteed and direct loans and 
will, therefore, apply to the CL Program.

Abbreviations and Definitions

    Abbreviations and definitions used throughout FSA FLP are in 7 CFR 
761.2. This rule adds abbreviations and definitions to that part that 
will be used for both the direct and guaranteed loans made through the 
CL Program.
    FSA will add abbreviations for ``Conservation Loan'' and ``Natural 
Resources and Conservation Service.'' These abbreviations will be used 
frequently and will allow for consistency throughout regulations and 
between the direct and guaranteed loan programs.
    Section 304 of the CONACT specifies the following definitions:
    (1) ``Qualified conservation loan'' means ``a loan, the proceeds of 
which are used to cover the costs to the borrower of carrying out a 
qualified conservation project.''
    (2) ``Qualified conservation project'' means ``conservation 
measures that address provisions of a conservation plan of the eligible 
borrower.''
    (3) ``Conservation plan'' means

a plan, approved by the Secretary, that, for a farming or ranching 
operation, identifies the conservation activities that will be 
addressed with loan funds provided under this section, including:

    (A) The installation of conservation structures to address soil, 
water, and related resources;
    (B) The establishment of forest cover for sustained yield timber 
management, erosion control, or shelter belt purposes;
    (C) The installation of water conservation measures;
    (D) The installation of waste management systems;
    (E) The establishment or improvement of permanent pasture;
    (F) Compliance with section 1212 of the Food Security Act of 
1985; and
    (G) Other purposes consistent with the plan, including the 
adoption of any other

[[Page 54006]]

emerging or existing conservation practices, techniques, or 
technologies approved by the Secretary.

    FSA is adding definitions of ``qualified conservation loan'' and 
``qualified conservation project'' into the regulations in Sec.  
761.2(b) with minor, nonsubstantive wording changes for consistency 
with the regulation. The defined terms will become ``conservation 
loan'' and ``conservation project''.
    FSA, in coordination with NRCS, is also adopting a more technically 
adequate definition of ``conservation plan'' to mean:

an NRCS-approved written record of the land user's decisions and 
supporting information, for treatment of a land unit or water as a 
result of the planning process, that meets NRCS Field Office 
Technical Guide (FOTG) quality criteria for each natural resource 
(soil, water, air, plants, and animals) and takes into account 
economic and social considerations. The conservation plan describes 
the schedule of operations and activities needed to solve identified 
natural resource problems and takes advantage of opportunities at a 
conservation management system level. This definition only applies 
to the direct loans and guaranteed loans for the Conservation Loan 
Program.

    This definition of conservation plan provides consistency between 
FSA and NRCS procedures. FSA considers consistency especially important 
due to the statutory role that conservation plans play in eligibility 
for the CL Program.
    FSA is revising the current definition for ``graduation.'' The 
change to the ``graduation'' definition of adding the words ``except 
for Conservation Loans'' is necessary because the CL Program does not 
include graduation provisions. Section 304 of the CONACT specifically 
states that section 333(1) and (3) graduation requirements do not 
apply.
    FSA is revising the definitions for ``beginning farmer'' and 
``program loan'' to add ``CL'' in the loan types listed in the 
definitions.
    FSA is adding the definition for ``streamlined conservation loan.'' 
The definition is necessary because FSA will reduce paperwork 
requirements for applicants meeting certain criteria as discussed 
below.

Loan Limitations

    FSA is amending 7 CFR 761.8 to specify that the existing loan 
limits will apply to both the direct and guaranteed loans made through 
the CL Program. Direct and guaranteed CL limits will count toward both 
the individual and combined real estate (Subtitle A of the CONACT) loan 
program limits previously established and specified in the regulation 
based on section 305 of the CONACT. That section limits direct CLs 
under section 304 to the smaller of the value of the security or 
$300,000. Guaranteed CLs also are subject to the existing combined 
guaranteed loan limit of $700,000 (adjusted by inflation) under section 
305.

Farm Assessment Requirements

    Periodically FSA FLP assesses each direct borrower's farming 
operation to determine financial condition, organizational structure, 
management strengths, credit counseling and training needs, and the 
appropriate level of oversight. This assessment is completed with the 
borrower to develop a plan to enhance the borrower's ability to 
progress in management skills financially to the point that the 
borrower is able to graduate from FSA and secure commercial credit. 
Section 761.103 specifies key factors that must be evaluated, at a 
minimum, for each operation. FSA is amending Sec.  761.103 to provide 
that, for the applicants who have demonstrated the ability to meet 
certain requirements, FSA will not require historical performance and 
supervisor plans as part of the application process that are standard 
to other FLP loan applications. These applicants will be required to 
have a debt to asset ratio of 40 percent or less, a net worth of 3 
times the loan amount, and a Fair Isaac Corporation (known as FICO) 
score of 700 or more. FSA believes that CL borrowers who met these 
requirements have demonstrated a high level of management skills and 
financial security. All CL Program borrowers would still be required to 
provide a current balance sheet annually along with income tax records, 
which would enable FSA to complete an abbreviated assessment. Any 
negative trends noted between balance sheets must be evaluated and 
addressed in the assessment.
    FSA is requiring that if a CL borrower becomes financially 
distressed, delinquent, or receives any servicing options available in 
7 CFR part 766, then all elements of the assessment must be included 
and addressed even if the loan was initially made under the reduced 
application exemption. This is necessary to fully assess the problem 
and correct any delinquency.

Year-End Analysis

    Since certain CL Program applicants provide reduced documentation 
for loan approval, FSA believes it would be inconsistent to require 
significant additional information for routine monitoring of the 
borrower's progress. Therefore, FSA is amending Sec.  761.105 to exempt 
certain CL Program borrowers from a year-end analysis requirement. 
Borrowers that qualify for reduced documentation CLs will still be 
required to submit a current balance sheet annually with income tax 
records to facilitate FSA's loan monitoring process.

General Administrative Changes

    As discussed above, FSA is incorporating the CL Program into the 
existing FLP regulations in 7 CFR part 761. Specifically, FSA is making 
the following changes to accommodate the addition of the new CL Program 
into the regulations:
    (1) In Sec.  761.201 adding CL to the list of loans for allocation 
of funds;
    (2) In Sec.  761.202 adding CL to the list of loans in the timing 
of allocations;
    (3) In Sec.  761.204 adding CL to the list of loans in the methods 
of allocating funds to FSA State offices;
    (4) In Sec.  761.205 adding CL to the list of loans for computing 
the formula allocation; CLs will be treated like Farm Ownership (FO) 
loans rather than OLs for formula allocation purposes since they are 
real estate (Subtitle A) loans;
    (5) In Sec.  761.206 adding CL to the list of loans for pooling of 
unobligated funds allocated to State Offices; and
    (6) In Sec.  761.208 adding CL to the list of loan types that will 
receive target participation rates for socially disadvantaged groups in 
accordance with section 355 of the CONACT.
    Section 304 of the CONACT specifies that in making or guaranteeing 
CLs, the following categories will be given funding priority (in 
addition to the target participation rates for socially disadvantaged 
farmers that are listed above in item 6):
    (a) Beginning farmers and socially disadvantaged farmers;
    (b) Owners or tenants who use the loans to convert to sustainable 
or organic agricultural production systems as defined in Sec.  761.210; 
and
    (c) Producers who use the loans to build conservation structures or 
establish conservation practices to comply with the highly erodible 
land conservation exemptions (section 1212 of the Food Security Act of 
1985 (Pub. L. 99-198, commonly referred to as the 1985 Farm Bill, 16 
U.S.C. 3812)).
    Therefore, FSA is adding 7 CFR 761.210 to establish direct and 
guaranteed CL funds priority. Thirty-five percent of direct and 
guarantee CL funds will be targeted for these priorities in the first 6 
months of each fiscal year. Once targets are removed from funding 
allocations, if a priority and a non-priority loan are approved on the 
same day, the priority request would always be funded before the non-

[[Page 54007]]

priority request. Additionally, approximately 15 percent of direct CL 
funds will be targeted for SDA participation rates in accordance with 
section 355 of the CONACT. Loans to SDA applicants will be funded first 
from funds targeted for SDA participation rates and when funds targeted 
for SDA participation are exhausted, then SDA loans will be funded from 
funds targeted for priority funding established by section 304 of the 
CONACT.

Guaranteed Loans; CL Program

    FSA is making the following changes to accommodate the addition of 
the new CL Program into the guaranteed loan regulations:
    (1) In Sec.  762.101 adding CL to the list of types of guarantees 
available through FSA;
    (2) In Sec.  762.106 adding CL to the list of types of guarantees 
that can be made to qualify for Certified Lender status and to amend 
references that will change as a result of adding the CL Program into 
the regulations;
    (3) In Sec.  762.120 adding CL to the list of types of guarantees 
for applicant eligibility; and
    (4) In Sec.  762.128 adding CL to the list of types of guarantees 
that are subject to environmental requirements found in part 1940 
subpart G;
    To determine whether a conservation project qualifies for a loan 
guarantee, FSA will rely on NRCS approved conservation plans. NRCS 
provides national leadership in the conservation of soil, water, and 
related natural resources. An approved NRCS conservation plan will 
provide evidence to support the eligibility of the applicant's proposed 
conservation measure. Therefore, FSA is amending Sec.  762.110, ``Loan 
Application,'' to require applicants to obtain an approved NRCS 
conservation plan. The approved conservation plan must be included in a 
complete CL Program application package to apply for a loan guarantee.
    Unlike traditional FSA loan programs, section 304 of the CONACT 
explicitly excludes the inability to obtain commercial credit as an 
eligibility requirement for the CL Program. FSA has reviewed the 
implications of extending credit to farmers with strong financial 
positions and examined the existing application requirements for 
guarantees as it relates to the assessment of an applicant's financial 
condition and ability to repay. Unlike applicants for FOs and OLs, some 
CL applicants will be very strong financially, with high debt service 
capacities and significantly more than adequate equity in assets to 
secure the requested loan. For CL applicants with exceptionally strong 
financial positions, it is not reasonable to require a lender to 
perform as intensive a cash flow analysis as is necessary for 
applicants with marginal financial positions. FSA is amending Sec.  
762.110 also to provide that certain CL applicants will be eligible for 
reduced application materials if the applicant is current on all 
payments to all creditors including FSA, has a debt-to-asset ratio of 
40 percent or less, has a net worth of at least 3 times the loan 
amount, and has a minimum FICO credit score of 700. For entity 
applicants, because entity credit reports are not assigned FICO credit 
scores, FSA has determined that a majority of the individual entity 
members must have a personal FICO score of at least 700. Please note 
that the requirement for a majority of members to have a personal FICO 
credit score of at least 700 applies only to certain CLs. For CL 
guarantee applicants meeting all four of the above criteria, FSA is 
also amending Sec.  762.110 to waive the cash flow budget requirement 
for a complete application. Since minimum standards to waive the cash 
flow budget requirement meet or exceed those of the private lending 
sector, these streamlined loan applications will minimize paperwork 
burden for loan guarantees, while only exposing FSA to a minimal risk 
of loss. The reduced paperwork requirement will not preclude the lender 
from requesting additional financial information, when necessary, as in 
their current non-guaranteed application procedures. These exempted 
application requirements are consistent with the direct CL Program, 
except that guaranteed CLs do not prohibit primary loan servicing 
within the past 5 years since such servicing is inapplicable to 
guaranteed loans. Other criteria were considered such as working 
capital and collateral position, but the criteria are most similar to 
practices used in the private lending sector when evaluating loan 
eligibility and FSA believes that these criteria will provide a strong 
and reliable indication of the likelihood that the loan will be repaid.
    FSA is also amending Sec.  762.125 to provide an exception to the 
requirement that the operation must project a feasible plan to be added 
for CL Program streamlined guarantees.
    Since section 304 of the CONACT exempts CL applicants from the 
traditional test for credit eligibility relating to no credit elsewhere 
and graduation requirements, FSA is amending 7 CFR 762.110 to specify 
that the market placement program will not be applicable to the CL 
Program. The market placement program requires that when FSA determines 
that a direct applicant or borrower may qualify for guaranteed credit, 
the FSA may submit the applicant's financial information to one or more 
guaranteed lenders for their review and if the lender indicates 
interest in providing financing to the applicant or borrower through 
the guaranteed loan program, FSA would assist in completing the 
application for a guarantee.
    Section 304 of the CONACT also explicitly exempts guaranteed CL 
applicants from the program eligibility requirement pertaining to the 
operation of a ``family farm.'' Family farms are farms where the 
majority of the labor and management decisions are provided by the farm 
family as specified in 7 CFR 761.2. Therefore, FSA is amending 7 CFR 
762.120, ``Applicant Eligibility,'' to exempt CL applicants from both 
the test for credit and family farm eligibility requirements. This will 
facilitate timely implementation of conservation practices that would 
otherwise be postponed due to lack of monetary resources.
    FSA is amending 7 CFR 762.121 to address the use of funds disbursed 
under the guaranteed CL Program. The list of conservation activities 
that may be included in a conservation plan is not intended to be all-
inclusive, but is given as guidance to implement the CL Program. Uses 
are consistent for both the guaranteed and direct loan programs, except 
that refinancing is only allowed using guaranteed CL funds and only if 
the lender and the applicant can demonstrate the need to refinance. FSA 
will place no additional conservation project approval burden on 
applicants and will accept NRCS approval of projects in conservation 
plans as sufficient to ensure that the project meets the criteria and 
intent of the CL Program. CL guarantees may be used for any 
conservation project included in the NRCS approved conservation plan 
for an applicant determined eligible under guaranteed CL regulations.
    FSA is amending Sec.  762.124 to specify terms for CL guarantees. 
Terms will be limited to the life of the security pledged for the loan, 
but will not exceed 20 years from the date of the note. This is 
consistent with loan programs administered by FSA in the past that 
funded conservation practices and limited the loan term to 20 years. 
FSA believes this term will provide applicants adequate time to repay 
CLs.
    CLs are exempted from the provision in Sec.  762.125(a)(9) that 
prohibits loan funds from being used to support a non-eligible 
enterprise. Non-eligible enterprises are defined in Sec.  761.2 as a 
business that produces exotic animals,

[[Page 54008]]

birds, and fish; produces non-farm animals, ordinarily used for pets, 
companionship or pleasure; markets non-farm goods; or processes farm 
products when the majority of the commodities are not produced by the 
farming operation. The intent of the CL Program, as specified in 
section 304 of the CONACT is to provide funding for qualified 
conservation projects, not to limit funding based on the particular 
type of enterprise. All conservation projects included in an approved 
conservation plan are expected to result in a net benefit to the 
environment. Projects that support an enterprise that FSA considers to 
be a non-eligible enterprise as defined in Sec.  761.2 will be eligible 
for CL financing. FSA believes this exception is in keeping with the 
intent of the CL Program.
    FSA will guarantee 75 percent of an approved CL. Other FSA 
guarantees cover up to 95 percent, but section 304 of the CONACT 
specifically limits the CL guarantee to 75 percent. While the CONACT 
limits guarantee of the principal amount of CL, FSA also will apply the 
75 percent limit to loan losses from interest, advances, and recapture 
debt consistent with its treatment of other FLP guaranteed loan maximum 
losses. FSA is making amendments to Sec. Sec.  762.129 and 762.130 to 
specify the 75 percent guarantee accordingly.
    FSA will use existing guaranteed loan servicing procedures for CLs. 
Existing servicing procedures provide lenders with servicing tools 
beyond what is available on their non-guaranteed loans. The existing 
servicing tools have proven to be effective in allowing lenders to 
assist their customers and in the overall success of the guaranteed 
loan portfolio.
    FSA is amending Sec.  762.145 to:
    (1) Require that when the lender requests restructuring options, 
the lender must certify that the CL borrower is in compliance with the 
conservation plan. Conservation plans are directly tied to eligibility 
for the CL Program, therefore, eligibility for servicing options should 
be directly tied to continuing compliance with the conservation plan.
    (2) Specify that terms for restructuring guaranteed CLs cannot 
exceed 20 years from the date of the original note.
    FSA is also amending Sec. Sec.  762.147 and 762.148 to update 
existing citations.

Direct CL Program

    FSA is changing the following to accommodate the addition of the 
new CL Program into the direct loan regulations:
    (1) In Sec.  764.1, adding CL to the list of types of direct loans 
available through FSA; and
    (2) In Sec. Sec.  764.102 and 764.103, amending references that 
change as a result of adding the CL Program into the regulations.
    As with the CL guarantee, to determine whether a conservation 
project qualifies for a CL direct loan, FSA will rely on the expertise 
of NRCS as related to conservation practices, and ultimately, 
conservation plans. An approved NRCS conservation plan will provide 
ample evidence to support the eligibility of the applicant's proposed 
conservation measure. Therefore, FSA is amending Sec.  764.51, ``Loan 
Application,'' to require CL applicants to obtain an NRCS-approved 
conservation plan. The approved conservation plan must be included in a 
complete CL application package.
    As explained above, section 304 of the CONACT explicitly excluded 
the inability to obtain commercial credit as an eligibility requirement 
for the CL program. FSA has reviewed the implications of extending 
credit to farmers with strong financial positions and examined the 
existing application requirements for FSA's other direct loan programs 
as it relates to the assessment of an applicant's financial condition 
and ability to repay. FSA is amending Sec.  764.51 to provide that CL 
applicants do not have to submit documentation of the inability to 
obtain sufficient credit elsewhere at reasonable rates and terms. 
Unlike applicants for FSA other traditional direct loan programs, some 
CL applicants will be very strong financially, with high debt service 
capacities and significantly more than adequate equity in assets to 
secure the loan requested. For CL applicants with exceptionally strong 
financial positions, FSA will significantly reduce the paperwork 
required of these applicants. FSA is amending Sec.  764.51 to provide 
that certain CL applicants will be eligible for reduced application 
requirements if the applicant is current on all payments to all 
creditors including FSA, has not received primary loan servicing on any 
FLP debt within the past 5 years, has a debt-to-asset ratio of 40 
percent or less, has a net worth of at least 3 times the loan amount, 
and has a minimum FICO credit score of 700. For entity applicants, 
because entity credit reports are not assigned FICO credit scores, FSA 
has determined that a majority of the individual entity members must 
have a personal FICO score of at least 700. Please note that the 
requirement for a majority of members to have a personal FICO credit 
score of at least 700 applies only to loans granted to those who would 
be exempt from certain application requirements common to other loans. 
Other criteria were considered such as working capital and collateral 
position, but these criteria, which indicate a solid past history of 
debt repayment and the debt to asset ratio, net worth requirement, and 
minimum credit score, are most similar to practices used in the private 
lending sector when evaluating loan eligibility and will provide a 
strong and reliable indication of the likelihood that the loan will be 
repaid.
    FSA is also amending 7 CFR 764.53, ``Processing the Complete 
Application,'' to specify that the market placement program 
requirements will not be applicable to the CL program as discussed 
above.
    Section 304 of the CONACT explicitly exempts the CL Program direct 
loans from the program eligibility requirement pertaining to their 
inability to obtain credit from conventional sources under section 333 
and did not require operation of a family farm as under section 
302(a)(3). Under regulations applicable to other FSA FLP, loan 
assistance is limited to owner-operators or tenant-operators of family 
farms who temporarily lack the financial resources to obtain 
conventional credit at reasonable rate and terms. The exemption for CLs 
allows operators outside the scope of a family farm operation with 
financial strength to obtain credit from other lenders, an additional 
way to fund conservation projects. These changes benefit the 
environment and support existing and new sustainable and organic food 
production systems within the United States. Therefore, FSA is amending 
7 CFR 764.101, ``General Eligibility Requirements,'' to exempt CL 
applicants from those requirements. FSA is also adding Sec.  764.232 to 
limit CL eligibility to applicants meeting the eligibility requirements 
as specified in 7 CFR 764.101 with the same exceptions.
    For FLP, as specified in 7 CFR 764. 103(e), FSA generally requires 
a lien on all assets, valued at more than $5,000, that are not 
essential to the farming operation and not being converted to cash to 
reduce the loan amount. Currently, downpayment loans and youth loans 
are exempt from the lien requirement. CL Program direct loan applicants 
will also be exempt from the lien requirement because of their expected 
stronger financial condition as compared to other FLP borrowers. 
Therefore, FSA is amending 7 CFR 764.103(e) to specify that the lien 
requirement and requirement to convert assets to cash do not apply to 
applicants for CL Program direct loans.
    FSA is adding new subpart F, ``Conservation Loan Program,'' which

[[Page 54009]]

will include Sec. Sec.  764.231 through 764.235. Section 764.231 
specifies the use of funds disbursed under the direct CL Program. The 
list of conservation activities that may be included in a conservation 
plan is not intended to be all inclusive, but is given as guidance to 
implement the CL Program. Uses will be consistent with the CL guarantee 
program except the direct CL Program will not have provisions to 
provide for refinancing debt.

Limitations

    FSA is adding Sec.  764.233, ``Limitations,'' to require applicants 
to comply with all limitations specified for direct program loans in 
Sec.  764.102 except the prohibition that limits the use of loan funds 
to establish or support a non-eligible enterprise. As stated above for 
guaranteed loans, this exception is in keeping with the intent of the 
CL Program.
    Section 764.233, also requires that any duplicative financial 
assistance provided for the same purpose from another source will be 
applied to the borrower's CL in accordance with Sec.  765.152. This 
will provide a mechanism for FSA to provide funds ``up front'' for the 
construction of conservation projects and be able to collect any funds 
provided from other sources after construction or implementation is 
completed.

Rates and Terms

    FSA is adding Sec.  764.234 to specify rates and terms for direct 
CLs. The interest rate will be the same as FSA's direct FO rate in 
accordance with section 307 of the CONACT. Loan rates are available at 
all FSA offices and on the FSA Web site. The interest rate will be at 
the lower of the rate in effect at the time of loan approval or at loan 
closing.
    Direct CL terms will be limited to the life of the security pledged 
for the loan, but will not exceed 7 years for chattel only loans and 20 
years from the date of the note for other CLs. This is consistent with 
loan programs administered by FSA in the past that funded conservation 
practices and were limited the loan term to 20 years. FSA believes this 
term provides applicants adequate time to repay CLs.

Security Requirements

    Section 764.235 is added to provide that direct CLs will be secured 
in accordance with the requirements specified in Sec. Sec.  764.103-
764.106, which is consistent with direct FO loans. FSA is adding 
security requirements and order of priority regulations to allow 
flexibility in securing direct CLs when NRCS-approved conservation 
practices are planned on real estate that is not owned by the 
applicant, or when the real estate is owned by the applicant, but 
taking a lien might impact the producer's normal course of business. 
First priority will be to take a lien on any real estate, if available. 
FSA is not requiring a lien be taken on the real estate on which the 
project is being completed, but will accept a lien on any real estate 
that is adequate to fulfill security requirements specified in 
Sec. Sec.  764.103-764.106. In cases where no real estate security is 
available, chattels may be used to secure direct CLs, provided that the 
chattels are determined adequate and acceptable to FSA. To assure that 
such loans are adequately secured until paid, loans secured by chattel 
property may not exceed a 7 year term.
    There is no graduation requirement for CL in the direct loan 
servicing because the 2008 Farm Bill exempts the CL Program from the 
test for credit requirement and graduation requirements. Graduation, as 
defined in 7 CFR 761.2, means payment in full of all direct FLP loans 
made for operating, real estate, or both purposes by refinancing with 
other credit sources either with or without a FSA guarantee. Therefore, 
FSA is amending Sec. Sec.  765.101, 765.205, 765.206, 765.207, 765.253, 
and 765.351 to provide that CLs are not subject to graduation 
requirements.
    FSA is amending Sec.  766.107 to add CL to the list of FSA loans 
that can be rescheduled and to provide that the maximum term for 
servicing actions will be 20 years from the date of the original date 
instrument because the maximum term of any CL is 20 years.
    FSA is amending Sec.  766.108 to add CL to the list of FSA loans 
that can be reamortized and to provide that the maximum term for 
servicing actions will be 20 years from the date of the original debt 
instrument because the maximum term of any CL is 20 years.

Notice and Comment

    In general, the Administrative Procedures Act (APA, 5 U.S.C. 553) 
requires that a notice of proposed rulemaking be published in the 
Federal Register and interested persons be given an opportunity to 
participate in the rulemaking through submission of written data, 
views, or arguments with or without opportunity for oral presentation. 
Such notice is not required when the agency for good cause finds that 
notice and public procedure thereon are impracticable, unnecessary, or 
contrary to the public interest.
    Conservation of natural resources, including soil, air and water, 
is a high priority for this Administration. There is strong interest 
and participation from farmers in programs that support and encourage 
conservation practices. Conservation activities help to maintain or 
restore the productive capacity of working agricultural lands, preserve 
or restore habitat for threatened and endangered species, preserve or 
restore habitat for game birds and sports fish, increase the 
availability and accessibility of outdoor recreational activities, 
increase carbon sequestration reducing the impacts of global warming, 
and reduce the agricultural run-off that threatens the health of the 
Nation's lakes, bays, and waterways; including the Chesapeake Bay, 
Mississippi Gulf, and Great Lakes. New conservation initiatives, 
including Presidential initiatives such as ``A 21st Century Strategy 
for America's Great Outdoors,'' are being developed, placing greater 
emphasis on conservation measures; and highlighting that such measures 
are clearly in the public interest.
    Many farmers who need and want to implement conservation measures 
on their land, do not have the ``up front'' funds available to 
implement these practices. This is particularly true for farmers in the 
livestock sector who are experiencing low profitability, but may have 
the most critical need to implement conservation practices due to 
increasing pressure to minimize or eliminate: (1) Surface water quality 
deterioration from spills and manure runoff; (2) surface water quantity 
being depleted by larger operations; and (3) odor nuisance from large 
barns and manure storage.
    Many USDA conservation programs, such as the Environmental Quality 
Incentives Program (EQIP) and the Conservation Reserve Enhancement 
Program (CREP), provide only cost-share assistance, which is generally 
50 to 90 percent of the cost to implement the conservation practice. 
Farmers and ranchers are required to complete the practice and provide 
receipts prior to receiving the cost-share reimbursement. While these 
conservation projects are environmentally valuable, they may contribute 
very little to the economic productivity of the farming operation 
providing little incentive for private sector institutions to provide 
financing. This often means that implementation of environmentally 
vital conservation measures must be postponed because ``up front'' 
capital is not available to the farmer.
    Accordingly, FSA finds that good cause exists to publish this rule 
as an interim rule, effective immediately.

[[Page 54010]]

Advance solicitation of comments for this rulemaking would be 
impractical and contrary to the public interest, as it would delay 
implementation of conservation projects that are critical to 
accomplishment of the Administration and Congress' shared conservation 
objectives. By issuing these regulations as an interim rule, FSA still 
requests comments and will consider them in the development of the 
final rule.

Executive Order 12866

    This Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866, and, therefore, OMB reviewed 
this rule. A cost benefit assessment of this rule is summarized below 
and is available from the contact listed above.

Summary of Economic Impacts

    The CL Program provides eligibility and servicing options to 
participants in certain conservation activities through FSA direct and 
guaranteed loan programs. More specifically, a direct or guaranteed FSA 
loan can be used to help fund any approved NRCS conservation plan, even 
if the project involves a non-eligible enterprise as defined by 7 CFR 
761.2. This approach encourages the adoption of conservation practices 
that provide the maximum benefit to society, as discussed below. 
Because it is voluntary, the program will not impose any unnecessary 
burden on producers.
    The CL Program is expected to generate $14.5 million in annual 
direct loan obligations and $11.9 million in annual guaranteed 
obligations, much of which will be used to fund the producer's share of 
NRCS cost-share projects. Lower interest rates and easier loan terms 
will result in greater demand for NRCS cost-share projects. With 
greater demand, it is expected that NRCS will be able to allocate 
limited funds among projects that would have greater environmental 
benefits to society. If the CL Program results in a 5 percent increase 
in benefits, total annual benefits to society would increase by $1.41 
million.
    Demand for CL funds is not expected to be limited to just NRCS 
cost-share projects. For example, a producer may use the CL Program 
without cost-share in circumstances where delays in implementation of 
conservation practices would risk loss of USDA benefits or constrain 
farm production. The CL Program is expected to encourage the 
implementation of conservation practices beyond what can be funded 
using available NRCS cost-share funds.

Environmental Review

    The requirements found in 7 CFR part 1940, subpart G, must be met 
for the CL program consistent with the existing direct and guaranteed 
loan regulations.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires consultation with State and local officials. See the notice 
related to 7 CFR part 3015, subpart V, published in the Federal 
Register on June 24, 1983 (48 FR 29115).

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. This rule preempts State and local laws 
and regulations that are in conflict with this rule. Before any 
judicial action may be brought concerning the provisions of this rule, 
the administrative appeal provisions of 7 CFR parts 11 and 780 must be 
exhausted.

Executive Order 13132

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

Executive Order 13175

    The policies contained in this rule would not have tribal 
implications that preempt tribal law.
    USDA will undertake, within 6 months after this rule becomes 
effective, a series of regulation Tribal consultation sessions to gain 
input by Tribal officials concerning the impact of this rule on Tribal 
governments, communities, and individuals. These sessions will 
establish a baseline of consultation for future actions, should any 
become necessary, regarding this rule. Reports from these sessions for 
consultation will be made part of the USDA annual reporting on Tribal 
Consultation and Collaboration. USDA will respond in a timely and 
meaningful manner to all Tribal government requests for consultation 
concerning this rule and will provide additional venues, such as 
webinars and teleconferences, to periodically host collaborative 
conversations with Tribal leaders and their representatives concerning 
ways to improve this rule in Indian country.

Unfunded Mandates

    This rule contains no Federal mandates under the regulatory 
provisions of Title II of the Unfunded Mandate Reform Act of 1995 
(UMRA, Pub. L. 104-4) for State, local, or tribal governments, or the 
private sector. Therefore, this rule is not subject to the requirements 
of sections 202 and 205 of UMRA.

Federal Assistance Programs

    The title and number of the Federal assistance programs in the 
Catalog of Federal Domestic Assistance to which this rule would apply 
are:

10.099--Conservation Loans.
10.404--Emergency Loans.
10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 as specified 
in 44 U.S.C. 3507(j), all the following information collection requests 
have been submitted for emergency approval to the Office of Management 
and Budget (OMB). FSA obtained a 6-month OMB approval in order to 
require persons to complete the information collection activities for 
the CL Program.
    FSA still plans to obtain the 3-year approval to continue the 
information collection so FSA is requesting comments from interested 
individuals and organizations on the CL Program information collection 
activities and changes in the information collection activities related 
to the regulatory changes in this rule. In all of these new information 
collection requests, FSA is inserting the CL provisions into the 
existing regulations to provide loans to the borrowers who are eligible 
to cover the costs of carrying out the qualified conservation project.
    The approved information collection request will be incorporated 
into the existing approved information collection requests (of the same 
titles) that will be up for a renewal this year. Due to the differences 
in expected applications for direct loans versus guaranteed loans, and 
the differences in the number of individuals required to submit the 
information (applicant versus both lender and applicant), even though 
the information collections are to implement the CL Program, the number 
of respondents varies for each of the information collection requests 
described below.
    Title: Farm Loan Programs; General Program Administration.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection, is required to support the 
regulation

[[Page 54011]]

changes in CFR 761, ``Farm Loan Programs; General Program 
Administration,'' that includes the new CL Program in both making and 
servicing all FLP loans and guarantees. Information collections 
established by the regulation are necessary to ensure that program 
applicants and participants meet statutory eligibility requirements, 
loan funds are used for authorized purposes, and the Government's 
interest in security is adequately protected. Specific information 
collection requirements include financial information in the form of a 
balance sheet and cash flow projections used in loan making and 
servicing decisions; information needed to establish joint bank 
accounts in which loan funds, proceeds derived from the sale of loan 
security or insurance proceeds may be deposited; collateral pledges 
from financial institutions when the balance of a supervised bank 
account will exceed $100,000; and documentation that construction plans 
and specifications comply with State and local building standards.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 75 minutes per response.
    Respondents: Individuals or households, businesses or other for 
profit and farms.
    Estimated Number of Respondents: 3,038.
    Estimated Average Number of Responses per Respondent: 2.
    Estimated Total Annual Number of Responses: 3,038.
    Estimated Total Annual Burden on Respondents: 3,767 hours.
    Once this information collection is approved, it will be 
incorporated into existing collection package 0560-0238.
    Title: Guaranteed Farm Loans.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
regulation changes in 7 CFR part 762, ``Guaranteed Farm Loans,'' which 
establishes the requirement for loan making and loan servicing of FSA's 
new CL Program guaranteed loans. Information collections established in 
the regulation are necessary for FSA to evaluate the lender's request 
for guarantee including eligibility, loan repayment, if security 
requirements can be met, monitor and account for security, liquidation, 
and lender's loss claims.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 48 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 5,063.
    Estimated Average Number of Responses per Respondent: 1.3.
    Estimated Total Annual Number of Responses: 5,756.
    Estimated Total Annual Burden on Respondents: 5,357 hours.
    Once this information collection is approved, it will be 
incorporated into existing collection package 0560-0155.
    Title: Direct Loan Making.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
regulation changes in 7 CFR part 764, ``Direct Loan Making,'' which 
establishes the requirements for most of FSA's direct loan programs 
including the new CL Program. Information collections established in 
the regulation are necessary for FSA to evaluate the loan applicant's 
request and determine if eligibility, loan repayment, and security 
requirements can be met.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 26 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 23,821.
    Estimated Average Number of Responses per Respondent: 1.05.
    Estimated Total Annual Number of Responses: 29,992 hours.
    Estimated Total Annual Burden on Respondents: 15,309 hours.
    Once this information collection is approved, it will be 
incorporated into existing collection package 0560-0237.
    Title: Direct Loan Servicing--Regular.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
regulation changes in 7 CFR part 765, ``Direct Loan Servicing--
Regular,'' which establishes the requirements related to routine 
servicing actions associated with direct loans including the new CL 
Program. Information collections established in the regulation are 
necessary for FSA to monitor and account for loan security, including 
proceeds derived from the sale of security, and to process a borrower's 
requests for subordination or partial release of security.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 29 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 1,817.
    Estimated Average Number of Responses per Respondent: 1.48.
    Estimated Total Annual Number of Responses: 1669.
    Estimated Total Annual Burden on Respondents: 594 hours.
    Once this information collection is approved, it will be 
incorporated into existing collection package 0560-0236.
    Title: Direct Loan Servicing--Special.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support the 
regulation changes in 7 CFR part 766, ``Direct Loan Servicing--
Special,'' which establishes the requirements for servicing financially 
distressed and delinquent direct loan borrowers. The information 
collections established in the regulation are necessary for FSA to 
evaluate a borrower's request for disaster set-aside, primary loan 
servicing (including reamortization, rescheduling, deferral, write 
down, and conservation contracts), and homestead protection.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 31 minutes per response.
    Type of Respondents: Individuals or households, businesses or other 
for profit and farms.
    Estimated Number of Respondents: 576.
    Estimated Average Number of Responses per Respondent: 1.
    Estimated Total Annual Number of Responses: 576.
    Estimated Total Annual Burden on Respondents: 216 hours.
    Once this information collection is approved, it will be 
incorporated into existing collections package 0560-0233.
    We are requesting comments on all aspects of this information 
collection to help us to:
    (1) Evaluate whether the collection of information is necessary for 
the proper performance of FSA's functions, including whether the 
information will have practical utility;
    (2) Evaluate the accuracy of FSA's estimate of burden including the 
validity of the methodology and assumptions used;
    (3) Enhance the quality, utility and clarity of the information to 
be collected; and
    (4) 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

[[Page 54012]]

technological collection techniques or other forms of information 
technology.
    All comments received in response to this notice, including names 
and addresses when provided, will be a matter of public record. 
Comments will be summarized and included in the submission for Office 
of Management and Budget approval.

E-Government Act Compliance

    FSA is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs agriculture, Rural areas.

7 CFR Part 762

    Agriculture, Banks, banking, Credit, Loan programs--agriculture.

7 CFR Part 764

    Agriculture, Disaster assistance, Loan programs--agriculture.

7 CFR Part 765

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
programs--agriculture.

7 CFR Part 766

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
programs--agriculture.

0
For reasons discussed above, this rule amends 7 CFR chapter VII as 
follows:

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

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


0
2. Amend Sec.  761.2 as follows:
0
a. In paragraph (a), add abbreviations, in alphabetical order, for 
``CL'' and ``NRCS'' to read as set forth below;
0
b. In paragraph (b), amend paragraph (1) of the definition of 
``beginning farmer'' by removing the words ``OL or FO loan'' and 
adding, in their place, the words ``CL, FO, or OL'';
0
c. In paragraph (b), add definitions, in alphabetical order, for 
``conservation loan'', ``conservation plan'', ``conservation 
practice'', ``conservation project'', and ``streamlined conservation 
loan'' and revise the definition of ``graduation'' to read as set forth 
below; and
0
d. In paragraph (b), amend the definition of ``program loans'' by 
adding the acronym and punctuation ``CL,'' immediately before the 
acronym ``FO''.


Sec.  761.2  Abbreviations and definitions.

* * * * *
    (a) * * *
    CL Conservation Loan.
* * * * *
    NRCS National Resources and Conservation Service, USDA.
* * * * *
    (b) * * *
* * * * *
    Conservation loan means a loan made to eligible applicants to cover 
the costs to the applicant of carrying out a qualified conservation 
project.
    Conservation plan means an NRCS-approved written record of the land 
user's decisions and supporting information, for treatment of a land 
unit or water as a result of the planning process, that meets NRCS 
Field Office Technical Guide (FOTG) quality criteria for each natural 
resource (soil, water, air, plants, and animals) and takes into account 
economic and social considerations. The conservation plan describes the 
schedule of operations and activities needed to solve identified 
natural resource problems and takes advantage of opportunities at a 
conservation management system level. This definition only applies to 
the direct loans and guaranteed loans for the Conservation Loan 
Program.
    Conservation practice means a specific treatment that is planned 
and applied according to NRCS standards and specifications as a part of 
a resource management system for land, water, and related resources.
    Conservation project means conservation measures that address 
provisions of a conservation plan.
* * * * *
    Graduation means the payment in full of all direct FLP loans, 
except for CLs, made for operating, real estate, or both purposes by 
refinancing with other credit sources either with or without an Agency 
guarantee.
* * * * *
    Streamlined Conservation Loan means a direct or guaranteed CL made 
to eligible applicants based on reduced documentation.
* * * * *

0
3. Revise Sec.  761.8 paragraphs (a)(1) introductory text, (a)(1)(iii), 
(a)(3), (a)(4), and (a)(6) to read as follows:


Sec.  761.8  Loan limitations.

    (a) * * *
    (1) Farm Ownership, Downpayment loans, Conservation loans, and Soil 
and Water loans:
* * * * *
    (iii) Any combination of a direct Farm Ownership loan, direct 
Conservation loan, direct Soil and Water loan, guaranteed Farm 
Ownership loan, guaranteed Conservation loan, and guaranteed Soil and 
Water loan-$700,000 (for fiscal year 2000 and increased each fiscal 
year in accordance with paragraph (b) of this section);
* * * * *
    (3) Any combination of guaranteed Farm Ownership loan, guaranteed 
Conservation loan, guaranteed Soil and Water loan, and guaranteed 
Operating loan-$700,000 (for fiscal year 2000 and increased each fiscal 
year in accordance with paragraph (b) of this section);
    (4) Any combination of direct Farm Ownership loan, direct 
Conservation loan, direct Soil and Water loan, direct Operating loan, 
guaranteed Farm Ownership loan, guaranteed Conservation loan, 
guaranteed Soil and Water loan, and guaranteed Operating loan-the 
amount in paragraph (a)(1)(ii) of this section plus $300,000;
* * * * *
    (6) Any combination of direct Farm Ownership loan, direct 
Conservation loan, direct Soil and Water loan, direct Operating loan, 
guaranteed Farm Ownership, guaranteed Conservation loan, guaranteed 
Soil and Water loan, guaranteed Operating loan, and Emergency loan-the 
amount in paragraph (a)(1)(ii) of this section plus $800,000.
* * * * *

0
4. Amend Sec.  761.103 as follows:
0
a. In paragraphs (b)(6), (b)(8), and (b)(9) add the words and 
punctuation ``, except for streamlined CL'' immediately before the 
semicolon in each paragraph;
0
b. In paragraph (c), second sentence, remove the words and punctuation 
``, a loan evaluation,'';
0
c. Revise paragraph (d) to read as set forth below; and
0
d. Add paragraph (e) to read as set forth below.


Sec.  761.103  Farm assessment.

* * * * *
    (d) The Agency reviews the assessment to determine a borrower's 
progress at least annually. The review will be in the form of an office 
visit, field visit, letter, phone conversation, or year-end analysis, 
as determined by the Agency. For streamlined CLs, the borrower must 
provide a current balance sheet and income tax records. Any negative 
trends noted between the previous years' and the current years'

[[Page 54013]]

information must be evaluated and addressed in the assessment of the 
streamlined CL borrower.
    (e) If a CL borrower becomes financially distressed, delinquent, or 
receives any servicing options available under part 766 of this 
chapter, all elements of the assessment in paragraph (b) of this 
section must be addressed.


Sec.  761.105  [Amended]

0
5. Amend Sec.  761.105 paragraph (a)(1) by adding the words ``except 
for streamlined CLs'' immediately after the words ``direct loan''.


Sec.  761.201  [Amended]

0
6. Amend Sec.  761.201 paragraph (a)(1) by adding the acronym and 
punctuation ``, CL,'' immediately after the acronym ``FO''.


Sec.  761.202  [Amended]

0
7. Amend Sec.  761.202, in the first sentence, by adding the acronym 
and punctuation ``, CL,'' immediately after the acronym ``FO''.


Sec.  761.204  [Amended]

0
8. Amend Sec.  761.204, introductory text, by adding the acronym and 
punctuation ``, CL,'' immediately after the acronym ``FO''.


Sec.  761.205  [Amended]

0
9. Amend Sec.  761.205 as follows:
0
a. In paragraph (a) introductory text by adding the acronym and 
punctuation ``, CL,'' immediately after the acronym ``FO''; and;
0
b. In paragraph (b)(1) in the table by removing the words ``FO and'' 
each time it appears and adding, in its place, the words ``FO, CL, 
and'' and by removing the words ``FO loans'' each time they appear and 
adding in their place the words ``FOs and CLs''.


Sec.  761.206  [Amended]

0
10. Amend Sec.  761.206, first sentence, by adding the acronym and 
punctuation ``, CL,'' immediately after the acronym ``FO''.


Sec.  761.208  [Amended]

0
11. Amend Sec.  761.208 as follows:
0
a. In paragraph (a)(1) by adding the acronym and punctuation ``, CL,'' 
immediately after the acronym ``FO'' and
0
b. In paragraph (b) introductory text by adding the words and 
punctuation ``and CL,'' immediately after the acronym ``FO'' each time 
it appears.


Sec.  761.210  [Redesignated as Sec.  761.211]

0
12. Redesignate Sec.  761.210 as Sec.  761.211.

0
13. Add Sec.  761.210 to read as follows:


Sec.  761.210  CL funds.

    (a) The following applicants and conservation projects will receive 
priority for CL funding:
    (1) Beginning farmer or socially disadvantaged farmer,
    (2) An applicant who will use the loan funds to convert to a 
sustainable or organic agriculture production system as evidenced by 
one of the following:
    (i) A conservation plan that states the applicant is moving toward 
a sustainable or organic production system, or
    (ii) An organic plan, approved by a certified agent and the State 
organic certification program, or
    (iii) A grant awarded by the Sustainable Agriculture Research and 
Education (SARE) program of the National Institute of Food and 
Agriculture, USDA.
    (3) An applicant who will use the loan funds to build conservation 
structures or establish conservation practices to comply with 16 U.S.C. 
3812 (section 1212 of the Food Security Act of 1985) for highly 
erodible land.
    (b) [Reserved]

PART 762--GUARANTEED FARM LOANS

0
14. The authority citation for part 762 continues to read as follows:

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


0
15. In Sec.  762.101, revise the first sentence in paragraph (a) to 
read as follows:


Sec.  762.101  Introduction.

    (a) * * * This subpart contains regulations governing Operating 
loans, Farm Ownership loans, and Conservation loans guaranteed by the 
Agency. * * *
* * * * *


Sec.  762.106  [Amended]

0
16. Amend Sec.  762.106 as follows:
0
a. In paragraph (b)(4) by removing the words ``or Soil and Water (SW)'' 
and by adding, in its place the words ``CL, or SW'';
0
b. In paragraph (c)(3) by adding the acronym and punctuation ``CL,'' 
immediately after the acronym ``FO,''; and
0
c. In paragraph (g)(2)(ix) by adding at the end the reference ``and 
(c)(8)''.

0
17. Amend Sec.  762.110 as follows:
0
a. Revise paragraphs (a)(1)(iv) and (a)(1)(vi), and add paragraphs 
(a)(1)(vii) and (a)(1)(viii), to read as set forth below;
0
b. Revise paragraph (b) introductory text to read as set forth below;
0
c. Revise paragraph (c)(2), redesignate paragraph (c)(3) as paragraph 
(c)(5), and add paragraphs (c)(3) and (c)(4) to read as set forth 
below;
0
d. Redesignate paragraphs (d) through (g) as (e) through (h);
0
e. Add paragraph (d) to read as set forth below; and
0
f. In newly redesignated paragraph (h), first sentence, remove the word 
``When'' and add, in its place, the words ``Except for CL guarantees, 
when''.


Sec.  762.110  Loan application.

    (a) * * *
    (1) * * *
    (iv) Cash flow budget, unless waived when conditions in paragraph 
(d) of this section are met;
* * * * *
    (vi) A plan for servicing the loan;
    (vii) For CL guarantees, a copy of the conservation plan;
    (viii) To request consideration for priority funding for CL 
guarantees, plans to transition to organic or sustainable agriculture 
when the funds requested will be used to facilitate the transition.
* * * * *
    (b) Loans over $125,000. A complete application for loans over 
$125,000 will require items specified in paragraph (a) of this section, 
plus the following items unless waived when conditions in paragraph (d) 
of this section are met:
* * * * *
    (c) * * *
    (2) A loan narrative;
    (3) For CL guarantees, a copy of the conservation plan;
    (4) To request consideration for priority funding for CL 
guarantees, plans to transition to organic or sustainable agriculture 
when the funds requested will be used to facilitate the transition.
* * * * *
    (d) Streamlined CL guarantee. For CL guarantee applicants meeting 
all the following criteria, the cash flow budget requirement in this 
section will be waived:
    (1) Be current on all payments to all creditors including the 
Agency (if currently an Agency borrower),
    (2) Debt to asset ratio is 40 percent or less,
    (3) Balance sheet indicates a net worth of 3 times the requested 
loan amount or greater, and
    (4) FICO credit score is at least 700. For entity applicants, the 
FICO credit score of the majority of the individual members of the 
entity must be at least 700.
* * * * *

0
18. Amend Sec.  762.120 as follows:
0
a. Revise the introductory text to read as set forth below,

[[Page 54014]]

0
b. Add introductory text to paragraph (h) to read as set forth below,
0
c. Amend paragraph (k) introductory text by removing the word 
``Entity'' and adding, in its place, the words ``Except for CL, 
entity''.
0
d. Redesignate paragraph (l) as paragraph (n), and
0
e. Add paragraphs (l) and (m) to read as set forth below:


Sec.  762.120  Applicant eligibility.

    Unless otherwise provided, applicants must meet all of the 
following requirements to be eligible for a guaranteed OL, FO, or CL.
* * * * *
    (h) Test for credit. Except for CL guarantees,
* * * * *
    (l) For CL entity applicants. Entity applicants for CL guarantees 
must meet the following eligibility criteria:
    (1) The majority interest holders of the entity must meet the 
requirements of paragraph (d), (f), and (g) of this section;
    (2) The entity must be controlled by farmers engaged primarily and 
directly in farming or ranching in the United States after the loan is 
made;
    (3) The entity members are not themselves entities; and
    (4) The entity must be authorized to operate a farm in the State or 
States in which the farm is located.
    (m) For CL individual applicants. Individual applicants for CL 
guarantees must be farmers or ranchers in the United States.
* * * * *

0
19. Amend Sec.  762.121 by redesignating paragraphs (c) and (d) as 
paragraphs (d) and (e) and adding paragraph (c) to read as follows:


Sec.  762.121  Loan purposes.

* * * * *
    (c) CL Purposes. Loan funds disbursed under a CL guarantee may be 
used for any conservation activities included in a conservation plan 
including, but not limited to:
    (1) The installation of conservation structures to address soil, 
water, and related resources;
    (2) The establishment of forest cover for sustained yield timber 
management, erosion control, or shelter belt purposes;
    (3) The installation of water conservation measures;
    (4) The installation of waste management systems;
    (5) The establishment or improvement of permanent pasture;
    (6) Other purposes including the adoption of any other emerging or 
existing conservation practices, techniques, or technologies; and
    (7) Refinancing indebtedness incurred for any authorized CL 
purpose, when refinancing will result in additional conservation 
benefits.
* * * * *


Sec.  762.122  [Amended]

0
20. Amend Sec.  762.122(c) by removing the acronym ``FO'' and by 
adding, in its place, the words ``FO or CL''.
0
21. Amend Sec.  762.124 as follows:
0
a. Redesignate paragraphs (d) and (e) as paragraphs (e) and (f),
0
b. Add paragraph (d) to read as set forth below, and
0
c. In newly redesignated paragraph (e) introductory text, remove the 
words ``FO or OL'' and add, in its place, the words ``FO, OL, or CL''.


Sec.  762.124  Interest rates, terms, charges, and fees.

* * * * *
    (d) CL terms. Each loan must be scheduled for repayment over a 
period not to exceed 20 years from the date of the note or such shorter 
period as may be necessary to assure that the loan will be adequately 
secured, taking into account the probable depreciation of the security.
* * * * *

0
22. Amend Sec.  762.125 as follows:
0
a. In paragraph (a), immediately following the heading, add 
introductory text to read as set forth below;
0
b. In paragraph (a)(2), remove the reference and words ``as defined in 
Sec.  762.102(b)'';
0
c. In paragraph (a)(9), second sentence, remove the word ``Guaranteed'' 
and add in its place, the words ``Except for CL, guaranteed''; and
0
d. In paragraph (b) add introductory text to read as set forth below.


Sec.  762.125  Financial feasibility.

    (a) * * * Except for streamlined CL guarantees, the following 
requirements must be met and applications processed as specified in 
Sec.  762.110(d):
* * * * *
    (b) * * * Except for streamlined CL guarantees, the following 
requirements must be met and applications processed as specified in 
Sec.  762.110(d):
* * * * *


Sec.  762.128  [Amended]

0
23. Amend Sec.  762.128, paragraph (a), first sentence, by removing the 
words ``OL and FO'' and adding in its place the words ``OL, FO, and 
CL''.


0
24. Amend Sec.  762.129 as follows:
0
a. In paragraph (a) first sentence by removing the word ``The'' and 
adding, in its place, the words ``Except for CLs, the'' and add a new 
sentence at the end as set forth below; and
0
b. In paragraph (c) by removing the word ``All'' and adding, in its 
place, the words ``Except for CLs, all''.


Sec.  762.129  Percent of guarantee and maximum loss.

    (a) * * * For CLs, the percent of guarantee will be 75 percent.
* * * * *

0
25. Revise Sec.  762.130 by revising paragraph (a)(2)(ii) to read as 
follows:


Sec.  762.130  Loan approval and issuing the guarantee.

    (a) * * *
    (2) * * *
    (ii) For PLP lenders, if the 14 day time frame is not met, the 
proposed guaranteed loan will automatically be approved, subject to 
funding, and receive an 80 or 95 percent guarantee for FO or OL loans, 
and 75 percent guarantee for CL, as appropriate.
* * * * *

0
26. Amend Sec.  762.145 as follows:
0
a. In paragraph (b)(2)(i) remove the reference and words ``as defined 
in Sec.  762.102(b)'';
0
b. Add paragraphs (b)(10) and (c)(1)(iii) to read as set forth below; 
and
0
c. Revise paragraph (e)(5) to read as set forth below.


Sec.  762.145  Restructuring guaranteed loans.

* * * * *
    (b) * * *
    (10) For CL, the lender must certify that the borrower remains in 
compliance with the approved conservation plan.
    (c) * * *
    (1) * * *
    (iii) CL will be amortized over the remaining term or rescheduled 
with an uneven payment schedule. The maturity date cannot exceed 20 
years from the date of the original note.
* * * * *
    (e) * * *
    (5) The loan will be restructured with regular payments at terms no 
shorter than 5 years for a line of credit and OL term note; and no 
shorter than 20 years for FO and CL, unless required to be shorter by 
paragraphs (c)(1)(i) through (iii) of this section.
* * * * *


Sec.  762.147  [Amended]

0
27. Amend Sec.  762.147, paragraph (b)(1)(i)(A), last sentence, by 
removing the reference ``Sec.  762.141(b)'' and by adding, in its 
place, the reference ``Sec.  762.142(b)''.


Sec.  762.148  [Amended]

0
28. Amend Sec.  762.148, paragraph (d)(3), last sentence, by removing 
the

[[Page 54015]]

reference ``Sec.  762.149(a)(vi)'' and by adding, in its place, the 
reference ``Sec.  762.149(i)(4)''.

PART 764--DIRECT LOAN MAKING

0
29. The authority citation for part 764 continues to read as follows:

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


0
30. Amend Sec.  764.1 by revising paragraphs (b)(2) and (b)(3), and 
adding paragraph (b)(4) to read as follows:


Sec.  764.1  Introduction.

* * * * *
    (b) * * *
    (2) OL, including Youth loans;
    (3) EM; and
    (4) CL.


0
31. Amend Sec.  764.51 as follows:
0
a. In paragraph (b) introductory text, remove the reference ``(e) of 
this section'' and adding, in its place, the reference ``(f) of this 
section'';
0
b. In paragraph (b)(6), remove the word ``Documentation'' and add, in 
its place, the words ``Except for CL, documentation'';
0
c. In paragraph (b)(13), at the end, remove the word ``and'';
0
d. Revise paragraph (b)(14) to read as set forth below;
0
e. Add paragraphs (b)(15) and (b)(16) to read as set forth below;
0
f. Redesignate paragraphs (d) and (e) as paragraphs (e) and (f); and
0
g. Add paragraph (d) to read as set forth below.


Sec.  764.51  Loan application.

* * * * *
    (b) * * *
    (6) Except for CL, documentation that the applicant and each member 
of an entity applicant cannot obtain sufficient credit elsewhere on 
reasonable rates and terms, including a loan guarantee to the Agency;
* * * * *
    (14) For EM loans, a statement of loss or damage on the appropriate 
Agency form;
    (15) For CL only, a conservation plan as defined in Sec.  761.2 of 
this chapter; and
    (16) For CL only, and if the applicant wishes to request 
consideration for priority funding, plans to transition to organic or 
sustainable agriculture when the funds requested will be used to 
facilitate the transition.
* * * * *
    (d) For a CL Program streamlined application, the applicant must 
meet all of the following:
    (1) Be current on all payments to all creditors including the 
Agency (if currently an Agency borrower).
    (2) Have not received primary loan servicing on any FLP debt within 
the past 5 years.
    (3) Have a debt to asset ratio that is 40 percent or less.
    (4) Have a balance sheet that indicates a net worth of 3 times the 
requested loan amount or greater.
    (5) Have a FICO credit score from the Agency obtained credit report 
of at least 700. For entity applicants, the FICO credit score of the 
majority of the individual members of the entity must be at least 700.
    (6) Submit the following items:
    (i) Items specified in paragraphs (b)(1), (b)(2), (b)(3), (b)(7), 
(b)(11), (b)(15), and (b)(16) of this section,
    (ii) A current financial statement less than 90 days old, and
    (iii) Upon Agency request, other information specified in paragraph 
(b) of this section necessary to make a determination on the loan 
application.
* * * * *

0
32. Revise Sec.  764.53 paragraph (d) to read as follows:


Sec.  764.53  Processing the complete application.

* * * * *
    (d) Except for CL requests, if based on the Agency's review of the 
application, it appears the applicant's credit needs could be met 
through the guaranteed loan program, the Agency will assist the 
applicant in securing guaranteed loan assistance under the market 
placement program as specified in Sec.  762.110(h) of this chapter.
* * * * *


Sec.  764.101  [Amended]

0
33. Amend Sec.  764.101 as follows:
0
a. In paragraph (e) introductory text, first sentence, remove the word 
``The'' and add, in its place, the words ``Except for CL, the'';
0
b. In paragraph (j) remove the reference ``subpart J'' and add, in its 
place, the reference ``subpart K''; and
0
c. Add as introductory text in paragraph (k) the words and punctuation 
``Except for CL:''.


Sec.  764.102  [Amended]

0
34. Amend Sec.  764.102 paragraph (a) by removing the reference ``H of 
this part'' and adding, in its place, the reference ``I of this part''.


Sec.  764.103  [Amended]

0
35. Amend Sec.  764.103 as follows:
0
a. In paragraphs (a) and (b) introductory text, first sentence, by 
removing the reference ``H of this part'' and adding, in its place, the 
reference ``I of this part''; and
0
b. In paragraph (e), last sentence, by removing the words ``loans and 
youth'' and adding, in its place, the words ``loans, conservation 
loans, or youth''.

Subparts F Through J [Redesignated]

0
36. Redesignate subparts F through J as subparts G through K and add 
new subpart F to read as follows:

Subpart F--Conservation Loan Program

Sec.
764.231 Conservation loan uses.
764.232 Eligibility requirements.
764.233 Limitations.
764.234 Rates and terms.
764.235 Security requirements.
764.236-764.250 [Reserved]


Sec.  764.231  Conservation loan uses.

    (a) CL funds may be used for any conservation activities included 
in a conservation plan including, but not limited to:
    (1) The installation of conservation structures to address soil, 
water, and related resources;
    (2) The establishment of forest cover for sustained yield timber 
management, erosion control, or shelter belt purposes;
    (3) The installation of water conservation measures;
    (4) The installation of waste management systems;
    (5) The establishment or improvement of permanent pasture; and
    (6) Other purposes including the adoption of any other emerging or 
existing conservation practices, techniques, or technologies.
    (b) [Reserved]


Sec.  764.232  Eligibility requirements.

    (a) The applicant:
    (1) Must comply with general eligibility requirements specified in 
Sec.  764.101 except paragraphs (e) and (k) of that section;
    (2) And anyone who will sign the promissory note, must not have 
received debt forgiveness from the Agency on any direct or guaranteed 
loan; and
    (3) Must be the owner-operator or tenant-operator of a farm and be 
engaged in agricultural production after the time of loan is closed. In 
the case of an entity:
    (i) The entity is controlled by farmers engaged primarily and 
directly in farming in the United States;
    (ii) The entity must be authorized to operate a farm in the State 
in which the farm is located.
    (b) [Reserved]


Sec.  764.233  Limitations.

    (a) The applicant must comply with the general limitations 
specified in

[[Page 54016]]

Sec.  764.102 except Sec.  764.102(f), which does not apply to 
applicants for the CL Program.
    (b) The applicant must agree to repay any duplicative financial 
benefits or assistance to CL.


Sec.  764.234  Rates and terms.

    (a) Rates. The interest rate:
    (1) Will be the Agency's Direct Farm Ownership rate, available in 
each Agency office.
    (2) Charged will be the lower rate in effect either at the time of 
loan approval or loan closing.
    (b) Terms. The following terms apply to CLs:
    (1) The Agency schedules repayment of a CL based on the useful life 
of the security.
    (2) The maximum term for loans secured by chattels only will not 
exceed 7 years from the date of the note.
    (3) In no event will the term of the loan exceed 20 years from the 
date of the note.


Sec.  764.235  Security requirements.

    (a) The loan must be secured:
    (1) In accordance with requirements established in Sec. Sec.  
764.103 through 764.106; and
    (2) In the order of priority as follows:
    (i) By real estate, if available, and then
    (ii) By chattels, if determined acceptable by the Agency.
    (b) [Reserved]


Sec. Sec.  764.236-764.250  [Reserved]

PART 765--DIRECT LOAN SERVICING--REGULAR

0
37. The authority citation for part 765 continues to read as follows:

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


0
38. In Sec.  765.101, add paragraph (g) to read as follows:


Sec.  765.101  Borrower graduation requirements.

* * * * *
    (g) CLs are not subject to graduation requirements under this part.

0
39. In Sec.  765.152, revise paragraph (b)(6) to read as follows:


Sec.  765.152  Types of payments.

* * * * *
    (b) * * *
    (6) Refunds of duplicate program benefits or assistance to be 
applied on CL or EM loans; or
* * * * *


Sec. Sec.  765.205-765.207 and 765.253  [Amended]

0
40. In addition to the amendment set forth above, in 7 CFR part 765, 
remove the word ``graduate'' and add, in its place, the words 
``graduate on any program except for CL'' in the following places:
0
a. In Sec.  765.205 paragraph (b)(6),
0
b. In Sec.  765.206 paragraph (b)(5),
0
c. In Sec.  765.207 paragraph (c), and
0
d. In Sec.  765.253 paragraph (b).


Sec.  765.351  [Amended]

0
41. Amend Sec.  765.351, paragraph (a)(8), by removing the word 
``credit'' and adding, in its place, the words ``credit on any program 
except for CL''.

PART 766--DIRECT LOAN SERVICING--SPECIAL

0
42. The authority citation for part 766 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1981(d) and 1989.


0
43. Amend Sec.  766.107 as follows:
0
a. In paragraph (b) introductory text, add the acronym and punctuation 
``CL,'' immediately after the acronym ``OL,''
0
b. Revise paragraph (c)(2) to read as set forth below, and
0
c. Add paragraphs (c)(3) and (c)(4) to read as set forth below.


Sec.  766.107  Consolidation and rescheduling.

* * * * *
    (c) * * *
    (2) Except for CL and RL loans, the repayment period cannot exceed 
15 years from the date of the consolidation and rescheduling.
    (3) The repayment schedule for RL loans may not exceed 7 years from 
the date of rescheduling.
    (4) The repayment schedule for CLs may not exceed 20 years from the 
date of the original note or assumption agreement.
* * * * *

0
44. Amend Sec.  766.108 as follows:
0
a. In paragraph (a) introductory text, add the acronym and punctuation 
``CL,'' immediately after the acronym ``RHF,'' and
0
b. Add paragraph (b)(2)(v) to read as set forth below.


Sec.  766.108  Reamortization.

* * * * *
    (b) * * *
    (2) * * *
    (v) CLs may not exceed 20 years from the date of the original note 
or assumption agreement.
* * * * *

    Signed in Washington, DC, August 31, 2010.
Jonathan W. Coppess,
Administrator, Farm Service Agency.
[FR Doc. 2010-22070 Filed 9-2-10; 8:45 am]
BILLING CODE 3410-05-P