[Federal Register Volume 89, Number 153 (Thursday, August 8, 2024)]
[Rules and Regulations]
[Pages 65020-65063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16828]



[[Page 65019]]

Vol. 89

Thursday,

No. 153

August 8, 2024

Part II





Department of Agriculture





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Farm Service Agency





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7 CFR Parts 761, 762, et al.





Enhancing Program Access and Delivery for Farm Loans; Final Rule

  Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 / 
Rules and Regulations  

[[Page 65020]]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 764, 765, 766, 768, 769, and 770

RIN 0560-AI61
[Docket No. FSA-2023-003]


Enhancing Program Access and Delivery for Farm Loans

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule; with request for comment.

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SUMMARY: The Farm Service Agency (FSA) is amending the Farm Loan 
Programs (FLP) regulations to implement the Distressed Borrower Set-
Aside (DBSA) Program and other changes. DBSA will provide a new loan 
servicing program for financially distressed borrowers that will allow 
for the deferral of one annual loan installment at a reduced interest 
rate. DBSA will provide a simpler option to resolve financial distress 
than existing loan servicing programs. In addition to helping borrowers 
by adding DBSA as a new loan servicing program, FSA is amending the FLP 
regulations to revise loan making and servicing to improve program 
access and delivery. This rule is part of FSA's ongoing efforts for 
farm loans to remove barriers to capital access and increase 
opportunities for borrowers to be successful.

DATES: 
    Effective date: September 25, 2024.
    Comment date: We will consider comments on the information 
collection requirements under the Paperwork Reduction Act that we 
receive by: October 7, 2024. We will also consider comments on the rule 
and may conduct additional rulemaking in the future based on the 
comments.

ADDRESSES: We invite you to submit comments on the information 
collection requirements. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal: Go to: www.regulations.gov and 
search for docket ID FSA-2023-0003. Follow the instructions for 
submitting comments.
    Comments will be available for viewing online at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Houston Bruck; telephone: (202) 650-
7874; email: [email protected]. Individuals who require 
alternative means of communication for program should contact USDA 
TARGET Center at (202) 720-2600 (voice and text telephone (TTY)) or 
dial 711 for Telecommunications Relay Service (both voice and text 
telephone users can initiate this call from any telephone).

SUPPLEMENTARY INFORMATION:

Background

    FSA makes and services a variety of direct and guaranteed loans to 
farmers who are unable to obtain commercial credit sufficient to meet 
their needs at reasonable rates and terms. FSA also provides direct 
loan borrowers with credit counseling and supervision, to increase the 
borrowers' chance for success. FSA loan applicants are often:
     beginning farmers (BF) and socially disadvantaged (SDA) 
farmers who do not meet the underwriting requirements of commercial 
lenders because of insufficient net worth; or
     established farmers who have suffered financial setbacks 
due to natural disasters or economic downturns.
    FSA loan applicants are also often farmers whose short- and long-
term operational and personal goals are not well met by commercial 
lending products. FSA loans are tailored to a farmer's needs and may be 
used to buy farmland and to finance agricultural production.
    The Consolidated Farm and Rural Development Act (CONACT, Pub. L. 
87-128, as amended; 7 U.S.C. 1921-2009cc-18) provides the authority for 
most FLP loans, including farm ownership, operating, and emergency 
loans.
    After FSA provides a loan to a farmer, FSA continues to work with 
the borrower to monitor the progress of their operation, provide 
guidance on budgetary issues, and ensure loan repayment. If FSA loan 
borrowers become financially distressed and are unable to make loan 
installments as scheduled, or if the borrowers' plans change requiring 
reconsideration of original terms, FSA staff work with borrowers to 
explore options to improve profitability. A common solution to 
resolving financial distress is providing the distressed loan with more 
flexible rates or terms to improve profitability. These loan servicing 
options are commonly referred to as the Primary Loan Servicing Program 
(PLS) and the Disaster Set-Aside Program (DSA).
    Section 22006, Farm Loan Immediate Relief for Borrowers with At-
Risk Agricultural Operations, of the Inflation Reduction Act of 2022 
(IRA, Pub. L. 117-169) authorized $3.1B in funds for FSA to create and 
provide certain additional assistance opportunities for distressed farm 
loan borrowers of FLP loans authorized under the CONACT. To date, FSA 
has provided historic assistance under IRA Section 22006 to assist 
distressed borrowers, including 6 different rounds of payments 
addressing both long-term and immediate sources of distress. To 
complement PLS, DSA, and previous IRA assistance, FSA is implementing a 
new loan modification option, the DBSA Program. DBSA is similar to DSA 
and will provide a new loan servicing option for financially distressed 
borrowers that will allow for the deferral of one annual loan 
installment per loan at a reduced interest rate under certain 
conditions. DBSA has three important distinctions compared to DSA:
     the deferred payment will accrue at a reduced interest 
rate,
     the loan must have been outstanding as of September 25, 
2024, and
     the borrower does not have to suffer a loss from a 
declared disaster to qualify for DBSA.
    This rule implements DBSA and makes other changes as the next step 
in FSA's ongoing effort to remove barriers to capital access and 
increase opportunities for borrowers to be successful. The COVID-19 
pandemic highlighted the need for FSA to undertake a culture shift in 
its approach to farm loans to expand virtual opportunities and 
implement loan processes to improve turnaround times on financial 
assistance. For example, for loans overall, recent investments in 
online education and application platforms are making the loan process 
simpler to navigate virtually, and new underwriting techniques based on 
financial benchmarking of FSA's portfolio are expediting the loan 
process.
    FSA is also clarifying and amending information throughout the FLP 
regulations to make it easier for borrowers to understand program 
requirements. These changes were developed with significant input from 
employee associations and the gathering of important insights from 
lending industry partners and agricultural advocacy groups. Advice and 
recommendations from agricultural advocacy groups on potential program 
improvements were carefully considered as FSA developed some of the 
more substantial changes, including improvements to the direct loan 
security requirements, cash flow budgeting process, and flexible 
repayment terms offered on direct loans.
    While most of the amendments are not substantially altering 
existing policy, or are anticipated to impact a relatively small number 
of farmers, some changes are substantial, impacting nearly all direct 
loan customers, including changes that amend

[[Page 65021]]

requirements for farm assessments, budget development, and loan 
security. These substantial changes will encourage borrower 
profitability by expanding opportunities for borrowers to leverage 
asset equity, and by establishing opportunities to budget for a 
reasonable amount of cash flow margin to increase working capital 
reserves and savings, including savings for retirement and education, 
including the use of flexible repayment terms to achieve essential 
short- and long-term operational growth goals. These program 
enhancements reflect FSA's commitment to furthering strong partnerships 
with commercial lenders, as the borrower growth opportunities from the 
changes in this rule will result in more financially stable borrowers 
that are better prepared to transition to commercial banking. The 
enhancements will also be reflected in the subsidy rates for the 
respective FLP loan types, per Federal Credit Reform Act (FCRA, 2 
U.S.C. 661) and OMB Circular A-11 section 185.
    The CONACT requires that all FLP applicants and loans meet certain 
requirements related to eligibility, security, and feasibility. The 
changes in this rule ensure FLP regulations continue to align with the 
CONACT and better reflect the needs of farmers, industry trends, 
historical data, and modernization of underwriting standards. Although 
many of the amendments in this rule are technical corrections or 
clarifications, there are several changes to FLP policy that better 
reflect customer needs and modernized standards in the greater 
agricultural lending industry.
    This rule marks the most recent example of FSA's dedication to 
increase equity, improve customer service, and provide opportunities 
for customers to maximize their financial success.
    Throughout this rule, any reference to ``farm'' or ``farmer'' also 
includes ``ranch'' or ``rancher,'' respectively.

DBSA Program Implementation

    This rule is implementing the DBSA Program to assist distressed 
borrowers whose operations are at financial risk and face the 
possibility of bankruptcy, liquidation, or foreclosure. Using available 
funds under section 22006 of IRA, DBSA is a payment deferral program 
for financially distressed or delinquent borrowers with outstanding 
direct loans administered under subtitle A (Farm Ownership Loan (FO) 
Program, Conservation Loan (CL) Program, and Soil and Water Loan (SW) 
Program), subtitle B (Operating Loan (OL) Program), or subtitle C 
(Emergency Loan (EM) Program) of the CONACT.
    While the DBSA Program will operate similarly to the existing DSA 
Program, there are important eligibility distinctions. Specifically, 
deferral under DBSA is only available for eligible direct loans 
outstanding as of September 25, 2024, and a borrower does not need to 
have been affected by a declared disaster to qualify. Importantly, and 
similar to both DSA and PLS eligibility requirements, borrowers 
requesting DBSA assistance must demonstrate that a set-aside of their 
current direct loan payment(s) would resolve their financial distress 
and result in a feasible operating plan.
    Payments deferred under DBSA will be repaid at the time of loan 
maturity and will carry a reduced interest rate of 0.125 percent. This 
is the lowest interest rate the CONACT authorizes to be applied to 
loans. The CONACT authorizes the Secretary certain discretion in 
determining interest rates for the FO, SW, CL, OL, and EM Programs. For 
FO, CL, SW and OL Programs, the rate must not be in excess of the 
average yield for Treasury notes with similar maturities to the FO or 
OL Programs, plus an amount not to exceed 1 percent. The EM Program 
interest rates determined by the Secretary must be below 8 percent. 
This reduced interest rate on DBSA:
     is being used to mitigate the adverse impacts of 
additional interest accrual on the deferred payment for borrowers, and
     increases the likelihood for the long-term success and 
improves long-term repayment ability of the operation.
    DBSA was created in part in response to input from borrowers, FSA 
staff, and other stakeholders noting that DSA works well to help 
resolve financial distress without requiring PLS, and that a similar 
set-aside program would also help many borrowers in financial distress 
who have not been affected by a natural disaster.
    Before this rule, FSA could only offer a deferral on direct loans 
through PLS or DSA. PLS is different from DBSA because PLS requires a 
series of loan servicing options to be considered and typically results 
in the loan being restructured; PLS can also be time consuming for the 
borrower.
    DBSA is expected to be selected by many customers as a viable 
alternative to DSA and PLS. If a customer does not qualify for a DBSA, 
for example, if their financial distress cannot be resolved by 
deferring the current installment to the end of the loan, they may need 
the more complex loan servicing solutions and formal loan restructuring 
that is available through PLS.
    As a result of the subsidy rate analysis, FSA determined that since 
the loan modifications costs of DBSA are funded by section 22006 of 
IRA, that only those loans that are outstanding as of September 25, 
2024, which is the effective date of this rule, will be eligible. The 
rationale for that is to comply with the statutory authority as FSA 
paid for the loan modification costs up front based on the current loan 
portfolio. Borrowers may request DBSA on those loans at any time over 
the loan period, but may only have 1 DBSA outstanding per loan.
    DBSA will provide existing FSA direct loan borrowers who are 
financially distressed or delinquent with an option to request a one-
time deferral of a delinquent or upcoming annual installment instead of 
using PLS or DSA to address loan repayment issues. A delinquent 
borrower is defined in 7 CFR 761.2(b) as ``a borrower who has failed to 
make all scheduled payments by the due date,'' and a financially 
distressed borrower is defined as ``a borrower unable to develop a 
feasible plan for the current or next production cycle.'' The amount of 
the deferral will be limited to the lesser of the amount of the annual 
installment or the unpaid balance remaining on the installment at the 
time the DBSA is approved. The deferred amount will have a reduced 
interest rate of 0.125 percent. The amount deferred, plus interest, 
will be due at the end of the loan term.
    To request DBSA, borrowers must submit a request for DBSA in 
writing to FSA. The borrower will be required to submit actual 
production, income, and expense records for the current production 
cycle, and an operating plan for the upcoming production cycle, unless 
FSA already has that information on file for the borrower. This 
information will be analyzed by FSA to validate that a profitable cash 
flow budget for the current production cycle cannot be developed 
without deferring the next loan installment due on their outstanding 
FLP loans. FSA will notify the borrower in writing within 30 days if 
their request for DBSA is approved or denied, and the borrower must 
provide required DBSA closing documents within 45 days of approval 
notification.
    DBSA will be implemented in a new subpart J of part 766, with 
conforming changes in parts 761, 765, and 766.

FLP Regulatory Improvements

    In addition to helping borrowers by adding DBSA as a new loan 
servicing program, throughout the FLP regulations FSA is making 
discretionary changes to clarify and amend existing delivery processes 
and program requirements to increase access to FLP,

[[Page 65022]]

including making several technical corrections. The various regulatory 
amendments are listed below, categorized by type as either a 
clarification, technical correction, non-substantial change, or 
substantial change.\1\ Changes are discussed based on what changes are 
the most broadly applicable. For example, changes in the definition of 
``Family Farm'' are discussed first along with changes in related 
terms, followed by the remaining definitions in alphabetical order.
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    \1\ To assist in navigating the various changes in this rule, 
FSA categorized the amendments as either clarifications, technical 
corrections, non-substantial changes, or substantial changes. A 
substantial change is an amendment to FLP policy that is anticipated 
to impact the majority of applicants or borrowers, while a non-
substantial change is a change that is anticipated to impact a 
relatively small number of customers.
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    The rule is making clarifications, which are in response to input 
from borrowers, staff, and other stakeholders. FSA has determined that 
clarifying the information in the regulation will make it easier for 
borrowers to understand program requirements. These clarifying 
amendments do not constitute a change in policy. The specific changes 
are discussed later in this document. Specifically, this rule 
clarifies:
     the definitions in 7 CFR 761.2 of Agricultural Commodity, 
Family Farm, Feasible Plan, Good Faith, Non-Eligible Enterprise, 
Participated in the Business Operations of a Farm, Related by Blood or 
Marriage, Relative, and Youth Loan;
     the financial analysis and document submission 
requirements for existing borrowers in 7 CFR 761.105 and 765.101;
     copies of real estate and equipment leases are required as 
part of a complete direct loan making or servicing application upon 
request in 7 CFR 764.51 and 766.102;
     the requirements in 7 CFR 764.51 and 764.101 to determine 
reasonableness of available credit elsewhere;
     direct loan eligibility credit history requirements in 7 
CFR 764.101 apply to all entity members;
     guaranteed loan eligibility credit history requirements in 
7 CFR 762.120 when there is previous debt forgiveness;
     the general direct loan managerial eligibility requirement 
in 7 CFR 764.101 and aligns it with the direct FO requirement;
     the EM requirements in 7 CFR 764.353 to ensure duplicate 
benefits are not provided;
     the special interest rate for beginning and veteran 
farmers obtaining a direct Microloan (ML)-OL in 7 CFR 764.254 and for 
the Indian Tribal Land Acquisition Program (ITLAP) 7 CFR 770.6;
     the application, eligibility, and loan security 
requirements for transfer and assumption requests in 7 CFR 765.402, 
765.403 and 765.404; and
     equitable relief provisions in 7 CFR 768.1.
    In addition to the clarifying amendments, FSA is making technical 
corrections to existing regulatory requirements that do not constitute 
a change in policy. Specifically, this rule corrects minor grammatical 
or typographical errors throughout 7 CFR 761 to 769, including 
correcting both ``writedown'' and ``write down'' to ``write-down.''
    The majority of amendments in the rule are changes in policy, most 
of which are non-substantial changes to existing regulatory 
requirements. Those amendments that are policy changes, but considered 
non-substantial in nature, include:
     in 7 CFR 761.2, revising the ``family farm'' definition to 
include commercial foraging operations for the purposes of operating 
loan assistance where commodities are foraged on Indian land, and 
adding definitions for ``commercially foraged'', ``Indian land'' and 
``Indian Tribe;''
     requiring all guaranteed lenders to receive FSA approval 
of a transfer and assumption to ensure applicants satisfy eligibility 
requirements in 7 CFR 762.142;
     authorizing subordinations of loan security for a 
guaranteed lender to refinance its own debt in 7 CFR 762.142;
     removing borrower production training requirements 
throughout 7 CFR part 764 that are often waived, but maintaining the 
important borrower financial training requirements;
     authorizing direct OL security to be a junior lien on real 
estate in 7 CFR 764.251 when the purpose of the loan is to finance 
minor real estate repairs or improvements, and establishing lease terms 
for those circumstances;
     increasing the direct youth operating loan limit in 7 CFR 
764.303 from $5,000 to $10,000;
     the experience eligibility requirements for direct FOs in 
7 CFR 764.152;
     changing the EM formula for production loss used for 
determining the EM amount in 7 CFR 764.352;
     in 7 CFR 765.102, allowing direct loans that are only in 
non-monetary default for failure of the borrower to comply with 
graduation requirements to be converted to non-program loans instead of 
FSA proceeding with foreclosure action;
     providing specific response timeframes and FSA 
notification requirements for direct loan subordination requests in 7 
CFR 765.205;
     changing the requirements in 7 CFR 765.252 for the lease 
of FSA security to provide borrowers additional flexibility;
     in 7 CFR 765.352 authorizing a portion of the proceeds 
from the sale of loan security to be retained by the borrower to pay 
capital gains taxes;
     establishing a State Executive Director's authority to 
extend PLS application deadlines in extraordinary circumstances in 7 
CFR 766.101;
     expanding reasons that a delinquency may be due to 
circumstances beyond the control of a borrower for the purposes of PLS 
in 7 CFR 766.104 to include catastrophic medical expenses for the care 
of family member of a borrower or entity member;
     establishing timeframes in 7 CFR 766.115 for a borrower to 
obtain an independent appraisal if they dispute an FSA appraisal;
     making minor adjustments and edits to the form for the 
Notice of Availability of Loan Servicing to Borrowers Who Are 90 Days 
Past Due in 7 CFR 766, Subpart C, Appendix A (form FSA-2510) and the 
related form for Iowa in Appendix B, to reflect the changes implemented 
in this rule and make minor technical corrections (the changes are not 
intended to change the information being collected); and
     making changes in 7 CFR 769 to the Heirs' Property 
Relending Program (HPRP), including expanding the application period.
    The most substantial changes to the Farm Loan Programs regulations 
are those that apply to all borrowers and are intended to promote 
profitable farming operations. These changes will be incorporated into 
the subsidy rate for the relevant loan programs per FCRA. Specifically, 
this rule:
     establishes requirements for the development of farm 
operating plans and farm assessments in 7 CFR 761.103, 761.104, and 
762.124, to ensure consideration of a reasonable amount of cash flow 
margin to increase working capital reserves and savings, including 
reasonable savings for retirement and education;
     provides all eligible applicants the option to receive 
flexible repayment terms, including maximum direct loan repayment terms 
and an option for interest-only payments during the first year for 
certain types of direct loans in 7 CFR 764.154, 764.254, and 764.354;
     modifies direct FO, OL, and EM additional loan security 
requirements in 7 CFR 764.103, 764.106, 766.56, and

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766.112, specifically by reducing the additional security requirement 
for all loan making and servicing requests, removing the additional 
security requirement for all MLs and FOs with a down payment, removing 
the requirement that non-real estate assets be used as additional 
security for FOs, removing the requirement that a personal residence be 
provided as additional security, and removing the requirement for a 
lien on all assets to be provided to receive PLS assistance, DSA 
assistance, or for guaranteed loans being restructured with a balloon 
payment in 7 CFR 762.145;
     adds 7 CFR 766.120, which provides an alternative to PLS, 
allowing for a simplified extension of repayment terms when a balloon 
payment comes due; and
     expands opportunities in 7 CFR 765.305 and 765.351 for the 
release of a limited amount of direct loan security without 
compensation in certain circumstances.

Discussion of Substantial Changes

    The following discussion provides additional detail on the 
amendments identified as substantial changes. Below that, non-
substantial changes, clarifications, and technical corrections are 
discussed, in that order.

Farm Operating Plan Development and Farm Assessments

    Developing a reasonable farm operating plan is essential for a 
farming operation to be successful. An important component of 
developing a farm operating plan includes considering the amount of 
reserves and cash flow margin necessary to support operational 
stability and growth. This will benefit farmers by providing the 
opportunity to create farm operating plans with budgets that include a 
reasonable amount of cash flow margin to increase working capital 
reserves and savings, including reasonable savings for retirement and 
education. This rule amends 7 CFR 761.103 and 761.104(f) to provide 
opportunity for FSA's farm assessments and borrowers' farm operating 
plans to allow for savings to support long-term operational financial 
stability and growth, including savings to ensure personal financial 
stability. Amendments to 7 CFR 761.103 also build consideration of 
borrowers' short- and long-term goals for their operation into annual 
farm assessments, as required by the CONACT, including progress towards 
graduation to commercial credit or eventual self-financing. This 
encourages farmers to consider customized FSA loan repayment terms that 
may better meet the goals of their proposed farming plan, including 
equal, unequal, interest-only, and balloon payments, as part of 
developing that plan. This rule amends 7 CFR 762.124 to clarify that 
flexible repayment terms may also be necessary to support guaranteed 
loan customers.
    Farm operating plans that are unable to adequately fund working 
capital reserves and savings often indicate financial distress, which 
can lead to the need for additional loans or for FSA to provide loan 
servicing options. Flexible repayment terms help to ensure that 
adequate working capital reserves and savings are available for 
investments as opportunities arise. Through the promotion of flexible 
repayment terms, FSA is providing the best terms available to a 
borrower up front that maximize the opportunity to achieve adequate 
reserves and savings, as opposed to waiting for the operation to become 
distressed under the weight of excessive debt service obligations 
before a loan can be restructured with reduced payment requirements. 
Rather than the traditional approach of equity growth through 
accelerated debt repayment, flexible repayment terms support borrower 
equity growth by allowing borrowers the freedom to accumulate working 
capital reserves to make strategic investments in a timely manner, 
resulting in substantially more equity growth than would otherwise be 
realized through accelerated debt repayment.

Direct Loan Repayment Terms

    The maximum repayment term for direct loans is 40 years for an FO 
and 7 years for an OL. Determining the appropriate repayment term 
within those limits has historically required FSA to apply its 
discretion based on an individualized analysis of the applicant's 
ability to repay and the useful life of the security, which can result 
in inconsistency in the terms offered to applicants. This rule will 
standardize all repayment schedules offered to applicants to provide a 
greater opportunity to build operational stability and be successful. 
Updates to 7 CFR 764.154(b)(1), 764.254(b)(2), 764.354(b)(4) and (5) 
require all FOs, OLs, and EMs for purposes other than family living and 
farm operating expenses, to be scheduled over a term equal to the 
lesser of the useful life of security or the maximum term authorized by 
law, unless the applicant otherwise requests a shorter term in writing. 
This rule does not affect the repayment term provided on Down Payment 
Loans, which is established by the CONACT to be 20 years or less. FSA 
will continue to offer Down Payment Loans to customers with a repayment 
term of 20 years unless the applicant desires a shorter term to be 
considered.
    Additionally, this rule amends the standard repayment term for the 
ML-FO Program. FSA developed ML to better serve the unique financial 
operating needs of new, niche, and small family farm operations. MLs 
offer more relaxed application requirements and serve as an attractive 
loan option, particularly for smaller and non-traditional farm 
operations that often face limited financing options.
    While there is no difference between the maximum repayment term for 
an OL or an ML-OL (7 years), the ML-FO has been limited by regulation 
to a 25-year maximum repayment term, substantially less than the 40-
year term of an FO. Since the ML-FO is targeted to small, start-up, and 
niche farming operations, the more restricted repayment term may put 
additional financial constraint on applicants who may already have 
limited financial resources. This rule amends 7 CFR 764.154(b) to allow 
for a maximum repayment term of 40 years for an ML-FO. Should a ML-FO 
applicant determine it to be in their best interest to receive a loan 
term less than 40 years, for example, to benefit from paying less total 
interest over the life of their loan, the applicant may request a 
shorter term in writing. Additionally, borrowers may reduce their 
interest cost over the life of a loan by making additional payments if 
they are able and desire to do so as FSA loans carry no pre-payment 
penalty.
    In addition, FSA emphasizes the use of flexible repayment terms to 
ensure adequate working capital reserves and savings can be accumulated 
by the borrower. As mentioned above, to ensure all borrowers have an 
opportunity to grow adequate working capital reserves and savings, all 
applicants will be offered an opportunity for a repayment plan on new 
term loan requests that includes an interest-only installment during 
the first year of the loan. An interest-only installment the first year 
of a loan can result in a substantial boost to reserves and savings, 
enabling the borrower to make strategic investments to grow their 
operation without having to take on additional debt. For borrowers who 
elect the first-year interest-only installment plan, principal 
reduction will typically begin after the sale of crops or livestock 
produced during the second year of the loan. This rule makes these 
changes in 7 CFR 764.154(b)(2) and (3), 764.254(b)(3) and (4), and 
764.354(b)(6) and (7).
    Prior to this rule, FSA structured most loans using equally 
amortized

[[Page 65024]]

installments to repay a loan, which can put undue stress on already 
strained operating budgets. As a result, a borrower was more likely to 
become distressed and request PLS, a time-consuming process for both 
borrowers and FSA, which typically resulted in outcomes similar to 
those available through flexible repayment terms. Under flexible 
repayment terms for loans other than Down Payment FOs where the CONACT 
requires equally amortized payments, scheduled loan installments can be 
structured to reflect the expected cash flows used to analyze 
repayment, providing borrowers with greater financial flexibility over 
the life of the loan and enabling cash flow budgets to include 
projections for reasonable working capital reserves and savings. 
Flexible repayment terms for these loans can include interest-only 
installments, partial principal payments, and balloon installments. 
This rule clarifies that flexible repayment terms may include interest-
only installments for up to 3 years, which can be used if FSA 
determines it necessary to reasonably increase cash flow margin to 
increase working capital reserves and savings, including reasonable 
savings for retirement and education. While principal reduction on 
loans is important to begin to support borrower growth and ensure FSA 
loans remain fully secured, interest-only payments beyond 3 years 
remain an option only when FSA determines that interest-only payments 
are necessary to establish a new enterprise, develop a farm, or recover 
from a disaster or economic reversal.
    Providing the option of flexible repayment terms at the time of 
loan approval enables all borrowers to receive the benefits of a 
deferral of principal without having to first become financially 
distressed or defaulting on their loan in order to access the loan 
servicing options of PLS, DBSA, or DSA. Providing more flexible 
repayment terms allows borrowers to make timely and strategic 
investments to grow their operations. As specified above, flexible 
repayment terms have the potential to reduce program delinquency and 
will provide borrowers with more options to meet the short- and long-
term goals of the farm business, and to generate reasonable working 
capital reserves and savings, including savings for retirement and 
education.
    For loans with balloon installments scheduled, borrowers have been 
required to go through the process of applying for PLS to extend the 
repayment schedule of their loan. This process is not customer-friendly 
and makes little sense for a borrower who has repaid as agreed 
throughout the initial loan term. Accordingly, this rule adds 7 CFR 
766.120 to enable a borrower to receive a simple extension of repayment 
terms for up to an additional 8 years from the date the balloon payment 
comes due. This will provide the borrower with repayment terms similar 
to what they would receive through PLS, but without needing to go 
through the PLS process. Under PLS, an operating loan can be 
rescheduled for a term up to 15 years. Accordingly, this option aligns 
with that PLS provision by permitting an extension of up to 8 years for 
repayment of the ballooning loan where the original maturity date was 
no more than 7 years from the date of loan closing.
    To ensure this option is adequate to meet the borrower's needs, it 
is available only to borrowers who have a history of successful 
repayment of their loans, including making full installments for the 
last 3 years on the ballooning loan. For other borrowers, PLS will 
continue to be available. Additionally, this option is not available on 
loans where repayment terms have already been altered by PLS, or that 
have an outstanding DSA or DBSA, as the terms of those updated 
repayment agreements cannot be accommodated with a basic extension of 
the original loan terms.

Loan Security

    This rule amends additional direct loan security and collateral 
servicing requirements to better enable borrowers to leverage assets 
and make strategic investments in their operations. This rule does not 
amend guaranteed loan security requirements. Additional loan security 
is collateral in excess of what is needed to fully secure the loan. 
Specifically:
     Additional direct loan security requirements in 7 CFR 
764.103(c) requires a 125 percent loan security margin when available 
for direct loans, which is a change from the current requirement of 150 
percent. The amendment also requires that real estate assets only be 
provided as additional security for direct FOs. Consistent with the 
current regulation and policy, if the borrower does not have the 
additional security available to pledge, FSA may still be able to make 
the direct loan if the loan is fully secured; additional security will 
only be taken ``when available.''
     This rule also amends 7 CFR 764.103(c) to expand the 
circumstances in which no additional security is required, to now 
include all Microloans and FOs for which a cash down payment has been 
provided (similar to the existing Down Payment Loan Program, which does 
not require additional security).
     This rule removes direct loan making requirements for a 
personal residence to be used as additional security for direct loans 
in 7 CFR 764.106(d) under certain conditions.
     The reduced additional security requirement of 125 percent 
security margin, where available, is also being applied to PLS in 7 CFR 
766.112(a); however, a lien on the personal residence will still be 
required during PLS if necessary to achieve a 125 percent security 
margin.
     This rule also amends the DSA additional security 
requirement by removing 7 CFR 766.56 so that additional security will 
not be required to be pledged if a customer requires DSA Program 
assistance, consistent with the new DBSA Program.
     This rule removes a requirement in 7 CFR 762.145(b)(7) 
that required guaranteed lenders to take a lien on all assets when 
restructuring a loan with a balloon installment.
     This rule provides processes for an expedited release of 
certain direct loan security in 7 CFR 765.305(c) and 765.351(f) after a 
period of successful loan repayment, further promoting borrower growth 
and saving significant staff time monitoring loan security that is not 
essential to loan repayment.
    These fiscally responsible data-driven changes ensure that FSA is 
not overcollateralized and allows borrowers to leverage the equity in 
their assets to grow their operations. Since 1994, the regulation has 
required direct loans to be secured by not only the assets purchased or 
improved with loan funds, but also an additional amount of security 
equal to 50 percent of the direct loan amount, if available. FSA 
determined that this requirement created a significant cost in both 
time and resources to perfect a lien on additional property, which has 
been determined to not be necessary for FSA to be fully secured, and 
also constrained borrowers from using equity to acquire capital needed 
for expansion for other business purposes.
    A lien on assets purchased or improved with direct loan funds will 
still be required to provide adequate security for FSA farm loans. 
However, FSA recognizes that excessive additional security requirements 
that are unnecessary to significantly mitigate losses to the Government 
can ultimately restrict a borrower's ability to grow their operation by 
accessing asset equity. While this rule removes certain additional 
security provisions where FSA has determined taxpayer resources

[[Page 65025]]

remain adequately protected (see following analysis), all loans will 
continue to be sufficiently collateralized. The existing additional 
security requirements also result in an ineffective use of FSA 
resources, as staff are required to monitor and service the often-
unnecessary additional security liens. These changes are estimated to 
reduce administrative time by over 8,000 hours annually as staff will 
realize a reduced number of on-site inspections to evaluate collateral 
and less time updating security documents, including renewals of 
expiring liens.
    Revising the direct loan security margin in 7 CFR 764.103(c) to 125 
percent, reduces the amount of additional security required for a 
direct loan by half, from 50 percent of the loan amount down to 25 
percent. FSA has determined that security at least equal to 125 percent 
of the loan amount, where available, will provide adequate assurance of 
repayment. In fact, since fiscal year (FY) 2000, the average security 
margin for loans that experienced a loss was 120 percent at the time 
the loan was made, which is below the revised threshold. Accordingly, 
this revised amount of additional security aligns not only with 
historic portfolio performance data, but also with the loan security 
expectations by other government lending regulators. Furthermore, in 
the infrequent situation where FSA does liquidate security 
(approximately 4.1 percent of all accounts since FY 2000), the average 
administrative cost to FSA is less than 10 percent of the security 
value. This is substantially below the 25 percent additional security 
amount required in this rule, which provides an amount sufficient to 
cover estimated FSA administrative costs in the majority of liquidation 
circumstances. The requirement for additional security can be 
particularly important to protect the government from program losses 
for higher-risk direct OLs where primary security is often crops, 
livestock, or equipment with security values that are more volatile 
than real estate. However, for direct loans where real estate serves as 
adequate security, such as FOs, the additional security provision can 
result in FSA initially requiring more security than is necessary to 
protect the government's interests.
    Prior to this rule, FSA perfected additional security lien 
interests on short-term non-real estate security items such as crops, 
livestock, and equipment, even if the loan was secured by more robust 
forms of collateral--such as real estate--as in the case of an FO. 
Requiring a lien on short-term assets for long-term debt significantly 
hinders a borrower's ability to leverage those assets to obtain 
reasonable rates and terms through commercial lenders for operating 
purposes, thereby delaying graduation to commercial credit or making 
progress towards self-financing, which are primary FLP objectives.
    For FSA direct loans, additional non-real estate security assets 
are rarely relied upon for repayment of debt primarily secured by real 
estate, even in cases of foreclosure. The FSA data show losses on 
direct real estate loans are reduced when the loan-to-value at the time 
of liquidation is below 95 percent, as demonstrated in the Down Payment 
Loan Program. In the Down Payment Loan Program, applicants are required 
to provide a 5 percent cash down payment, and additional security is 
not required to be pledged. The FSA Down Payment Loan Program has an 
average historical loss rate from 2000 through 2023 of less than 0.14 
percent, which is significantly lower than the average FO Program loss 
rate of 0.96 percent. This further demonstrates that additional 
security is generally unnecessary for successful repayment of real 
estate debts when even a small amount of equity exists in the real 
property security.
    Accordingly, this rule changes the additional security required for 
direct FOs to only be other real property. As discussed, when a loan is 
secured by real estate it is rare that FSA would rely on non-real 
estate assets to avoid a loss. This change to 7 CFR 764.103(c) will 
improve FSA internal processes by removing the need for FSA staff to 
maintain security interests that are unnecessary to adequately 
safeguard taxpayer resources, saving the time and cost of security 
inspections, and allowing borrowers to leverage asset equity to improve 
their operation.
    This rule extends the list of existing exemptions from additional 
security requirements in 7 CFR 764.103(c) to include any direct FO 
where the applicant supplies a 5 percent cash down payment of the 
purchase price. This exemption has historically been available only for 
the Down Payment Loan Program, where the CONACT limits the security 
required. As discussed, the Down Payment Loan Program was a significant 
success, with the lowest delinquency and loss rate of any current FLP 
loan. Where a similar down payment is provided by an applicant of a 
regular FO, FSA expects similar low delinquency and loss rates. This 
expanded exemption will provide increased incentive for applicants to 
provide a cash down payment that improves the FSA security position 
without additional security needing to be pledged by the applicant.
    This rule further extends the list of existing exemptions from 
additional security requirements in 7 CFR 764.103(c) to include any ML. 
This exemption will improve access to MLs, which are predominantly made 
to small and beginning farmers. Prior to this rule, only term MLs (such 
as direct loans for equipment or real estate purchases) were exempt 
from additional security requirements. This rule extends the exemption 
to any ML, including those for annual operating expenses. The average 
ML delinquency rates for 2017 through 2021 (13 percent for operating 
ML-OL and 3.6 percent for ML-FO) are approximately half that of their 
regular OL or FO counterparts. The annual ML-OL delinquency rate is 
also approximately 5 percent lower than the regular annual OL 
delinquency rate. Overall, the ML Program has a solid history of 
stronger repayment performance compared to most other farm loan 
programs. ML historical performance supports that program integrity can 
be maintained while extending the additional security exemption to all 
MLs.
    This rule specifies in 7 CFR 764.106(d) that the personal residence 
will not be required for direct loans provided that the loan is fully 
secured by assets that have a value equal to the loan amount and the 
residence is on no more than 10 acres or the minimum amount able to be 
parceled into a separate legal lot. Reducing the frequency of personal 
residences to serve as additional security improves a borrower's 
ability to provide for basic housing needs in the event of financial 
distress. FSA has rarely relied on equity in a borrower's home pledged 
as additional security to ensure repayment, even in situations of 
distress. However, a lien on the personal residence will be required 
should the borrower ultimately require PLS.
    Additionally, the rule applies the revised direct loan making 
security levels to the servicing of the loan by requiring additional 
security of up to 25 percent of the loan amount to be taken as a 
requirement of PLS, which is a reduction from the existing requirement 
for a lien on all assets. These changes in 7 CFR 766.112(a) will result 
in improved program delivery by reducing the administrative burden of 
maintaining and tracking unnecessary additional security as noted 
above, while furthering program objectives by improving the prospects 
of borrower graduation as borrowers are able to leverage asset equity 
to accelerate financial growth. Historical portfolio performance data 
reflect that the average security margin on accounts that

[[Page 65026]]

experience a loss is 120 percent, which is below the 125 percent 
threshold provided by this change. In addition, less than a third of 
any of the approximately 4.1 percent of farm loans with losses had a 
security margin of greater than 125 percent. Therefore, there is only a 
limited pool of loans in the portfolio (less than 1.5 percent) that are 
estimated to be potentially vulnerable to increased losses when 
requiring less security at the time of loan making.
    This rule removes 7 CFR 766.56, which previously required that 
borrowers provide a lien on all assets in order to receive DSA. All 
loans are originally made with adequate security to fully secure the 
FSA debt, so the requirement for a lien on all assets typically results 
in the FSA debt being more than adequately secured, which may prohibit 
the borrower from leveraging equity in assets, or preventing the sale 
of assets, if necessary to fully recover from a disaster.
    A similar requirement in 7 CFR 762.145(b)(7) is also being removed 
that previously required a lien to be taken on all assets by a 
guaranteed lender when restructuring a loan with a balloon installment.

Release of Security Interest and Partial Release of Real Estate 
Security

    The regulations in 7 CFR 765.305 specify the conditions that must 
be met for FSA to release its security interest. The regulations in 7 
CFR 765.351 specify that the borrower must obtain prior consent from 
FSA for any transactions affecting the real estate security, including 
when a borrower sells, exchanges, or requests a partial release of 
security. FSA has historically authorized the release of a limited 
amount of security without compensation in limited circumstances.
    This rule is amending 7 CFR 765.305(c) and 765.351(f) to allow a 
borrower to receive a lien release of certain security items if they 
have a demonstrated history of making all payments as scheduled with 
FSA for the previous 36 months and the loan will be adequately secured 
after the release. Unencumbering security in excess of 125 percent of 
the outstanding loan balance allows the borrower to sell the property 
and improve the borrower's cash position, make the asset available to 
pledge as collateral for other loans or purposes, or allow the borrower 
to leverage equity attributed to the a rise in the appraised value of 
the asset for other investments. In order to provide greater 
flexibility to borrowers, FSA is removing the requirement that the 
borrower retain the security and use it as collateral for other credit; 
however, the transaction must still enhance the program objectives of 
the FLP loan under 7 CFR 765.301(f) and 765.351(a)(1). A borrower who 
has made timely payments over the most recent 36 months demonstrates a 
likely ability to meet scheduled loan payments going forward. Data from 
FY 2000 to 2023 reflect that accounts with a recorded loss were in 
financial distress within the first 3 years of loan closing 76 percent 
of the time. Accordingly, while this policy change may result in an 
increase in losses, all FSA loans will remain fully secured even after 
a partial release, and historical data reflect that the vast majority 
of the time a customer who successfully repays for 3 consecutive years 
does not incur a loss to the government. The release of security in 
excess of 125 percent of the outstanding FSA loan balance, will support 
a borrower's ability to grow their operation by accessing asset equity 
and will also save significant staff time maintaining liens on assets 
that are not needed to adequately safeguard taxpayer resources.

Discussion of Non-Substantial Changes

    The following discussion provides additional detail on the 
amendments identified as non-substantial changes.

Definition of Family Farm, Commercially Foraged, Indian Land, and 
Indian Tribe

    This rule revises the definition of ``Family farm'' in 7 CFR 
761.2(b) to include commercial foraging operations as an eligible 
family farm for the purposes of operating loans where commodities are 
commercially foraged on Indian land. This rule adds corresponding 
definitions for ``commercially foraged'', ``Indian land'' and ``Indian 
Tribe.'' While the commercial foraging space has limited participation 
nationwide, the industry has unique cultural relevance in certain 
regions. For example, commercial foraging is an important aspect of 
several Native American Tribal cultures, with a rich history stretching 
back for generations. Foraging is often done on Indian land managed by 
an Indian American Tribe. Opening FLP assistance to these operators is 
a significant step in supporting USDA's commitment and trust 
responsibility to federally recognized Tribes. While assistance is not 
limited only to Native American producers, applicants that commercially 
forage must comply with all local rules and regulations pertaining to 
foraging on Indian land. The new definitions of ``Indian land'' and 
``Indian Tribe'' are only used for the commercial foraging provisions 
established in this rule, and are based on existing definitions of 
``Indian land'' and ``Indian Tribe'' used in Federal programs to cover 
commercial foraging on lands owned by an Indian Tribe, restricted fee 
land owned by an Indian Tribe, and land held in trust for an Indian 
Tribe. The definition of ``Indian land'' excludes land held in trust 
for or owned by individuals.

Guaranteed Servicing Related to Collateral

    FSA may subordinate its security interest on a direct loan for many 
purposes, including when a new guaranteed loan is being considered to 
refinance the debt of another lender. When the lender requesting the 
guarantee is limited only to refinancing the debt of another lender, 
and not its own non-guaranteed debt, the lender faces the risk of the 
borrower going to a different lender to refinance the non-guaranteed 
debt of the current guaranteed lender. The new lender could then apply 
for an FSA guarantee and a subordination of the direct loan, while the 
existing lender will lose its borrower. This amendment to 7 CFR 
762.142(c) allows a subordination of direct loan debt when a lender 
requests a guarantee on a loan to refinance any debt, including its 
own.
    Similarly, FSA may allow a lender to subordinate its interest in 
basic security which secures a guaranteed loan in cases in which the 
subordination is required to allow another lender to refinance an 
existing prior lien. When the lender requesting the refinance is 
limited only to refinancing the existing debt of another lender, and 
not its own debt, the lender faces the risk of the borrower going to a 
different lender to refinance the debt. The existing lender will lose 
its borrower, while the new lender will be granted the subordination on 
the guaranteed loan debt. This rule allows a subordination of 
guaranteed loan debt when a lender requests to refinance any debt, 
including its own.

Guaranteed Loan Transfer and Assumption Requirements

    Standard Eligible Lender and Certified Lender Program lenders are 
required to obtain FSA concurrence to process a transfer and assumption 
of a guaranteed loan. This rule amends 7 CFR 762.142(d) to require 
Preferred Lender Program lenders to also obtain FSA concurrence to 
ensure transferee eligibility and ensure that FSA records accurately 
reflect the transferee as operator and debtor.

[[Page 65027]]

Borrower Production Training

    Section 359 of the CONACT requires the educational training needs 
of each direct loan applicant to be evaluated, with training options 
provided when needed. Under this authority, FSA evaluates the need of 
each direct loan applicant to complete borrower training. The borrower 
then contracts with an approved third-party vendor to provide the 
training deemed necessary by FSA. This is an important component of 
FSA's process for granting direct FLP assistance and is consistent with 
FSA's focus on progression lending.
    While borrower financial training has ample training vendors 
available, and has been essential to the success of many producers, 
borrower production training options are limited, and efforts to 
improve borrower production knowledge via mandated training courses are 
generally ineffective. While most financial training concepts are 
applicable across all farm types and regions, applicable production 
training material is specific to agricultural regions and enterprises. 
There is a substantial lack of vendors providing production training 
because most organizations that request FSA approval to be an 
authorized training vendor lack the effective resources to provide 
production training specific to the varied regions and enterprises. Due 
to a lack of viable industry-specific production training vendors, FSA 
provides nearly all direct loan customers a waiver of production 
training requirements, with less than 5 percent of direct loan 
customers required to complete borrower production training.
    While borrower production training lacks authorized vendors and is 
generally ineffective at improving borrower production knowledge, 
private mentorships and relationships built by the borrower themselves 
are typically the most beneficial production training a producer 
receives. Therefore, this rule removes all references to borrower 
production training in 7 CFR 764. However, borrower financial training 
requirements remain unchanged.

FSA Lien Position on Real Estate Repaired or Improved With Direct OL 
Funds

    FSA uses direct OL funds to finance minor real estate repairs or 
improvements, provided the loan can be repaid within 7 years. 
Construction or improvements amortized over periods longer than 7 years 
generally align better with direct FO purposes and are not financed 
with direct OL funds.
    While smaller repairs or improvements can be financed by either an 
OL or FO, an applicant may find it beneficial to apply for an OL in 
certain instances, such as when FO funds are limited, or when an 
applicant has reached FO term limits. However, security requirements 
vary slightly for an FO and OL.
    For any OL, security must be a first lien on assets purchased or 
improved with direct loan funds, while an FO may be secured by real 
estate in a junior lien position. FSA is amending the OL security 
requirements in 7 CFR 764.255 for loans where the purpose is to make 
minor repairs or improvements to allow a lien in junior lien position 
to serve as adequate security.
    In 7 CFR 764.251(a)(11), FSA is requiring that for improvements on 
leased property, the lease must allow the borrower full use of the 
improvement over the life of the security or have a provision 
compensating the borrower for any remaining economic life in the event 
the lease is terminated.

Increase Loan Limit of the Youth Loan Program

    This rule is amending 7 CFR 764.303(b) to allow FSA to double the 
direct Youth Loan (YL) limit on the total principal balance owed by an 
applicant on all YLs at any one time from $5,000 to $10,000. FSA makes 
direct loans to applicants 10 through 20 years old to finance income-
producing projects of modest size in connection with their 
participation in 4-H, Future Farmers of America (FFA), Tribal youth 
groups, or similar agricultural youth organizations. The project being 
financed with an FSA YL provides an opportunity for the young person to 
acquire experience and education in agriculture-related skills.
    YL application activity has steadily fallen in recent years, with 
YL applications totaling 3,795 in FY 2017, 3,201 in FY 2018, 2,788 in 
FY 2019, 2,451 in FY 2020, 1,568 in FY 2021, and 1,370 in FY 2022.
    An important factor affecting decreased application activity for YL 
is the relatively small maximum outstanding loan limit of $5,000 per 
individual. The $5,000 limit has been unchanged since 1988, without 
adjustment for the significant inflation since that time. The rate of 
inflation of agricultural inputs is considered to be approximately 
equal to the Consumer Price Index (CPI). CPI figures indicate that the 
buying power of $5,000 in 1988 equals more than $10,000 today. The 
$5,000 loan limit is often not adequate to provide the young person 
enough to finance their intended projects. During FY 2017 through 2022, 
the average amount requested per YL applicant was $4,578, which 
supports the need for this increase above the previous $5,000 
limitation.

Direct FO Eligibility--Farm Experience

    As specified in the CONACT, one of the eligibility requirements for 
direct FOs is that an applicant must have participated in the business 
operations of a farm or ranch, or possess other adequate experience as 
determined by the Secretary. In the rule published March 9, 2022, (87 
FR 13117-13127) that implemented provisions of the 2018 Farm Bill, FSA 
provided eight specific areas of experience that may be allowed as 
substitutes for 2 of the 3 years of actual experience. In some 
combinations, the experiences may meet the requirement for all 3 years.
    FSA amends 7 CFR 764.152(d) to require that in the case of an 
entity, at least one member who will be the operator of the farm must 
meet these experience requirements. Prior to this rule, the majority of 
entity members needed to meet the experience requirement, which can 
limit participation for certain entities whose membership includes 
individuals with minimal actual farming experience. This amendment 
expands credit opportunities for applicants.

Emergency Loan Loss Calculations

    The EM Program is triggered when a qualifying disaster or emergency 
is designated by the Secretary of Agriculture or declared by the 
President. These direct loans help producers recover from disaster-
related physical and production losses.
    The maximum amount FSA is able to lend for a production loss EM is 
determined according to 7 CFR 764.353(c); it is determined in part by 
reducing the calculated production loss by any compensation or 
insurance payments related to the disaster. This reduction is required 
so that the applicant will not receive duplicate payments from both an 
EM and Federal Crop Insurance indemnity payment, or other government 
payment, as stated in 7 CFR 764.352(k).
    In recent years, the USDA Risk Management Agency's Revenue 
Protection policies have become more popular, and many Federal crop 
insurance policies sold today provide some form of revenue protection. 
Revenue Protection policies insure producers against certain yield 
losses, as well as against revenue losses caused by a reduction in the 
harvest price compared to a projected price.

[[Page 65028]]

    Indemnity payments triggered by a Revenue Protection policy do not 
differentiate between the amount of the payment generated from 
production or price loss. Since FSA is unable to provide duplicate 
Federal benefits due to crop losses under 7 CFR 764.352(k) and 42 
U.S.C. 5155, this rule amends 7 CFR 764.353(c)(4) to clarify that any 
compensation or insurance indemnities related to the loss will be 
subtracted in the calculations to arrive at FSA's maximum EM production 
loss loan amount.
    Prior to this rule, producers who suffered a production loss but 
were made whole by a Revenue Protection insurance policy could still 
qualify for an EM since only specific disaster-related insurance 
payments were reduced. Now, any insurance indemnity payments are 
deducted from the formula to determine the EM amount, thereby better 
protecting against duplicate payments.
    This rule amends the production loss threshold necessary to qualify 
for the EM Program in 7 CFR 764.352(h) to allow EM eligibility if a 
producer sustains a disaster yield that is below the normal production 
yield of the crop. By default, the CONACT provides eligibility for EMs 
based on production losses if an applicant has sustained at least a 30 
percent production loss. However, the CONACT provides the Secretary 
discretion to set a lesser percent of production loss as the threshold 
for eligibility. The production loss threshold has historically been 
set at the maximum 30 percent threshold, which can prohibit producers 
from accessing EM assistance necessary to adequately recover from a 
disaster. FSA is removing the 30 percent threshold such that to qualify 
for EM assistance the disaster yield must have simply been below the 
normal production yield of the crop. This change will expand EM 
opportunities for customers who have a demonstrated loss and are in a 
financially vulnerable position. Establishing a specific threshold 
restricts the opportunities for recovery aid, and thus it is reasonable 
to expand potential program benefits to any eligible producer who has 
suffered a demonstrated production loss as a result of the declared 
disaster. FSA notes that the 7 CFR 764.353(b)(3) limitation remains in 
place that ensures loan amounts do not exceed 100 percent of the total 
actual production loss sustained by the applicant.

Borrower Graduation Requirements

    An existing direct loan borrower must refinance their direct loans 
with a commercial lender at reasonable rates and terms when they have 
the financial ability to do so. Failure to graduate to commercial 
credit is considered non-monetary default and the account is referred 
for acceleration and foreclosure action. While these cases are not 
frequent, with only 68 instances since FY 2010, final action on these 
accelerated, non-monetary default loans to full foreclosure and loan 
settlement is often delayed for years. In these cases, during that 
delay, the farm loan borrower continues to receive the excess benefit 
which they are no longer qualified for. For example, the borrower 
continues to receive a reduced interest rate by not refinancing, even 
though the financial review reflects that refinancing is an option. As 
an alternative to non-monetary foreclosure on accounts that would 
otherwise be in good standing, this rule amends 7 CFR 765.102 to 
provide for accounts to be converted to non-program status if the 
borrower fails to comply with graduation requirements or to submit 
requested financial documents necessary to evaluate a borrower's 
ability to graduate. Conversion of such loans to non-program status 
with higher interest rates and restrictive loan terms ensures 
appropriate use of taxpayer resources, with subsidized program loan 
benefits being provided only to borrowers in compliance with program 
requirements. This rule is applicable to all future accounts as it 
requires a borrower to acknowledge this alternative as a condition of 
the FSA direct loan. For existing customers to take advantage of this 
provision, they must acknowledge and accept the conditions separately.

Subordination of Liens

    FSA has a clearly defined process for direct loan making and 
special servicing applications to provide an applicant written notice 
if additional information is required to make an application complete. 
A complete subordination application request also includes multiple 
documents, and borrowers need to be afforded the same opportunity to be 
notified of any outstanding information necessary to have a 
subordination request processed. This rule amends 7 CFR 765.205(b) to 
specify that FSA will process incomplete subordination requests in the 
same manner as is required for incomplete direct loan making requests.

Lease of Security

    The lease of non-real estate security can often be in the best 
interest of FSA. For example, an apiary with beehives that serve as 
security may desire to lease beehives to other farms for pollination 
purposes, thereby generating income to ensure success of the operator 
with minimal deterioration to the security. This rule amends 7 CFR 
765.252(c) to allow the lease of non-real estate security in certain 
situations that are in the best interest of FSA.
    Additionally, the regulation in 7 CFR 765.252(a) requires borrowers 
to obtain approval to lease the surface of real estate security. In 
August 2021, this provision was amended to limit leases for nonfarm 
enterprises. This rule amends the wording in 7 CFR 765.252(a)(4) to 
correctly reference ``significant acreage of the security.'' Consent is 
only required for surface leases on the portions of a farm operation 
that serve as FSA security.

Use of Proceeds From Sale of Security

    When borrowers sell basic security, they are often subject to 
capital gains taxes. FSA does not allow proceeds from the sale of basic 
security to be used for family living or farm operating expenses, which 
leaves borrowers with limited options to pay capital gains taxes. While 
historic exception requests for this purpose have been limited, with 
less than three requests typically made each year, this can be a 
significant hardship for borrowers with limited financial means to 
cover the taxes. This rule adds 7 CFR 765.352(a)(4) to allow a borrower 
to use a portion of proceeds from the sale of basic security to pay 
capital gains taxes in limited circumstances. Specifically, retention 
of a portion of proceeds necessary to pay capital gains taxes will only 
be authorized if the FSA debt remains fully secured and the borrower is 
not otherwise able to adequately cover the tax liability through 
reasonable means or obtain non-FSA credit to cover the amount of the 
taxes.

Borrower Loan Servicing Deadline Extension

    The 2018 Farm Bill amended section 331D of the CONACT to permit 
State Executive Directors to extend the 60-day PLS application deadline 
in extraordinary circumstances. This flexibility is added to the 
regulation in 7 CFR 766.101(e).

Borrower Eligibility Requirements for PLS

    The rule amends 7 CFR 766.104(a)(1)(vi) to add catastrophic medical 
expenses for a family member in the household of a borrower or entity 
member, in the case of an entity borrower, as circumstances beyond the 
control of the borrower leading to delinquency or financial distress 
for the purposes of PLS eligibility.

[[Page 65029]]

Deadline for Disputing an Appraisal

    Borrowers requesting PLS who do not agree with the FSA appraisal 
are provided the opportunity to appeal the valuation by submitting 
their own independent appraisal. This rule amends 7 CFR 766.115(a) to 
establish a deadline of 90 days for the borrower to obtain and submit 
an independent appraisal to FSA. FSA has extensive experience in 
coordinating, contracting, and obtaining a completed agricultural real 
estate appraisal, with the process traditionally taking anywhere from 
30 to 60 days. Accordingly, 90 days is a reasonable amount of time for 
a borrower to obtain a new valuation and this amount of time ensures 
that all servicing appeal requests are processed timely.

Notification for PLS

    FSA will provide, by certified mail, the PLS notice to borrowers 
who are at least 90 days past due; this notice is included in the 
regulation as required by the CONACT, section 331D (7 U.S.C. 1981d). 
The FSA-2510 ``Notice of Availability of Loan Servicing to Borrowers 
who are 90 days past due'' is included as Appendix A and B to Subpart C 
of 7 CFR part 766.
    FSA is amending FSA-2510 to incorporate the following changes:
    1. Add copies of real estate leases (if applicable to the farm 
operation) as items necessary for a complete application;
    2. Remove references to ``good faith;''
    3. Add ``catastrophic medical expenses for the care of a family 
member of a borrower or entity member, in the case of an entity 
borrower'' as a circumstance causing delinquency or financial distress 
beyond the borrower's control for qualification for PLS;
    4. Replace the reference to obsolete form SCS-CPA-026 with NRCS-
CPA-026e;
    5. Remove reference to several forms for a complete loan servicing 
application as the forms have been consolidated into a single form FSA-
2001;
    6. Add verification of nonfarm income as a requirement for a 
complete loan servicing application, which has always been a 
requirement but was erroneously not included in this form previously;
    7. Add a required statement to advise borrowers of the potential 
tax liability after FSA cancels debt, which may be realized after a 
write-down, current market value buyout, or debt settlement; and
    8. Remove the words ``writedown'' and ``write down'' throughout the 
document and add ``write-down'' in their places.

Heirs' Property Relending Program Technical Corrections

    The initial regulation for HPRP was published on August 9, 2021 (86 
FR 43381-43397), implementing HPRP, which was authorized in the 2018 
Farm Bill. In processing the initial HPRP applications, FSA found 
several areas in need of correction to address the intermediary's HPRP 
cash accounts, remove barriers to program usage, and encourage 
intermediary lender participation. FSA is making these changes in 7 CFR 
part 769, including removing the previous deadline for an intermediary 
lender to request a loan and to provide for the use of a deposit 
agreement to securitize HPRP cash accounts in 7 CFR 769.162(a)(1). 
Additionally, FSA is amending 7 CFR 769.164(d)(9)(ii) to clarify that 
funds advanced to an intermediary lender that are unused for 6 months 
must be returned to FSA unless FSA provides a written exception.

Discussion of Clarifications

    The following discussion provides additional detail on the 
amendments identified as clarifications.

Definition of Agricultural Commodity

    This rule amends the ``Agricultural commodity'' definition in 7 CFR 
761.2(b) to clarify that ornamental plants are an eligible commodity. 
The definition of ``Agricultural commodity'' has included, and 
continues to include, ``nursery crops.'' When ornamental plants are 
produced commercially in a typical nursery setting, FSA considers 
ornamental plants an eligible commodity. Ornamental plants are now 
specifically named as a separate eligible commodity to clarify that 
ornamental plants are an eligible commodity. To be considered an 
ornamental plant, the plant must still be produced commercially in a 
nursery setting that may include both covered and open-air growing 
facilities.

Definition of Family Farm and Non-Eligible Enterprise

    This rule revises the definition of ``Family farm'' in 7 CFR 
761.2(b) to clarify that for FLP purposes, a farm must not be a non-
eligible enterprise, which includes those farms that do not produce 
agricultural commodities for uses associated with human consumption, 
fiber, or draft \2\ use. Some operations may be agricultural in nature, 
but the intended use of the commodity is not for human consumption, 
fiber, or draft use. Those operations are not eligible for FLP 
assistance as they are considered a ``non-eligible enterprise'' as 
defined in 7 CFR 761.2(b). For example, a rancher who raises primarily 
rodeo livestock for sport purposes is not eligible for FLP assistance 
as it is considered a non-eligible enterprise. This rule revises the 
definitions of family farm and non-eligible enterprise to clarify that 
the agricultural commodities must be produced for the use of food, 
fiber, or draft.
---------------------------------------------------------------------------

    \2\ Draft use means domesticated animals used for working 
purposes, most typically in drawing heavy loads and heavy labor.
---------------------------------------------------------------------------

Definition of Feasible Plan

    This rule amends the definition of ``Feasible plan'' in 7 CFR 
761.2(b) to clarify that when unequal or interest-only installments are 
scheduled during the initial year(s) of the farm operating plan, a cash 
flow budget or farm operating plan must be prepared that reflect a 
typical cycle. This change is consistent with the requirement for other 
situations in which the planned cash flow budget or farm operating plan 
is atypical, for example, due to cash or inventory on hand, new 
enterprises, carryover debt, atypical planned purchases, or important 
operating changes.

Definition of Good Faith

    This rule amends the definition of ``Good faith'' in 7 CFR 761.2(b) 
to clarify that instances of fraud, waste, or conversion, if 
substantiated by a legal opinion from the Office of General Counsel 
(OGC), are an additional independent basis when determining if an 
applicant or borrower has acted in good faith. To demonstrate good 
faith an applicant or borrower must adhere to all written agreements 
with FSA, including any loan agreements, security instruments, farm 
operating plans, and agreements for use of proceeds. Many actions that 
qualify as fraud, waste, or conversion also constitute a clear 
violation of FSA's loan agreement, security instruments, farm operation 
plans, and agreements for use of proceeds, in which case substantiation 
by a legal opinion from OGC will not be needed.

Definition of Participated in the Business Operations of a Farm

    This rule amends the definition of ``Participated in the business 
operations of a farm'' in 7 CFR 761.2(b) to clarify that owning a farm 
does not necessarily mean an individual has participated in the 
business operations of a farm. For example, an absentee landowner who 
has not been involved in operating, producing, laboring, or making 
decisions related to operating a farm

[[Page 65030]]

may not possess the necessary experience to ensure a reasonable 
prospect of loan repayment. A landowner without experience related to 
managerial or operational responsibilities of a farm or specific farm 
training does not satisfy the definition. This definition applies only 
to the direct loan eligibility, which requires certain managerial 
experience and direct farm ownership experience from applicants in 
order to ensure a reasonable prospect of success in the proposed 
farming operations and, therefore, a reasonable prospect of loan 
repayment.

Definitions of Related by Blood or Marriage and Relative

    The CONACT requires that loans be provided to operators of family 
farms, and allows for applications from entities, provided that the 
majority interest is held by members that will operate the farm or are 
related by blood or marriage, as defined by the Secretary. Family farms 
often consist of familial relationships beyond traditional immediate 
family members, for example, parent and child, and increasingly include 
cousins, half-siblings, and in-laws. To clarify that farm loan 
assistance is available to family farms comprised of a variety of 
familial relations, this rule amends the definitions of ``Related by 
Blood or Marriage'' and ``Relative'' in 7 CFR 761.2(b) to include 
additional familial relationships. These expanded definitions will 
allow FSA to expand program access and support generational transfers 
and succession planning.

Definition of Youth Loan

    The 2014 Farm Bill removed requirements that an individual must 
reside in a rural location to be eligible for a ``Youth loan.'' While 
FSA has administratively adopted this change since 2014, FSA will 
formally recognize the updated definition in 7 CFR 761.2(b) with this 
clarification. Furthermore, FSA removes the term ``Rural youth,'' as it 
is no longer a requirement after the 2014 Farm Bill change.

Clarify Analysis Requirements

    In the FSA final rule published on August 9, 2021, FSA amended 
analysis requirements in 7 CFR 761.105(a). The process for completing 
the analysis in 7 CFR 761.105(b) was not amended consistent with those 
changes at that time so FSA is clarifying in this rule how the analysis 
will be completed. A typical analysis includes a review of the prior 
production cycle's actual income, expense, and production performance, 
as well as a farm operating plan for the new operating cycle. These 
financial documents should be prepared by the borrower, with FSA 
assistance when necessary. Under the regulation, a financial analysis 
is required if a new direct loan or subordination request is made, or 
if the account is, or was recently, financially distressed or 
delinquent. However, an analysis may also be required if FSA believes 
it is necessary to assist with developing an operation or to address 
concerns regarding borrower compliance with agreements. FSA also 
removes references to ``year-end'' analysis in 7 CFR 761.105 to avoid 
confusion regarding the potential timing of a required analysis.
    The regulation in 7 CFR 765.101(c) requires a borrower to submit 
all information that FSA requests in conjunction with the routine 
review of the borrower's financial condition. A review of Federal 
income tax returns is an important component to ensure that FSA can 
complete an accurate analysis. This rule clarifies that, in alignment 
with current practice, borrowers should expect and be prepared to 
comply with a request for Federal income tax returns as part of the 
review of the borrower's financial condition.

Credit Elsewhere Determinations

    With the exception of conservation loans, direct farm loan 
eligibility criteria require applicants to be unable to obtain 
sufficient credit elsewhere to finance their actual needs at reasonable 
rates and terms. FSA does not specifically require written denial 
letters from area lenders for an applicant to qualify for assistance, 
except in unique circumstances, such as to comply with statutory 
requirements for EMs.
    Some applicants are able to obtain credit from other sources, but 
the rates and terms offered by those creditors may be at excessive 
interest rates with unreasonable fees, terms, or collateral 
requirements that are inconsistent with regional agricultural lending 
standards and do not meet the needs of the applicant. To aid in 
determining whether or not available credit elsewhere is reasonable, 
this rule clarifies 7 CFR 764.51(b)(6) and 764.101(e)(1) to require FSA 
approval officials to analyze the rates and terms of available credit 
to ensure they support the generation of a reasonable amount of cash 
flow margin to increase working capital reserves and savings necessary 
for operational stability and growth, including reasonable savings for 
retirement and education. This rule clarifies that for the rates and 
terms of external credit to be reasonable it must provide a reasonable 
opportunity for long-term growth. FSA approval officials will determine 
a reasonable amount of cash flow margin to increase working capital 
reserves and savings by referencing available resources, including 
regional lending standards and farm financial and classification 
ratios.

Direct Loan Making and Servicing Application Requirements

    A complete analysis of a farming operation often requires a review 
of existing and proposed real estate and equipment leases. 
Additionally, FSA has regularly required submission of documents such 
as contracts or purchase options, especially when the contract or 
option is related to property for which the loan is requested. This 
rule adds 7 CFR 766.102(a)(8) and revises 7 CFR 764.51(b)(10) to 
clarify that an applicant must provide leases, contracts, options, or 
other agreements to FSA, upon request, as part of a complete direct 
loan making or servicing application. Additionally, this rule revises 7 
CFR 764.51(b)(10) to clarify that the requested documents are those 
that are associated with the borrower's ``operation.''
    This rule also amends 7 CFR 766.102(a) to correct a reference to an 
obsolete regulation, and to remove the requirement for borrowers to 
sign an acknowledgement form to request direct loan servicing, as the 
acknowledgement has been consolidated into the FSA-2001 application for 
direct loan servicing, which is required for all such requests.

Direct Loan Eligibility--Entity Credit History

    An applicant's credit history is considered in nearly every 
lender's analysis of risk associated with the extension of credit. FSA 
also considers credit history when determining an applicant's 
eligibility for direct loans. To qualify for a direct loan from FSA an 
applicant must demonstrate acceptable credit history. However, unlike 
many commercial lenders, FSA does not base an ultimate eligibility 
decision on the applicant's credit score. FSA does not find an 
applicant's credit history to be unacceptable if the applicant has no 
record of past credit, or if an applicant has a history of failure to 
repay past debts due to circumstances outside of the applicant's 
control.
    Since family farms do not always obtain debt that demonstrates 
relevant credit history in the name of the applicant entity, FSA must 
assess the credit history of the underlying entity members in order to 
adequately assess

[[Page 65031]]

credit worthiness requirements. FSA is amending 7 CFR 764.101(d) to 
clarify the current and historic requirement that in the case of an 
entity, all individual entity members must satisfy credit history 
requirements. The clarification will more closely align the credit 
history eligibility standard with other eligibility criteria that more 
clearly specify the individual entity member requirements.

Guaranteed Loan Eligibility--Credit History

    All guaranteed loan applicants must meet basic eligibility 
criteria. Two of the existing criteria require that an applicant must 
not have caused FSA a previous loss (except in limited circumstances), 
and the applicant must meet creditworthiness requirements by 
demonstrating a successful history of repaying debts as they come due. 
Applicants sometimes repay previous losses to the government, but 
creditworthiness requirements still must be assessed to ensure the 
applicant represents a good prospect of loan repayment. This rule 
amends 7 CFR 762.120 to clarify even if a previous loss is repaid, the 
applicant must still satisfy creditworthiness requirements in order to 
receive new guaranteed loan assistance.

Direct Loan Eligibility--Managerial Ability

    Farmers experience significantly different challenges compared to 
other business operators. To assist direct loan applicants to be 
successful and to manage FSA's credit risk, eligible direct loan 
applicants must demonstrate that they possess sufficient managerial 
ability to ensure reasonable prospects of loan repayment. Applicants 
may demonstrate the required managerial ability in a variety of ways, 
including through education, on-the-job training, and actual farming 
experience (7 CFR 764.101(i)).
    Entity applicants are required to demonstrate managerial 
experience. Entity structures cannot possess experience, but rather it 
is the individual entity members who possess the managerial ability 
necessary to satisfy the requirements. FSA is clarifying the CONACT 
requirement that for an entity applicant to satisfy the managerial 
ability eligibility requirement, the individuals holding a majority 
interest in the entity must possess the required experience.
    FSA is clarifying that a history of an entity applicant simply 
owning a farm does not necessarily satisfy managerial ability 
requirements. As discussed above, amendments to the definition of 
``Participated in the Business Operations of a Farm'' clarify that 
simply owning a farm does not necessarily mean an individual has 
participated in the business operations. Consistent with this 
definition change and the reasons discussed above, the word ``owner'' 
has been removed from 7 CFR 764.101(i)(3).
    FSA is also clarifying the lookback period for FSA to consider 
prior farming experience for an applicant to meet the eligibility 
requirement based on farming experience prior to the date of the direct 
loan application in 7 CFR 764.101(i)(3). There has been confusion among 
applicants due to the use of two different lookback periods for similar 
experience requirements in the regulations. For certain specific direct 
FO experience requirements, the lookback period is 10 years, yet the 
lookback period for farming experience to meet the general managerial 
ability requirement has been 5 years. FSA is amending the lookback 
period for farming experience to meet the general managerial ability 
requirement from 5 years to 10 years to align more closely with the 
farm experience eligibility requirement specific to direct FO 
applicants, as provided in 7 CFR 764.152(d). FSA recognizes that 
increasingly available online education resources and mentorship 
opportunities can ensure applicants have a reasonable prospect for 
success, even if their actual farming managerial experience was gained 
more than 5, but less than 10, years ago. Accordingly, FSA is confident 
that expanding the general managerial ability experience lookback 
period to align with the FO lookback period will expand opportunity for 
applicant access to credit.

Microloan (ML)-OL and Indian Tribal Land Acquisition Program (ITLAP) 
Interest Rate Clarification

    The CONACT provides a special interest rate for ML-OL in Section 
316(a)(2). ITLAP is authorized outside of the CONACT, but loans made 
under ITLAP are subject to the interest rate provisions under the 
CONACT applicable to the low-income farm ownership loan program at 
Section 307(a)(3)(B) that provides a reduced interest rate for limited 
resource applicants. In both cases, the interest rate formula is 
inherently ambiguous, making it difficult to determine the appropriate 
interest rate for these direct loans. FSA is amending 7 CFR 
764.254(a)(4) and 770.6(b) to clarify that the interest rate for ML-OLs 
and ITLAP is equal to the existing OL rate and FO rate, respectively, 
but not to exceed 5 percent. This change will resolve the existing 
confusion about the requirements and benefit applicants by providing a 
rate ceiling that is consistent with the reasonable historic 
interpretation of the CONACT interest rate formula. The CONACT does not 
provide for a special interest rate for ML-FOs. FSA will continue to 
determine the ML-FO rate using the same methodology as a regular FO.

Transfer and Assumption Application Requirements

    This rule adds 7 CFR 765.402(f) and (g), 765.403(f) and (g), and 
765.404(g) to clarify that transfer and assumption requests require a 
complete application from transferees to ensure borrower eligibility 
and the feasibility of the operation, and to clarify that all direct 
loan security must be transferred to the new borrower as a condition of 
approval.

Equitable Relief Technical Corrections

    The equitable relief provisions published in 7 CFR 768.1 on March 
9, 2022 (87 FR 13117-13127) require minor technical correction to 
clarify in 7 CFR 768.1(a) that equitable relief may be considered for 
the borrower or borrower's loan due to noncompliance with either legal 
or regulatory requirements.

Notice and Comment, Effective Date, and Exemptions

    The Administrative Procedure Act (APA, 5 U.S.C. 553) provides that 
the notice and comment and 30-day delay in the effective date 
provisions do not apply when the rule involves a matter relating to 
agency management or personnel or to public property, loans, grants, 
benefits, or contracts. This rule involves a program for loans and thus 
falls within the exemption for rules related to loans. FSA is 
requesting comments on this rule to determine if additional 
improvements need to be made in the future to the regulations.
    This rule is exempt from the regulatory analysis requirements of 
the Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the 
Small Business Regulatory Enforcement Fairness Act of 1996.
    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (also known as the Congressional Review Act) requires a 
delay in the effective date for 60 days from the date of publication to 
allow for Congressional review of rules that meet the criteria 
specified in 5 U.S.C. 804(2). The Office of Information and Regulatory 
Affairs has determined that this rule does not meet the criteria in 5 
U.S.C. 804(2).

[[Page 65032]]

    Therefore, this rule is effective September 25, 2024.

Executive Orders 12866, 13563, and 14904

    Executive Order 12866 (as amended by Executive Order 14904), 
``Regulatory Planning and Review,'' and Executive Order 13563, 
``Improving Regulation and Regulatory Review,'' direct agencies to 
assess all costs and benefits of available regulatory alternatives and, 
if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasized the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility.
    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866, ``Regulatory Planning and 
Review,'' and therefore, OMB has reviewed this rule. The costs and 
benefits of this rule are summarized below. The full cost benefit 
analysis is available on regulations.gov.

Cost Benefit Analysis Summary

    The cost benefit analysis covers implementation of an improved 
approach to loan servicing for FSA farm loan programs that is designed 
to remove barriers to capital access and increase flexibilities for 
borrowers. This new approach includes a newly created DBSA Program that 
can be used by both distressed and delinquent borrowers. In addition, 
numerous modifications to existing programs are being made that offer 
borrowers greater flexibility and improve their amount of working 
capital--regardless of whether they are distressed or delinquent.
    All changes to the loan programs that are anticipated to impact the 
net present value of the cost of providing loans, loan guarantees, or 
modification therefore, will be incorporated into subsidy cost for each 
relevant risk category and cohort year of loans or loan guarantees.\3\ 
While the effective date for this final rule is September 25, 2024, 
USDA's ability to modify outstanding loans and loan guarantees, and 
enter into obligation for new loans and loan guarantees with the 
revised provisions specified in this final rule are subject to 2 U.S.C. 
661(D) and 661b(a), and OMB Circular A-11 section 185.3(s).
---------------------------------------------------------------------------

    \3\ The definition of subsidy cost and other relevant guidance 
to Federal agencies regarding the calculation of subsidy rates, 
modification costs estimates, and other aspects of FCRA 
implementation are specified in OMB Circular A-11 section 185.
---------------------------------------------------------------------------

    The changes in this final rule are consistent with numerous aspects 
of FSA's ongoing efforts to remove barriers to capital access and 
increase opportunities for FLP borrowers to be successful. The subsidy 
rate and cost impact of the changes in this final rule vary across the 
types of changes, including some increases and decreases. Specifically, 
introducing more flexible repayment terms is expected to increase 
income receipts and reduce program subsidy costs for several direct 
loan programs. Several changes, such as reduced security requirements 
and flexible repayment terms are also expected to increase subsidy 
costs as a result of increased losses or decreased recoveries. FSA 
anticipates administrative savings from reduced workload in processing 
primary loan servicing and monitoring security instruments and an 
overall reduction in burden. burden.
    Prior to this rule, only PLS and the DSA Program were available to 
help distressed borrowers on an ongoing basis. PLS involves 
restructuring the loan, usually by deferring some or all of the 
borrower's upcoming installment payments to the end of the loan term. 
Alternatively, if the borrower is operating in a county that is 
declared a major disaster, they can apply for loan servicing through 
the DSA Program. If the borrower selects PLS, they must provide a 
significant amount of financial information and develop a projection of 
income and expenses for the next year.
    With this rule, DBSA offers both distressed and delinquent direct 
borrowers--along with FSA field staff--a more streamlined opportunity 
to help navigate financial difficulties. DBSA allows financially 
distressed or delinquent direct loan borrowers--with FOs, OLs, CLs, 
SWs, or EMs--to request a one-time deferral of a delinquent or upcoming 
annual installment. The amount of the deferral is limited to the lesser 
of the amount of the annual installment or the unpaid balance remaining 
on the installment at the time the DBSA is approved. The amount 
deferred has a reduced interest rate of 0.125 percent, the lowest 
interest rate authorized by the CONACT.
    DBSA only applies to outstanding loans as of September 25, 2024, 
the date the rule becomes effective, and as a result, the cost of 
implementing the regulation (loan modification cost) reflects:
    (1) the reduction in the present value of interest receipts (due to 
the 0.125 percent noted above), and
    (2) the reduction in the present value of principal installments 
over the life of DBSA.
    Consequently, FSA will pay the for the modification cost of DBSA 
upfront using funds from section 22006 of the Inflation Reduction Act.
    In addition to DBSA, the rule contains interrelated provisions that 
provide borrowers with expanded opportunities to allocate working 
capital toward long-term financial goals. For example, the rule 
provides all direct loan applicants the option to receive flexible 
repayment terms for most loan requests (including interest-only 
payments during the first year, partial principal payments, and longer 
loan maturity terms). These flexibilities free up some of the 
borrowers' funds that would otherwise have been used to make larger 
loan payments. Funds can be used to ensure that their farm operating 
plan budgets have additional funding to increase working capital 
reserves and savings, including reasonable savings for retirement and 
education. These changes are expected to increase interest payments to 
USDA, which would reduce program subsidy costs, but the changes are 
also expected to result in an increase in defaults and would increase 
subsidy costs. Implementation of the changes in this rule are subject 
to FSA reflecting subsidy costs in accordance with 2 U.S.C. 661(D) and 
661b(a), and OMB Circular A-11 section 185.3(s).
    Further, the rule lowers the security margin required of the 
borrower from 150 to 125 percent at the time of loan origination, while 
still requiring all loans to be fully secured. If the applicant does 
not have sufficient assets to achieve this security margin, FSA still 
provides the loan as long as there is adequate security to ensure a 100 
percent security margin. However, if additional security is available, 
FSA currently requires a lien on additional security assets in order to 
achieve a 150 percent security margin. A requirement this high, 
however, can hinder the ability of customers to leverage assets into 
additional growth opportunities. In addition, FSA will no longer take 
the primary residence as additional security and will not require non-
real estate assets to be pledged as additional security for real estate 
loans. The rule also expands the opportunity for a borrower to request 
a partial release of certain security if they have a demonstrated 
history of positive repayment with FSA for the previous 36 months 
(including scheduled principal reductions) and the loan will still be 
adequately secured after the release. FSA currently allows for the 
release of unnecessary security in limited

[[Page 65033]]

circumstances, but this provision will facilitate the process for all 
borrowers who have several years of successful loan repayment. While 
these security changes can have significant benefit to borrowers, they 
are expected to result in a reduction in recoveries, which would 
increase subsidy costs. Implementation of the changes in this rule are 
subject to FSA reflecting subsidy costs in accordance with 2 U.S.C. 
661(D) and 661b(a), and OMB Circular A-11 section 185.3(s).
    In addition to the more significant items above, the rule is making 
changes to other direct and guaranteed loan provisions. For example, 
the rule clarifies that catastrophic medical expenses for the care of a 
family member of the borrower or entity member could be a justification 
for financial distress and makes them eligible for PLS; the maximum 
value of youth loans is increased from $5,000 to $10,000 to account for 
inflation; and other minor changes. The cost impact from these smaller 
changes is expected to be de minimus.

Environmental Review

    The environmental impacts of this final rule have been considered 
in a manner consistent with the provisions of the National 
Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations 
of the Council on Environmental Quality (40 CFR parts 1500-1508), and 
the FSA regulation for compliance with NEPA (7 CFR part 799). The DBSA 
Program is being implemented as a servicing tool to help financially 
distressed borrowers. In addition to adding DBSA, FSA is making 
discretionary changes throughout the FLP regulations to clarify and 
amend existing delivery processes, program requirements, and technical 
corrections or clarifications.
    The provisions of this rule regarding DBSA is covered by the 
Categorical Exclusions, found in 7 CFR part 799.31(b)(1)(iii) for debt 
set-asides when no Extraordinary Circumstances (Sec.  799.33) exist. 
The discretionary changes to the regulations are covered by the 
Categorical Exclusions, found in 7 CFR 799.31(b)(3)(i) for issuing 
minor technical corrections to regulations, handbooks, and internal 
guidance, as well as amendments to regulations when no Extraordinary 
Circumstances (Sec.  799.33) exist.
    Through this review, FSA has determined that neither the 
implementation of the DBSA Program and the participation in the DBSA 
Program, nor the discretionary changes to the regulations, constitutes 
major Federal actions that would significantly affect the quality of 
the human environment, individually or cumulatively. Therefore, FSA 
will not prepare an environmental assessment or environmental impact 
statement for this rule; this rule serves as documentation of the 
programmatic environmental compliance decision for this Federal action.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials that 
would be directly affected by proposed Federal financial assistance. 
The objectives of the Executive Order are to foster an 
intergovernmental partnership and a strengthened Federalism, by relying 
on State and local processes for State and local government 
coordination and review of proposed Federal Financial assistance and 
direct Federal development. For reasons specified in the final rule 
related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June 
24, 1983), the programs and activities within this rule are excluded 
from the scope of Executive Order 12372.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, ``Civil Justice Reform.'' This rule will not preempt State or 
local laws, regulations, or policies unless they represent an 
irreconcilable conflict with this rule. Before any judicial actions may 
be brought regarding the provisions of this rule the administrative 
appeal provisions of 7 CFR part 11 and 780 are to be exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, on the relationship between the 
Federal government and the States, or the distribution of power and 
responsibilities among the various levels of government, except as 
required by law. Nor does this rule impose substantial direct 
compliance costs on State and local governments. Therefore, 
consultation with the States is not required.

Executive Order 13175

    This rule has been reviewed for compliance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires federal agencies 
to consult and coordinate with Tribes on a government-to-government 
basis on policies that have Tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian Tribes, on the relationship between the Federal Government 
and Indian Tribes or on the distribution of power and responsibilities 
between the Federal Government and Indian Tribes.
    FSA has assessed the impact of this rule on Indian Tribes and 
determined that this rule does not, to our knowledge, have significant 
Tribal implications that require ongoing adherence to Executive Order 
13175 at this time. Tribal governments are not eligible for FSA direct 
and guaranteed loans, so the reach of this rule and impact with Tribes 
is somewhat limited. Tribes are eligible for FSA's Highly Fractionated 
Indian Land Loan Program (HFIL) and ITLAP. USDA and FSA have conducted 
a series of Tribal consultations to obtain input from Tribes and Native 
producers on our FSA loan programs.
    Specifically, we received considerable feedback in 2021, 2022, and 
2023 on how USDA can better incorporate traditional foods into FPAC 
programs as a whole. In fact, one of the top four tribal barriers in 
2021 USDA Tribal Consultations was the need to improve and expand 
support for traditional foods and food ways into FSA and FPAC programs.
    In response, in 2022, Administrator Zach Ducheneaux formalized an 
advisory group of the leadership team to address recommendations by 
Tribal leadership in USDA Tribal Consultations, reduce barriers to 
program participation and implement priorities for Indian Country. In 
the 2022 and 2023 USDA Tribal Consultations, USDA requested more 
specific input from Tribal leaders on traditional food ways and crops, 
including wild rice, that Tribal Nations seek to be added into USDA 
programs.
    As a result, this rule includes wild rice and other Tribal foraging 
practices in Indian Country where it was previously excluded. This is 
one of the actions FSA has made to be more inclusive to Tribal 
agricultural producers in indigenous ways in broadly applicable loan 
programs by improving the interpretation of the authorizing law in the 
regulation. If a Tribe requests further consultation, FSA will 
coordinate with the USDA Office of Tribal Relations to ensure 
meaningful consultation is provided where changes, additions, and 
modifications are not expressly mandated by law.

[[Page 65034]]

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year 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 in Title II of UMRA 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, as found 
in the Assistance Listing \4\ to which this rule applies are:
---------------------------------------------------------------------------

    \4\ See https://sam.gov/content/assistance-listings.
---------------------------------------------------------------------------

    10.099 Conservation Loans;
    10.404 Emergency Loans;
    10.406 Farm Operating Loans; and
    10.407 Farm Ownership Loans.

Paperwork Reduction Act

    For the various regulatory changes being made by this rule, FSA 
will continue to use some forms that already are currently approved 
under the OMB control number of 0560-0233, 0560-0237 and 0560-0238.
    This rule does not change the following approved information 
collection under OMB control numbers:
     0560-0155, Guaranteed Farm Loan Programs, OMB Expiration 
Date of November 2026;
     0560-0233, Farm Loan Programs--Direct Loan Servicing, OMB 
Expiration Date of October 2024;
     0560-0237, Farm Loan Programs--Direct Loan Making, OMB 
Expiration Date of January 2026;
     0560-0238, Farm Loan Programs--General Program 
Administration, OMB Expiration Date of October 2026; and
     0560-0317, Online Loan Application, OMB Expiration Date of 
November 2026.
    For the information collection changes related to the existing 
approvals under 0560-0155, Guaranteed Farm Loan Programs, and 0560-
0317, Online Loan Application, there are no new forms, no changes in 
the per response time for the information collection activities, and 
not changes in the number of respondents.
    For the information collection changes related to the existing 
approval under 0560-0233, operationally, there is a potential increase 
of approximately 2,000 in the number of respondents, related to an 
increase in the requests for DBSA and DSA. The approved burden 
estimates for 0560-0233 includes 8,692 DSA applications annually. 
Actual requests over the last 5 years have averaged 786 applications, 
so the anticipated increase in requests is well within the existing 
approved burden estimate.
    For the information collection changes related to the existing 
approval under 0560-0236, operationally, there is a potential increase 
in requests for security releases and leasing of property. The approved 
burden estimates for 0560-0236 includes 455 requests for lease security 
annually. Actual lease security requests have averaged less than 100, 
so the anticipated increase in requests is well within the existing 
approved burden estimate. As explained below, the form used for 
requesting security releases is expected to increase in the number of 
respondents beyond what is currently approved for the form under 0560-
0236.
    For the information collection changes related to the existing 
approval under 0560-0237, operationally, FSA expects an increase in the 
actual number of respondents due to increasing the youth loan limit. 
This might increase the youth loan demand by a few hundred 
applications. The approved burden estimates for 0560-0237 includes 
4,410 applications annually. The 5-year average has only been 2,056 
applications, so the anticipated increase in youth loans is well within 
the existing approved burden estimate.
    This rule does increase the expected number of respondents who will 
request a release of security using form FSA-2061--Application for 
partial release or consent. That form is approved under OMB 0560-0236, 
Farm Loan Programs: Direct Loan Servicing, Regular. FSA requested an 
emergency approval from OMB to cover the increase of the borrowers in 
using a release of security (Form FSA-2061--Application for partial 
release or consent). The rest of this section provides the information 
related to the requests for comments for these changes.

Information Collection Request; Request for Comments

    FSA is requesting comments from all interested individuals and 
organizations on a new information collection associated with the 
release of security (the form FSA-2061) for the Direct Loan Servicing--
Regular information collection activity. This rule expands 
opportunities to release liens on additional collateral for borrowers 
with a demonstrated history of successful direct loan repayment. After 
3 years of successful loan repayment and principal reduction, a 
borrower can request FSA to release liens on additional security items 
provided the loan will continue to be fully secured. The borrower 
formally requests to be considered for a release of security using form 
FSA-2061--Application of Partial Release or Consent. FLP anticipates an 
increase in the use of the FSA-2061 as more borrowers will be able to 
qualify for a lien release than before.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: This information collection is required to support Direct 
Loan Servicing--Regular information collection activity to cover the 
increase of the borrowers to qualify for a lien release.
    For the following estimated total annual burden on respondents, the 
formula used to calculate the total burden hour is the estimated 
average time per response multiplied by the estimated total annual 
responses.
    Public reporting burden for this information collection is 
estimated to average 0.50 hours per response.
    Type of Respondents: Producers or farmers.
    Estimated Annual Number of Respondents: 4,747.
    Estimated Number of Reponses per Respondent: 1.
    Estimated Total Annual Responses: 4,747.
    Estimated Average Time per Response: 0.50 hours.
    Estimated Total Annual Burden on Respondents: 2,374.
    FSA is 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 the functions of the FSA, including whether 
the information will have practical utility;
    (2) Evaluate the accuracy of the 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

[[Page 65035]]

    (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 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.

USDA Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family or parental status, income derived from a public 
assistance program, political beliefs, or reprisal or retaliation for 
prior civil rights activity, in any program or activity conducted or 
funded by USDA (not all bases apply to all programs). Remedies and 
complaint filing deadlines vary by program or incident.
    Individuals who require alternative means of communication for 
program information (for example, braille, large print, audiotape, 
American Sign Language, etc.) should contact the responsible Agency or 
the USDA TARGET Center at (202) 720-2600 (voice and text telephone 
(TTY)) or dial 711 for Telecommunications Relay Service (both voice and 
text telephone users can initiate this call from any telephone). 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and 
at any USDA office or write a letter addressed to USDA and provide in 
the letter all the information requested in the form. To request a copy 
of the complaint form, call (866) 632-9992. Submit your completed form 
or letter to USDA by: (1) mail to: U.S. Department of Agriculture, 
Office of the Assistant Secretary for Civil Rights, 1400 Independence 
Avenue SW, Washington, DC 20250-9410; (2) fax: (202) 690-7442; or (3) 
email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs--agriculture, Rural areas.

7 CFR Parts 764 Through 766 and 768 Through 770

    Agriculture, Credit, Loan programs--agriculture.
    For the reasons discussed above, FSA amends 7 CFR chapter VII as 
follows:

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTATION

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.

Subpart A--General Provisions

0
2. Amend Sec.  761.2 as follows:
0
a. In the undesignated introductory paragraph, remove the words ``767 
and'';
0
b. In paragraph (a) add the abbreviation for DBSA in alphabetical 
order; and
0
c. In paragraph (b):
0
i. In the definition of ``Administrative appraisal review'', 
redesignate paragraphs (1) and (2) as paragraphs (i) and (ii);
0
ii. In the definition of ``Agricultural commodity'', remove the words 
``forage, nursery'' and add ``forage, ornamental plants, nursery'' in 
their place;
0
iii. Revise the definition of ``Beginning farmer'';
0
iv. Add a definition of ``Commercially foraged'' in alphabetical order;
0
v. Revise the definition of ``Debt forgiveness'';
0
vi. Remove the definition of ``Debt writedown'';
0
vii. Add the definitions of ``Debt write-down'' and ``Distressed 
Borrower Set-Aside'' in alphabetical order;
0
viii. Revise the definition of ``Equitable relief'';
0
ix. Revise the definition of ``Essential family living and farm 
operating expenses'';
0
x. In the definition of ``Established farmer'', redesignate paragraphs 
(1) through (6) as paragraphs (i) through (vi);
0
xi. Revise the definition of ``Family farm'';
0
xii. In the definition of ``Farm Ownership loan'', remove the word 
``Downpayment'' and add ``Down Payment'' in its place;
0
xiii. Revise the definition of ``Feasible plan;
0
xiv. In the definition of ``Financially viable operation'', redesignate 
paragraphs (1) through (4) as paragraphs (i) through (iv);
0
xv. Revise the definition of ``Good faith'';
0
xvi. Add definitions of ``Indian land'' and ``Indian Tribe'' in 
alphabetical order;
0
xvii. In the definition of ``Limited resource interest rate'', 
redesignate paragraphs (1) and (2) as paragraphs (i) and (ii);
0
xviii. Revise the definitions of ``Non-eligible enterprise'', ``Non-
essential assets'', ``Normal production yield'', ``Participated in the 
business operations of a farm'', ``Primary loan servicing programs'', 
``Related by blood or marriage'', and ``Relative'';
0
xix. Remove the definition of ``Rural youth'';
0
xx. In the definition of ``Restructuring'', remove the word 
``writedown'' and add ``write-down'' in its place;
0
xxi. In the definition of ``Shared Appreciation Agreement'', remove the 
word ``writedown'' and add ``write-down'' both places it occurs; and
0
xxii. In the definition of ``Youth loan'', remove the word ``rural''.
    The additions and revisions read as follows.


Sec.  761.2  Abbreviations and definitions.

* * * * *
    (a) * * *
    DBSA Distressed Borrower Set-Aside.
* * * * *
    (b) * * *
    Beginning farmer is an individual or entity who:
    (i) Meets the loan eligibility requirements for a direct or 
guaranteed CL, FO, or OL, as applicable;
    (ii) Has not operated a farm for more than 10 years. This 
requirement applies to all members of an entity;
    (iii) Will materially and substantially participate in the 
operation of the farm:
    (A) In the case of a loan made to an individual, individually or 
with the family members, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm, consistent with the practices in the county or 
State where the farm is located; or
    (B) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm. 
Material and substantial participation requires that the member provide 
some amount of the management, or labor and management necessary for 
day-to-day activities, such that if the individual did not provide 
these inputs, operation of the farm would be seriously impaired;

[[Page 65036]]

    (iv) Agrees to participate in any loan assessment and borrower 
training required by Agency regulations;
    (v) Except for an OL applicant, does not own real farm property or 
who, directly or through interests in family farm entities owns real 
farm property, the aggregate acreage of which does not exceed 30 
percent of the average farm acreage of the farms in the county where 
the property is located. If the farm is located in more than one 
county, the average farm acreage of the county where the applicant's 
residence is located will be used in the calculation. If the 
applicant's residence is not located on the farm or if the applicant is 
an entity, the average farm acreage of the county where the major 
portion of the farm is located will be used. The average county farm 
acreage will be determined from the most recent Census of Agriculture;
    (vi) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the applicant to enter or 
continue farming on a viable scale; and
    (vii) In the case of an entity:
    (A) All the members are related by blood or marriage; and
    (B) All the members are beginning farmers.
    Commercially foraged means the harvesting of naturally occurring 
plants, or plantlike material, including fungi, that develop with 
limited management of the resource.
    Debt forgiveness means the reduction or termination of a debt under 
the Act in a manner that results in a loss to the Agency:
    (i) Debt forgiveness includes:
    (A) Writing down or writing off a debt pursuant to 7 U.S.C. 2001;
    (B) Cancellation of remaining amounts owed after compromising, 
adjusting, reducing, or charging off a debt or claim pursuant to 7 
U.S.C. 1981;
    (C) Paying a loss pursuant to 7 U.S.C. 2005 on a FLP loan 
guaranteed by the Agency;
    (D) Discharging a debt as a result of bankruptcy; or
    (E) Releases of liability which result in a loss to the Agency.
    (ii) Debt forgiveness does not include:
    (A) Debt reduction through a conservation contract;
    (B) Any write-down provided as part of the resolution of a 
discrimination complaint against the Agency;
    (C) Prior debt forgiveness that has been repaid in its entirety;
    (D) Consolidation, rescheduling, reamortization, or deferral of a 
loan; and
    (E) Forgiveness of a YL debt due to circumstances beyond the 
borrower's control.
    Debt write-down means the reduction of the borrower's debt to that 
amount the Agency determines to be collectible based on an analysis of 
the security value and the borrower's ability to pay.
    Distressed borrower set-aside means the deferral of payment of an 
annual loan installment to the Agency to the end of the loan term in 
accordance with part 766, subpart J, of this chapter.
    Equitable relief means relief provided in accordance with part 7 
CFR 768.1.
    Essential family living and farm operating expenses means those 
expenses that:
    (i) Are those that are basic, crucial, or indispensable;
    (ii) Are determined by the Agency based on the following 
considerations:
    (A) The specific borrower's operation;
    (B) What is typical for that type of operation in the area; and
    (C) What is an efficient method of production considering the 
borrower's resources; and
    (iii) Include, but are not limited to, essential: Household 
operating expenses; food, including lunches; clothing and personal 
care; health and medical expenses, including medical insurance; house 
repair and sanitation; school and religious expenses; transportation; 
hired labor; machinery repair; farm building and fence repair; interest 
on loans and credit or purchase agreement; rent on equipment, land, and 
buildings; feed for animals; seed, fertilizer, pesticides, herbicides, 
spray materials and other necessary farm supplies; livestock expenses, 
including medical supplies, artificial insemination, and veterinarian 
bills; machinery hire; fuel and oil; taxes; water charges; personal, 
property and crop insurance; auto and truck expenses; and utility 
payments.
* * * * *
    Family farm means a business operation that:
    (i) Produces agricultural commodities, including agricultural 
commodities commercially foraged on Indian land for the purposes of 
OLs, for sale in sufficient quantities so that it is recognized as a 
farm rather than a rural residence or non-eligible enterprise;
    (ii) Has both physical labor and management provided as follows:
    (A) The majority of day-to-day, operational decisions, and all 
strategic management decisions are made by:
    (1) The borrower, with input and assistance allowed from persons 
who are either related by blood or marriage to an individual borrower; 
or
    (2) The members responsible for operating the farm, in the case of 
an entity; and
    (B) A substantial amount of labor to operate the farm is provided 
by:
    (1) The borrower, with input and assistance allowed from persons 
who are either related by blood or marriage to an individual borrower; 
or
    (2) The members responsible for operating the farm, in the case of 
an entity;
    (iii) May use full-time hired labor in amounts only to supplement 
family labor; and
    (iv) May use reasonable amounts of temporary labor for seasonal 
peak workload periods or intermittently for labor intensive activities.
* * * * *
    Feasible plan means when an applicant or borrower's cash flow 
budget or farm operating plan indicates that there is sufficient cash 
inflow to pay all cash outflow. If a loan approval or servicing action 
exceeds one production cycle and the planned cash flow budget or farm 
operating plan is atypical due to an interest-only or otherwise unequal 
installment, cash or inventory on hand, new enterprises, carryover 
debt, atypical planned purchases, important operating changes, or other 
reasons, a cash flow budget or farm operating plan must be prepared 
that reflects a typical cycle. If the request is for only one cycle, a 
feasible plan for only that production cycle is required for approval.
* * * * *
    Good faith means when an applicant or borrower provides current, 
complete, and truthful information when applying for assistance and in 
all past dealings with the Agency and adheres to all written agreements 
with the Agency including loan agreements, security instruments, farm 
operating plans, and agreements for use of proceeds. If the borrower's 
inability to adhere to all agreements is due to circumstances beyond 
the borrower's control, the Agency will consider the borrower to have 
acted in good faith. In addition, the Agency may also consider fraud, 
waste, or conversion actions when determining if an applicant or 
borrower has acted in good faith. Such determinations of fraud, waste, 
or conversion that are substantiated by a legal opinion from OGC 
constitute an independent basis for determinations of not having acted 
in good faith.
* * * * *
    Indian land, for the purposes of the definition of ``family farm'' 
in this section, means land, or an interest therein, that is:
    (i) Owned by an Indian Tribe;

[[Page 65037]]

    (ii) Owned by an Indian Tribe and is subject to restrictions 
against alienation or encumbrance by the United States; or
    (iii) Held in trust by the United States for an Indian Tribe.
* * * * *
    Indian Tribe means any Indian Tribe, band, nation, pueblo, or other 
organized group or community, including any Alaska Native village or 
regional corporation as defined in or established pursuant to the 
Alaska Native Claims Settlement Act (43 U.S.C. 1601-1629h), which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.
* * * * *
    Non-eligible enterprise means a business that meets the criteria in 
any one of the following categories:
    (i) Produces exotic animals, birds, or aquatic organisms or their 
products that may be agricultural in nature, but are not primarily 
associated with agricultural production, for example, there is no 
established or stable market for them, or production is speculative in 
nature;
    (ii) Produces animals, birds, or aquatic organisms ordinarily used 
for pets, companionship, sport, or pleasure and not primarily 
associated with human consumption, fiber, or draft use;
    (iii) Primarily markets goods or provides services which might be 
agriculturally related, but are not produced by the farming operation; 
or
    (iv) Processes or markets farm products when the majority of the 
commodities processed or marketed are not produced by the farming 
operation.
    Non-essential assets mean assets in which the borrower has an 
ownership interest, that:
    (i) Do not contribute to:
    (A) Income to pay essential family living expenses, or
    (B) The farming operation; and
    (ii) Are not exempt from judgment creditors or in a bankruptcy 
action.
* * * * *
    Normal production yield means, as used in 7 CFR part 764 for EMs:
    (i) The per acre actual production history of the crops produced by 
the farming operation used to determine Federal crop insurance payments 
or payment under the Noninsured Crop Disaster Assistance Program for 
the production year during which the disaster occurred;
    (ii) The applicant's own production records, or the records of 
production on which FSA Farm Program payments are made contained in the 
applicant's Farm Program file, if available, for the previous 3 years, 
when the actual production history in paragraph (i) of this definition 
is not available;
    (iii) The county average production yield, when the production 
records outlined in paragraphs (i) and (ii) of this definition are not 
available.
    Participated in the business operations of a farm means that an 
individual has:
    (i) Been the manager or operator of a farming operation for the 
year's complete production cycle as evidenced by tax returns, FSA farm 
records or similar documentation;
    (ii) Been employed as a farm manager or farm management consultant 
for the year's complete production cycle; or
    (iii) Participated in the operation of a farm by virtue of being 
raised on a farm or having worked on a farm (which can include a farm-
related apprenticeship, internship, or similar educational program with 
applied work experience) with significant responsibility for the day-
to-day decisions for the year's complete production cycle, which may 
include selection of seed varieties, weed control programs, input 
suppliers, livestock feeding programs, or decisions to replace or 
repair equipment.
    Primary loan servicing programs means:
    (i) Loan consolidation and rescheduling, or reamortization;
    (ii) Interest rate reduction, including use of the limited resource 
rate program;
    (iii) Deferral;
    (iv) Write-down of the principal or accumulated interest; or
    (v) Any combination of paragraphs (i) through (iv) of this 
definition.
    Related by blood or marriage is being connected to one another as 
husband, wife, parent, child, brother, sister, uncle, aunt, 
grandparent, son, daughter, sibling, stepparent, stepson, stepdaughter, 
stepbrother, stepsister, half-brother, half-sister, son-in-law, 
daughter-in-law, father-in-law, mother-in-law, nephew, niece, cousin, 
grandson, granddaughter, or the spouses of any of those individuals. 
``Related by blood or marriage'' is used for consistency with a 
requirement in the CONACT. It has the same meaning as the word 
``relative'' for the Farm Loan Programs regulations in this Chapter.
    Relative means the spouse and anyone having one of the following 
relationships to an applicant or borrower: parent, son, daughter, 
sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister, 
half-brother, half-sister, son-in-law, daughter-in-law, father-in-law, 
mother-in-law, uncle, aunt, nephew, niece, cousin, grandparent, 
grandson, granddaughter, or the spouses of any of those individuals. 
Relative has the same meaning as the term ``related by blood or 
marriage'' for the Farm Loan Programs regulations in this Chapter.
* * * * *

Subpart C--Progression Lending


Sec.  761.102  [Amended]

0
3. In Sec.  761.102, amend paragraph (b)(1) by removing the word 
``year-end analyses,''.

0
4. Amend Sec.  761.103 as follows:
0
a. In paragraph (a)(3), remove the word ``progressive'' and add 
``progression'' in its place, and remove the words ``in the shortest 
time practicable'' and add ``at reasonable rates and terms'' in their 
place; and
0
b. Revise paragraphs (b)(3) and (c)(3) and (4).
    The revisions read as follows:


Sec.  761.103  Farm assessment.

* * * * *
    (b) * * *
    (3) The short- and long-term goals of the operation, including 
goals to reasonably increase working capital reserves and savings, 
including reasonable savings for retirement and education, to support 
operational stability and growth, and goals for progression towards 
graduation to commercial credit or eventual self-financing;
* * * * *
    (c) * * *
    (3) The short- and long-term goals of the operation, including 
goals to reasonably increase working capital reserves and savings, 
including reasonable savings for retirement and education, to support 
operational stability and growth, and goals for progression towards 
graduation to commercial credit or eventual self-financing;
    (4) The short- and long-term financial viability of the farming 
operation, including a marketing plan, and available production 
history, as applicable;
* * * * *

0
5. Amend Sec.  761.104 as follows.
0
a. Redesignate paragraphs (f) and (g) as paragraphs (g) and (h), 
respectively;
0
b. Add new paragraph (f); and
0
c. In newly redesignated paragraph (g), remove ``paragraph (g)'' and 
add in its place ``paragraph (h)'' in its place.
    The addition reads as follow.


Sec.  761.104  Developing the farm operating plan.

* * * * *
    (f) Development of farm operating plans and determination of 
appropriate repayment terms must include

[[Page 65038]]

consideration of a reasonable amount of cash flow margin to increase 
working capital reserves and savings, including reasonable savings for 
retirement and education, to support operational stability and growth.
* * * * *

0
6. Amend Sec.  761.105 as follows:
0
a. Revise the section heading;
0
b. In paragraph (a), remove the words ``a year-end'' and add ``an'' in 
its place; and
0
c. Revise paragraph (b).
    The revisions read as follows:


Sec.  761.105  Analysis.

* * * * *
    (b) The analysis must include a review of the previous production 
cycle's actual income, expense, and production performance, as well as 
a farm operating plan for the new operating cycle.

PART 762--GUARANTEED FARM LOANS

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

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

0
8. In Sec.  762.120, add paragraph (a)(3) to read as follows:


Sec.  762.120  Applicant eligibility.

    (a) * * *
    (3) If the debt forgiveness is resolved by repayment of the 
Agency's loss, the Agency may still consider the debt forgiveness in 
determining the applicant's creditworthiness.
* * * * *

0
9. In Sec.  762.124 revise paragraph (e)(1) to read as follows:


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

* * * * *
    (e) * * *
    (1) Extended repayment schedules may include equal, unequal, or 
balloon installments if needed by a borrower on any guaranteed loan to 
establish a new enterprise, develop a farm, recover from a disaster or 
an economical reversal, or reasonably increase cash flow margin to 
increase working capital reserves and savings, including reasonable 
savings for retirement and education.
* * * * *

0
10. Amend Sec.  762.142 as follows:
0
a. In paragraph (c)(1)(iii), remove the words ``the debt of another 
lender'' and add ``debt'' in their place;
0
b. In paragraph (c)(3)(ii), remove the words ``to allow another 
lender'';
0
c. In paragraph (d)(1), remove the words ``For standard eligible and 
CLP lenders, the'' and add ``The'' in their place;
0
d. Revise paragraph (d)(2);
0
e. Remove paragraph (d)(3);
0
f. Redesignate paragraphs (d)(4) through (10) as paragraphs (d)(3) 
through (9), respectively; and
0
g. Revise newly redesignated paragraph (d)(5).
    The revisions read as follows.


Sec.  762.142  Servicing related to collateral.

* * * * *
    (d) * * *
    (2) The transferee must apply for a loan in accordance with Sec.  
762.110, and provide any other information requested by the Agency to 
evaluate the transfer and assumption request. A current appraisal is 
required unless the lien position of the guaranteed loan will not 
change.
* * * * *
    (5) The transferee must meet the eligibility requirements and loan 
limitations for the loan being transferred, including all requirements 
relating to loan rates and terms, loan security, feasibility, and 
environmental and other laws applicable to an applicant under this 
part, except for a current appraisal when permitted in paragraph (d)(2) 
of this section.
* * * * *

0
11. Amend Sec.  762.145 as follows:
0
a. In paragraph (a)(3)(i), remove the words ``write down'' and add 
``write-down'' in their place;
0
b. In paragraph (a)(3)(ii), remove the word ``writedown'' and add 
``write-down'' in its place;
0
c. In paragraph (a)(3)(iii), remove the words ``write down'' and add 
``write-down'' in its place;
0
d. Revise paragraph (b)(4);
0
e. In paragraph (b)(7), remove the words ``take a lien on all assets 
and'';
0
f. In paragraph (e), remove the word ``writedown'' wherever it appears 
and add ``write-down'' in its place;
0
g. In paragraph (e)(1), remove the words ``write down'' and add 
``write-down'' in its place;
0
h. In paragraph (e)(2), remove the word ``writedown'' and add ``write-
down'' in its place;
0
i. In paragraph (e)(7), remove the word ``writedown'' and add ``write-
down'' in its place both times it appears;
0
j. In paragraph (e)(8), remove the word ``writedown'' and add ``write-
down'' in its place;
0
k. In paragraph (e)(9), remove the word ``writedown'' wherever it 
appears and add ``write-down'' in its place;
0
l. In paragraph (e)(10), remove the word ``writedown'' and add ``write-
down'' in its place both times it appears;
0
m. In paragraph (e)(12)(ii), remove the word ``writedown'' and add 
``write-down'' its place;
0
n. In paragraph (e)(12)(iii) introductory text, remove the word 
``writedown'' and add ``write-down'' in its place and
0
o. In paragraph (e)(12)(iii)(C), remove the word ``writedown'' and add 
``write-down'' in its place.
    The revisions read as follows:


Sec.  762.145  Restructured guaranteed loans.

* * * * *
    (b) * * *
    (4) Loans can be restructured using a balloon payment, equal 
installments, or unequal installments. Under no circumstances may crops 
or livestock, other than breeding livestock, be the only security for a 
loan to be rescheduled using a balloon payment. If a balloon payment is 
used, the projected value of the security must indicate that the loan 
will be fully secured when the balloon payment becomes due. The 
projected value will be derived from a current appraisal adjusted for 
depreciation of depreciable property, such as buildings and other 
improvements, that occurs until the balloon payment is due. For other 
security, a current appraisal is required. The lender is required to 
project the security value at the time the balloon payment is due based 
on the remaining life of the security, or the depreciation schedule on 
the borrower's Federal income tax return. Loans restructured with a 
balloon payment that are secured by real estate will have a minimum 
term of 5 years, and other loans will have a minimum term of 3 years 
before the scheduled balloon payment. If statutory limits on terms of 
loans prevent the minimum terms, balloon payments may not be used. If 
the loan is rescheduled with unequal installments, a feasible plan, as 
defined in Sec.  762.2(b), must be projected for when installments are 
scheduled to increase.
* * * * *


Sec.  762.147  [Amended]

0
12. In Sec.  762.147, amend paragraphs (b)(2)(i) and (iv) by removing 
the word ``writedown'' and adding ``write-down'' in their places.


Sec.  762.150  [Amended]

0
13. In Sec.  762.150, amend paragraph (j) by removing the word 
``writedown'' wherever it appears and adding ``write-down'' in its 
place.

PART 764--DIRECT LOAN MAKING

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

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

[[Page 65039]]

Subpart B--Loan Application Process

0
15. In Sec.  764.51, revise paragraphs (b)(6) and (10) to read as 
follows:


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 guaranteed by the Agency. 
The authorized Agency official will evaluate and document whether or 
not rates and terms of available credit in the applicant's region will 
result in a reasonable amount of cash flow margin to increase working 
capital reserves and savings, including reasonable savings for 
retirement and education, to support operational stability and growth;
* * * * *
    (10) A legal description of the farm property owned or to be 
acquired and, upon Agency request, any leases, contracts, options, and 
other agreements related to the operation;
* * * * *

Subpart C--Requirements for All Direct Program Loans

0
16. Amend Sec.  764.101 as follows:
0
a. Revise paragraphs (d), (e)(1), and (i);
0
b. In paragraph (l), remove the word ``ownnership'' and add 
``ownership'' in its place.
    The revisions read as follows:


Sec.  764.101  General eligibility requirements.

* * * * *
    (d) Credit history. The applicant, and all entity members in the 
case of an entity, must have acceptable credit history demonstrated by 
debt repayment.
    (1) As part of the credit history, the Agency will determine 
whether the applicant, and all entity members in the case of an entity, 
will carry out the terms and conditions of the loan and deal with the 
Agency in good faith. In making this determination, the Agency may 
examine whether the applicant, and all entity members in the case of an 
entity, has properly fulfilled its obligations to other parties, 
including other agencies of the Federal Government.
    (2) When the applicant, or an entity member in the case of an 
entity, caused the Agency a loss by receiving debt forgiveness, the 
applicant may be ineligible for assistance in accordance with 
eligibility requirements for the specific loan type. If the debt 
forgiveness is cured by repayment of the Agency's loss, the Agency may 
still consider the debt forgiveness in determining the applicant's 
credit worthiness.
    (3) A history of failures to repay past debts as they came due will 
demonstrate unacceptable credit history when the ability to repay was 
within the control of the applicant, or entity member in the case of an 
entity. The circumstances in paragraphs (d)(3)(i) through (iv) of this 
section, for example, do not automatically indicate an unacceptable 
credit history:
    (i) Foreclosures, judgments, delinquent payments which occurred 
more than 36 months before the application, if no recent similar 
situations have occurred, or Agency delinquencies that have been 
resolved through loan servicing programs available under 7 CFR part 
766;
    (ii) Isolated incidents of delinquent payments which do not 
represent a general pattern of unsatisfactory or slow payment;
    (iii) ``No history'' of credit transactions; and
    (iv) Recent foreclosure, judgment, bankruptcy, or delinquent 
payment of the applicant, or an entity member in the case of an entity, 
when it can be satisfactorily demonstrated that the adverse action or 
delinquency was caused by circumstances that were of a temporary nature 
and beyond the individual's control; or the result of a refusal to make 
full payment because of defective goods or services or other 
justifiable dispute relating to the purchase or contract for goods or 
services.
* * * * *
    (e) * * *
    (1) Loan amounts, rates, and terms available in the marketplace. 
The authorized Agency official will evaluate and document whether rates 
and terms of available credit will result in a reasonable amount of 
cash flow margin to increase working capital reserves and savings, 
including reasonable savings for retirement and education, to support 
operational stability and growth; and
* * * * *
    (i) Managerial ability. The applicant, and in the case of an 
entity, the individuals holding a majority interest in the entity, must 
have sufficient managerial ability to assure reasonable prospects of 
loan repayment, as determined by the Agency. Managerial ability must be 
demonstrated by:
    (1) Education. For example, the applicant or entity member obtained 
a 4-year college degree in agricultural business, horticulture, animal 
science, agronomy, or other agricultural-related field;
    (2) On-the-job training. For example, the applicant or entity 
member is currently working on a farm as part of an apprenticeship 
program;
    (3) Farming experience. For example, the applicant or entity member 
has been a manager or operator of a farm business for at least one 
entire production cycle or for MLs, made for OL purposes, the applicant 
may have obtained and successfully repaid one FSA Youth-OL. Farm 
experience of the applicant, without regard to any lapse of time 
between the farm experience and the new application, will be taken into 
consideration in determining loan eligibility. If farm experience 
occurred more than 10 years prior to the date of the new application, 
the applicant must demonstrate sufficient on-the-job training or 
education within the last 10 years to demonstrate managerial ability; 
or
    (4) Alternatives for MLs made for OL purposes. Applicants for MLs 
made for OL purposes, also may demonstrate managerial ability by one of 
the following:
    (i) Certification of a past participation with an agriculture-
related organization, such as, but not limited to, 4-H Club, FFA, 
beginning farmer and rancher development programs, or Community Based 
Organizations, that demonstrates experience in a related agricultural 
enterprise; or
    (ii) A written description of a self-directed apprenticeship 
combined with either prior sufficient experience working on a farm or 
significant small business management experience. As a condition of 
receiving the loan, the self-directed apprenticeship requires that the 
applicant seek, receive, and apply guidance from a qualified person 
during the first cycle of production and marketing typical for the 
applicant's specific operation. The individual providing the guidance 
must be knowledgeable in production, management, and marketing 
practices that are pertinent to the applicant's operation, and agree to 
form a developmental partnership with the applicant to share knowledge, 
skills, information, and perspective of agriculture to foster the 
applicant's development of technical skills and management ability.
* * * * *

0
17. In Sec.  764.103, revise paragraph (c) to read as follows:


Sec.  764.103  General security requirements.

* * * * *
    (c) An additional amount of security will be required, if 
available, to reach a 125 percent security margin. Total loan

[[Page 65040]]

security in excess of what is needed to achieve a security margin of 
125 percent will only be taken when it is not practicable to separate 
the security, or if necessary to satisfy the requirements of Sec.  
764.254(b)(2)(i). Loans that do not require additional security are 
down payment loans, MLs, youth loans, and FOs for the purchase of a 
farm where the applicant provides a cash down payment equal to 5 
percent or greater of the purchase price. Non-real estate assets will 
not be taken as additional security for any loan where real estate 
serves as adequate security.

0
18. Amend Sec.  764.106 as follows:
0
a. Revise paragraph (d); and
0
b. In paragraph (e), remove the words ``accounts, personal'' and add 
``accounts, education savings accounts, personal'' in their place.
    The revision reads as follows:


Sec.  764.106  General real estate security requirements.

* * * * *
    (d) Unless the applicant provides a written request for an 
exemption, when the property includes the primary personal residence 
and appurtenances of the applicant or any entity member(s) and:
    (1) They are located on a separate parcel of up to the greater of 
10 acres or the minimum size that meets all State and local 
requirements for a division into a separate legal lot; and
    (2) The security requirements of Sec.  764.103(b) can be satisfied 
without the use of the primary personal residence and appurtenances;
* * * * *

Subpart D--Farm Ownership Loan Program


Sec.  764.152  [Amended]

0
19. Amend Sec.  764.152 as follows:
0
a. In paragraph (d) introductory text, remove the words ``one or more 
members constituting a majority interest'' and add ``at least one 
member who will be the operator of the family farm'' in their place; 
and
0
b. In paragraph (d)(2), remove the word ``applicant'' and add 
``applicant, or in the case of an entity at least one member who will 
be the operator of the family farm,'' in its place.

0
20. In Sec.  764.154, revise paragraph (b) to read as follows:


Sec.  764.154  Rates and terms.

* * * * *
    (b) Terms. The repayment terms are:
    (1) The standard repayment term of an FO will be equal to the 
useful life of the security or 40 years, whichever is less. Repayment 
terms less than the standard term must be requested by the applicant in 
writing. In no event will the term be more than 40 years from the date 
of the note. Repayment schedules may include equal installments, or 
unequal installments if needed to establish a new enterprise, develop a 
farm, recover from a disaster or economic reversal, or reasonably 
increase cash flow margin to increase working capital reserves and 
savings, including reasonable savings for retirement and education. 
Notwithstanding any other provision of this section, repayment 
schedules must be designed to ensure the loan is fully secured for the 
life of the loan.
    (2) The first installment of an FO will be an interest-only 
installment scheduled 12 months from the date of loan closing. An 
alternative repayment agreement that schedules the first installment 
sooner than 12 months from the date of closing, or in an amount greater 
than interest-only, may be provided upon written request from the 
applicant, or if the Agency determines it necessary to ensure the loan 
is fully secured for the life of the loan.
    (3) The minimum scheduled installments for the first 3 years of an 
FO must be the interest accrued on the principal balance. Interest-only 
installments may be permitted for additional years, if determined 
necessary by the Agency, to establish a new enterprise where production 
income is delayed, to develop a farm, or to recover from a disaster or 
economic reversal.

Subpart G--Operating Loan Program

0
21. In Sec.  764.251, revise paragraph (a)(11) to read as follows:


Sec.  764.251  Operating loan uses.

    (a) * * *
    (11) Costs for minor real estate repairs or improvements, provided 
the loan is made primarily for agricultural purposes and can be repaid 
within 7 years. In the case of leased property, the applicant must have 
a lease to ensure use of the improvement over its useful life or to 
ensure that the applicant receives compensation for any remaining 
economic life upon termination of the lease.

0
22. Amend Sec.  764.254 as follows:
0
a. Revise paragraphs (a)(4), (b)(1) introductory text, (i), and (2); 
and
0
b. Add paragraphs (b)(3) and (4).
    The revisions and addition read as follows:


Sec.  764.254  Rates and terms.

    (a) * * *
    (4) The Agency's Direct ML-OL interest rate on an ML to a beginning 
farmer or veteran farmer is available in each Agency office. The 
interest rate will be the lower of the regular direct OL interest rate 
in effect at the time of loan approval or loan closing, or 5 percent.
    (b) * * *
    (1) The Agency schedules repayment of OL loans made for annual farm 
operating and family living expenses when planned income is projected 
to be available.
    (i) The term of the loan may not exceed 24 months from the date of 
the note, except as provided in paragraph (b)(1)(ii) of this section.
* * * * *
    (2) The standard repayment term of all other OLs must be equal to 
the useful life of the security or 7 years, whichever is less. 
Repayment terms less than the standard term must be requested by the 
applicant in writing. In no event will the term of the loan exceed 7 
years from the date of the note. Repayment schedules may include equal 
installments, or unequal or balloon installments if needed to establish 
a new enterprise, develop a farm, recover from a disaster or economic 
reversal, or reasonably increase cash flow margin to increase working 
capital reserves and savings, including reasonable savings for 
retirement and education. Notwithstanding any other provision of this 
section, repayment schedules must be designed to ensure the loan is 
fully secured for the life of the loan. Loans with balloon 
installments:
    (i) Must be secured by an amount projected at the time of loan 
closing to be at least equal to the direct loan balance outstanding at 
the time the balloon installment comes due, which may exceed the 
additional security requirements of Sec.  764.103(c) of this chapter. 
Total loan security in excess of the requirements of this provision 
(paragraph (b)(2)(i) of this section) will only be taken when it is not 
practicable to separate the security. Crops, livestock other than 
breeding stock, or livestock products produced are not adequate 
collateral for such loans.
    (ii) Are only authorized when the applicant can project the ability 
to refinance or restructure the remaining debt at the time the balloon 
payment comes due based on the expected financial condition of the 
operation, the depreciated value of the collateral, and the principal 
balance on the loan.
    (iii) Are not authorized when loan funds are used for real estate 
repairs or improvements.
    (3) The first installment of an OL, for purposes other than annual 
farm operating and family living expenses,

[[Page 65041]]

will be an interest-only installment scheduled 12 months from the date 
of loan closing. An alternative repayment agreement that schedules the 
first installment sooner than 12 months from the date of closing, or in 
an amount greater than interest-only, may be provided upon written 
request from the applicant, or if the Agency determines it necessary to 
ensure the loan is fully secured for the life of the loan.
    (4) The minimum scheduled installments for the first 3 years of an 
OL, for purposes other than annual farm operating and family living 
expenses, must be the interest accrued on the principal balance. 
Interest-only installments may be permitted for additional years, if 
determined necessary by the Agency, to establish a new enterprise where 
production income is delayed, to develop a farm, or to recover from a 
disaster or economic reversal.

0
23. Amend Sec.  764.255 as follows:
0
a. Revise paragraph (b) introductory text;
0
b. In paragraph (c)(1), remove ``amount, and up to 150 percent, when 
available'' and add ``amount'' in its place.
0
c. Revise paragraph (c)(2); and
0
d. Add paragraph (d).
    The revisions and addition read as follows:


Sec.  764.255  Security requirements.

* * * * *
    (b) Except for MLs or OLs made for the purpose of minor real estate 
repairs or improvements, by a:
* * * * *
    (c) * * *
    (2) For loans made for purposes other than annual operating 
purposes or for the purpose of minor real estate repairs or 
improvements, loans must be secured by a first lien on farm property or 
products purchased with loan funds and having a security value of at 
least 100 percent of the loan amount.
* * * * *
    (d) For OLs made for the purpose of minor real estate repairs or 
improvements, the Agency must obtain a lien on the real estate repaired 
or improved in accordance with the requirements of Sec.  764.104, while 
also ensuring the provisions of Sec.  764.103(b) requiring adequate 
security are satisfied.

Subpart H--Youth Loan Program


Sec.  764.303  [Amended]

0
24. In Sec.  764.303, amend paragraph (b) by removing ``$5,000'' and 
adding ``$10,000'' in its place.

Subpart I--Emergency Loan Program


Sec.  764.352  [Amended]

0
25. Amend Sec.  764.352 as follows:
0
a. In paragraph (f) remove the words ``write down'' and add ``write-
down'' their place; and
0
b. In paragraph (h) remove the words ``at least 30 percent''.


Sec.  764.353  [Amended]

0
26. In Sec.  764.353, amend paragraph (c)(4) by removing the words 
``other disaster'' and removing the word ``production''.

0
27. Amend Sec.  764.354 as follows:
0
a. Revise paragraphs (b)(1), (3), (4), and (5); and
0
b. Add paragraphs (b)(6) and (7).
    The revisions and addition read as follows.


Sec.  764.354  Rates and terms.

* * * * *
    (b) * * *
    (1) The Agency schedules repayment of EMs based on the useful life 
of the security and the type of loss.
* * * * *
    (3) EMs for annual farm operating and family living expenses, 
except expenses associated with establishing a perennial crop that are 
subject to paragraph (b)(4), must be repaid within 12 months. The 
Agency may extend this term to not more than 24 months to accommodate 
the production cycle of the agricultural commodities.
    (4) The standard repayment term of an EM for production losses or 
physical losses to chattel security (including assets with an expected 
life between 1 and 7 years) will be equal to the useful life of the 
security or 7 years, whichever is less. Repayment terms less than the 
standard term must be requested by the applicant in writing. The Agency 
may extend the repayment term up to a total length not to exceed 20 
years, if adequate security is available, and repayment schedules may 
include equal installments, or unequal installments, if needed to 
establish a new enterprise, develop a farm, recover from a disaster or 
economic reversal, or reasonably increase cash flow margin to increase 
working capital reserves and savings, including reasonable savings for 
retirement and education, and security is adequate to support the term 
of the loan. Notwithstanding any other provision of this section, 
repayment schedules must be designed to ensure the loan is fully 
secured for the life of the loan.
    (5) The standard repayment term of an EM for physical losses to 
real estate will be equal to the useful life of the security or 40 
years, whichever is less. Repayment terms less than the standard term 
must be requested by the applicant in writing. In no event will the 
term be more than 40 years from the date of the note, and repayment 
schedules may include equal installments, or unequal installments, if 
needed to establish a new enterprise, develop a farm, recover from a 
disaster or economic reversal, or reasonably increase cash flow margin 
to increase working capital reserves and savings, including reasonable 
savings for retirement and education, and security is adequate to 
support the term of the loan. Notwithstanding any other provision of 
this section, repayment schedules must be designed to ensure the loan 
is fully secured for the life of the loan.
    (6) The first installment of an EM, for purposes other than annual 
farm operating and family living expenses, will be an interest-only 
installment scheduled 12 months from the date of loan closing. An 
alternative repayment agreement that schedules the first installment 
sooner than 12 months from the date of closing, or in an amount greater 
than interest-only, may be provided upon written request from the 
applicant, or if the Agency determines it necessary to ensure the loan 
is fully secured for the life of the loan.
    (7) The minimum scheduled installments for the first 3 years of an 
EM, for purposes other than annual farm operating and family living 
expenses, must be the interest accrued on the principal balance. 
Interest-only installments may be permitted for additional years, if 
determined necessary by Agency, to establish a new enterprise where 
production income is delayed, to develop a farm, or to recover from a 
disaster or economic reversal.

Subpart J--Loan Decision and Closing


Sec.  764.402  [Amended]

0
28. In Sec.  764.402, amend paragraph (d)(3)(vii) by removing the words 
``related as a family member'' and adding ``a relative'' in their 
place.

Subpart K--Borrower Training and Training Vendor Requirements


Sec.  764.451  [Amended]

0
29. In Sec.  764.451, amend the undesignated introductory paragraph by 
removing the words ``production and financial management'' and adding 
it with ``borrower'' in its place.


Sec.  764.452  [Amended]

0
30. Amend Sec.  764.452 as follows:
0
a. In paragraph (a), remove the words ``production and'';

[[Page 65042]]

0
b. In paragraph (a)(2), remove the words ``production or''
0
c. Remove paragraphs (b) and (d);
0
d. Redesignate paragraph (c) as paragraph (b); and
0
e. Redesignate paragraphs (e) through (g) as paragraphs (c) through 
(e).


Sec.  764.453  [Amended]

0
31. Amend Sec.  764.453 as follows:
0
a. In paragraph (b), remove the words ``production, financial 
management, or both,'' and add ``financial management'' in their place.
0
b. In paragraph (c), remove the words ``production and''.


Sec.  764.455  [Amended]

0
32. Amend Sec.  764.455 by removing the words ``production and''.


Sec.  764.457  [Amended]

0
33. Amend Sec.  764.457 as follows:
0
a. Remove paragraph (b)(6);
0
b. In paragraph (b)(4), add the word ``and'' at the end;
0
c. In paragraph (b)(5), remove the word ``; and'' and add a period in 
its place;
0
d. Remove paragraph (c)(3); and
0
e. In paragraph (c)(1), remove the word ``planning.'' and adding 
``planning; or'' in its place.

PART 765--DIRECT LOAN SERVICING--REGULAR

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

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

Subpart C--Borrower Graduation

0
35. In Sec.  765.101, revise paragraph (c) to read as follows:


Sec.  765.101  Borrower graduation requirements.

* * * * *
    (c) The borrower must submit all information that the Agency 
requests in conjunction with the review of the borrower's financial 
condition, including Federal income tax returns.
* * * * *

0
36. Revise Sec.  765.102 to read as follows:


Sec.  765.102  Borrower non-compliance with graduation requirements.

    (a) Borrower failure to fulfill all graduation requirements, 
including failure to submit information as specified in Sec.  
765.101(c) of this chapter, within the time-period specified by the 
Agency constitutes default on the loan. Except as provided in paragraph 
(b) of this section, the Agency will accelerate the borrower's loan 
without offering servicing options provided in 7 CFR part 766 if any 
outstanding direct loan was closed prior to September 25, 2024.
    (b) If all outstanding direct loans were closed after September 25, 
2024, or when the borrower makes a written request in response to the 
Agency's notification of intent to accelerate within provided 
timeframes, the Agency will convert the debt to a non-program loan 
under the following conditions:
    (1) It is in the interest of the Agency;
    (2) The debt will be subject to the interest rate for non-program 
loans in effect at the time of default;
    (3) The debt will be serviced as a non-program loan; and
    (4) The term of the non-program loan will be:
    (i) For FOs, the Agency will schedule repayment in equal 
installments over the lesser of the remaining number of years on the 
loan, the useful life of security, or 25 years.
    (ii) For OLs, the Agency will schedule repayment in equal 
installments over the lesser of the remaining number of years on the 
loan, the useful life of security or 5 years.

Subpart E--Protecting the Agency's Security Interest

0
37. Amend Sec.  765.205 as follows:
0
a. Redesignate paragraphs (b) through (d) as paragraphs (c) through 
(e), respectively; and
0
b. Add a new paragraph (b).
    The addition reads as follows.


Sec.  765.205  Subordination of liens.

* * * * *
    (b) Incomplete applications. Incomplete applications will be 
processed in accordance with 7 CFR 764.52.
* * * * *

Subpart F--Required Use and Operation of Agency Security

0
38. Amend Sec.  765.252 as follows:
0
a. In paragraph (a)(3), remove the word ``and'';
0
b. In paragraph (a)(4), remove the words ``the operation'' and add 
``the Agency's security'' in their place, and remove the period at the 
end of the paragraph.
0
c. In paragraph (a)(5), remove the word ``Government'' and add 
``Agency'' in its place; and
0
d. Revise paragraph (c).
    The revision reads as follows.


Sec.  765.252  Lease of security.

* * * * *
    (c) Lease of chattel security. The borrower must request prior 
approval to lease chattel security. The Agency will approve requests 
provided the following conditions are met:
    (1) The term of lease does not exceed 12 months and does not 
automatically renew;
    (2) The lease does not contain an option to purchase;
    (3) The lease does not hinder the future operation or success of 
the farm, or, if the borrower has ceased to operate the farm, the 
requirements specified in Sec.  765.253 are met;
    (4) The lease must be in the best interest of the Agency as 
determined by the authorized Agency official;
    (5) Leased security must be accessible and readily identifiable at 
all times. Leased livestock must be branded, tagged, or be otherwise 
specifically identifiable; and
    (6) The lease and any contracts or agreements in connection with 
the lease must be reviewed and approved by the Agency.


Sec.  765.303  [Amended]

0
39. Amend Sec.  765.303 as follows:
0
a. In paragraph (c)(2) remove the word ``needs'' and add ``farming 
needs'' in its place; and
0
b. In paragraph (c)(3) remove the word ``needs'' and add ``farming 
needs'' in its place.

0
40. In Sec.  765.305, revise paragraph (c) to read as follows:


Sec.  765.305  Release of security interest.

* * * * *
    (c) The Agency will release its lien on chattel security without 
compensation, after written request from the borrower, provided all the 
following criteria are satisfied:
    (1) The borrower is current on all loan accounts with FSA and has 
not received PLS, DBSA, or DSA on any loan within the last 36 months;
    (2) The borrower has paid in full scheduled direct term loan 
installments that include principal reduction in each of the last 3 
calendar years;
    (3) After the release, the security margin on each Agency direct 
loan will be 125 percent (or more, if it is not practicable to separate 
the property, if necessary to ensure the loan is fully secured for the 
life of the loan, or if the borrower requests only a portion of Agency 
security to be released). The value of the retained and released 
security will normally be based on appraisals obtained as specified in 
Sec.  761.7 of this chapter; however, well-documented recent sales of 
similar properties can be used if the Agency determines a supportable 
decision can be made without current appraisals;
    (4) Any asset requested for release must serve only as security for 
term

[[Page 65043]]

loan(s) that have been outstanding for at least the prior 36 months and 
cannot serve as adequate security for another existing Agency direct 
loan; and
    (5) Except for CL, the borrower is unable to fully graduate as 
specified in Sec.  765.101.

Subpart H--Partial Release of Real Estate Security

0
41. Amend Sec.  765.351 as follows:
0
a. In paragraph (a)(3), remove the words ``received by the borrower'' 
and add ``paid'' in their place; and
0
b. Revise paragraph (f).
    The revision reads as follows.


Sec.  765.351  Requirements to obtain Agency consent.

* * * * *
    (f) Release without compensation. Real estate security may be 
released by FSA without compensation upon written request from the 
borrower when the requirements of paragraph (a) of this section, except 
paragraph (a)(3) of this section, are met, and all the following 
criteria are satisfied:
    (1) The borrower is current on all loan accounts with FSA and has 
not received PLS, DBSA, or DSA on any loan within the last 36 months;
    (2) The borrower has paid in full direct term loan installments 
that include principal reduction in each of the last 3 calendar years;
    (3) The property released will not interfere with access to or 
operation of the remaining farm;
    (4) Essential buildings and facilities will not be released if they 
reduce the utility or marketability of the remaining property;
    (5) Any issues arising due to legal descriptions, surveys, 
environmental concerns, utilities are the borrower's responsibility, 
and no costs or fees will be paid by FSA;
    (6) After the release, the security margin on each Agency direct 
loan will be 125 percent (or more, if it is not practicable to separate 
the property, if necessary to ensure the loan is fully secured for the 
life of the loan, or if the borrower requests only a portion of Agency 
security to be released). The value of the retained and released 
security will normally be based on appraisals obtained as specified in 
Sec.  761.7 of this chapter; however, well-documented recent sales of 
similar properties can be used if the Agency determines a supportable 
decision can be made without current appraisals;
    (7) Any asset requested for release must serve only as security for 
term loan(s) that have been outstanding for at least the prior 36 
months and cannot serve as adequate security for another existing 
Agency direct loan; and
    (8) Except for CL, the borrower is unable to fully graduate as 
specified in Sec.  765.101.

0
42. In Sec.  765.352, add paragraph (a)(4) to read as follows:


Sec.  765.352  Use of proceeds.

* * * * *
    (4) To pay capital gains taxes on real estate transactions when the 
following conditions are met:
    (i) The borrower is unable to obtain commercial credit at 
reasonable rates and terms to pay the capital gains taxes;
    (ii) The Agency approves the amount to be retained to pay capital 
gains taxes;
    (iii) The remaining Agency debt is fully secured;
    (iv) All other lienholders will:
    (A) Be fully satisfied from the sale, or
    (B) Consent to the use of proceeds to be used to pay capital gains 
taxes;
    (v) At the borrower's expense, funds will be held in escrow, or 
deposited in a supervised bank account in accordance with subpart B of 
part 761 of this chapter; and
    (vi) Funds that are not used within 18 months towards the capital 
gains taxes will be remitted to the Agency.

Subpart I--Transfer of Security and Assumption of Debt

0
43. Amend Sec.  765.402 as follows:
0
a. Revise paragraphs (b), (d), and (e)(1); and
0
b. Add paragraphs (f) and (g).
    The revisions and additions read as follows.


Sec.  765.402  Transfer of security and loan assumption on same rates 
and terms.

* * * * *
    (b) A relative of the borrower or an entity comprised solely of 
relatives of the borrower assumes the debt along with the original 
borrower;
* * * * *
    (d) A new entity consisting of the same members as the borrower 
entity buys the borrower entity and continues to operate the farm in 
accordance with loan requirements; or
    (e) * * *
    (1) An individual borrower, the transferee must be a relative of 
the original borrower or an entity in which the entity members are 
comprised solely of relatives of the original borrower.
* * * * *
    (f) Application requirements. Transferees must submit a complete 
application in accordance with Sec.  764.51 of this chapter.
    (g) Security. All security must be transferred to the transferee 
with possession taken in accordance with the requirements of part 764 
of this chapter for the type of loan being assumed.

0
44. In Sec.  765.403, add paragraphs (f) and (g) to read as follows:


Sec.  765.403  Transfer of security to and assumption of debt by 
eligible applicants.

* * * * *
    (f) Application requirements. Transferees must submit a complete 
application in accordance with 7 CFR 764.51.
    (g) Security. All security must be transferred to the transferee 
with possession taken in accordance with the requirements of part 764 
of this chapter for the type of loan being assumed.

0
45. In Sec.  765.404 revise paragraph (d) and add paragraph (g) to read 
as follows.


Sec.  765.404  Transfer of security to and assumption of debt by 
ineligible applicants.

* * * * *
    (d) Down payment. Non-program transferees must make a down payment 
to the Agency of not less than 10 percent of the lesser of the market 
value or unpaid debt.
* * * * *
    (g) Security. All security must be transferred to the transferee 
with possession taken in accordance with the requirements of part 764 
of this chapter for the type of loan being assumed.

PART 766--DIRECT LOAN SERVICING--SPECIAL

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

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

Subpart A--Overview

0
47. In Sec.  766.1, revise paragraph (b)(1)(i) to read as follows.


Sec.  766.1  Introduction.

* * * * *
    (b) * * *
    (1) * * *
    (i) May not receive DSA under subpart B of this part or DBSA under 
subpart J of this part;
* * * * *

Subpart B--Disaster Set-Aside


Sec.  766.52  [Amended]

0
48. Amend Sec.  766.52 as follows:
0
a. In paragraph (b)(3) remove the number ``90'' and add ``150'' in its 
place.
0
b. In paragraph (b)(6) remove the words ``a DSA'' and add ``a DBSA or 
DSA'' in its place.

0
49. Revise Sec.  766.54(b)(2) to read as follows:

[[Page 65044]]

Sec.  766.54  Borrower application requirements.

* * * * *
    (b) * * *
    (2) The borrower must provide any additional information requested 
by the Agency.


Sec.  766.56  [Removed]

0
50. Remove Sec.  766.56.

Subpart C--Loan Servicing Programs

0
51. Amend Sec.  766.101 by adding paragraph (e) to read as follows:


Sec.  766.101  Initial Agency notification to borrower of loan 
servicing programs.

* * * * *
    (e) SED extension authority. In extraordinary circumstances, after 
the application period described in paragraphs (d)(2) and (3) of this 
section has expired, the SED may extend the application deadline when 
requested by the borrower in writing.

0
52. Amend Sec.  766.102(a) as follows:
0
a. Remove paragraph (a)(1);
0
b. Redesignate paragraphs (a)(2) through (8) as paragraphs (a)(1) 
through (7), respectively;
0
c. In newly redesignated paragraph (a)(4) remove the words ``subpart G 
of 7 CFR part 1940'' and add ``part 799 of this chapter'' in their 
place;
0
d. In newly redesignated paragraph (a)(6), remove the words 
``statements; and'' and add ``statements;'' in their place;
0
e. In newly redesignated paragraph (a)(7), remove the period at the end 
and add ``; and'' in its place; and
0
f. Add new paragraph (a)(8).
    The addition reads as follows:


Sec.  766.102  Borrower application requirements.

    (a) * * *
    (8) Upon Agency request, any leases, contracts, options, and other 
agreements related to the operation.

0
53. In Sec.  766.104, amend paragraph (a)(1) as follows:
0
a. In paragraph (a)(1)(iv), remove the word ``or'' at the end;
0
b. In paragraph (a)(1)(v), remove the period at the end; and replace 
with ``; or''; and
0
c. Add paragraph (a)(1)(vi).
    The addition reads as follows.


Sec.  766.104  Borrower eligibility requirements.

    (a) * * *
    (1) * * *
    (vi) Catastrophic medical expenses for the care of a family member 
of the borrower or entity member, in the case of an entity borrower.
* * * * *


Sec.  766.105  [Amended]

0
54. Amend Sec.  766.105 as follows:
0
a. In paragraph (a)(4), remove the word ``Writedown'' and add ``Write-
down'' in its place; and
0
b. In paragraph (c)(1)(i), remove the word ``writedown'' and add 
``write-down'' in its place.


Sec.  766.107  [Amended]

0
55. Amend Sec.  766.107 as follows:
0
a. In paragraph (a)(9), add ``or J'' after ``subpart B'', and remove 
the words ``deferral or DSA'' and add ``deferral, DBSA, or DSA'' in 
their place; and
0
b. In paragraph (b)(6), remove the words ``subpart B of'' and add 
``subpart B or J of'' in their place, and remove the words ``deferral 
or DSA'' and add ``deferral, DBSA, or DSA'' in their place.

0
56. Amend Sec.  766.111 as follows:
0
a. Revise the section heading;
0
b. In paragraph (a), introductory text, remove the word ``writedown'' 
and add ``write-down'' in its place;
0
c. In paragraph (b), introductory text, remove the word ``writedown'' 
and adding ``write-down'' in its place;
0
d. Revise paragraph (b)(1);
0
e. In paragraph (b)(3), remove the word ``writedown'' and add ``write-
down'' in its place.
    The revisions read as follows:


Sec.  766.111  Write-down.

* * * * *
    (b) * * *
    (1) Rescheduling, consolidation, reamortization, deferral or some 
combination of these options on all of the borrower's loans would not 
result in a feasible plan with a 110 percent debt service margin. If a 
feasible plan is achieved with a debt service margin of 101 percent or 
more, the Agency will permit a borrower to accept a non-write-down 
servicing offer and waive the right to a write-down offer when the 
write-down offer will require additional time and appraisals to fully 
develop. If after obtaining an appraisal a feasible plan is achieved 
with and without a write-down and the borrower meets all the 
eligibility requirements, both options will be offered, and the 
borrower may choose one option.
* * * * *

0
57. Revise Sec.  766.112 to read as follows:


Sec.  766.112  Additional security for restructured loans.

    (a) If the borrower is delinquent prior to restructuring, an 
additional amount of security will be required, if available, to reach 
a 125 percent security margin when the Agency is servicing a loan, 
except as provided in paragraph (b) of this section. Total loan 
security in excess of what is needed to achieve a security margin of 
125 percent will only be taken when it is not practicable to separate 
the security.
    (b) The Agency will take the best lien obtainable on assets of the 
borrower and co-borrowers to meet the 125 percent security margin 
requirement, except that the following assets will not be considered 
available to meet this requirement:
    (1) When taking a lien on an asset will prevent the borrower from 
obtaining credit from other sources;
    (2) When an asset could have significant environmental problems or 
costs as described in part 799 of this chapter;
    (3) When the Agency cannot obtain a valid lien;
    (4) When an asset is subsistence livestock, cash, special 
collateral accounts the borrower uses for the farming operation, 
retirement accounts, education savings accounts, personal vehicles 
necessary for family living, household contents, or small equipment 
such as hand tools and lawn mowers; or
    (5) When a contractor holds title to a livestock or crop 
enterprise, or the borrower manages the enterprise under a share lease 
or share agreement.

0
58. In Sec.  766.115, revise paragraphs (a)(1), (2) introductory text, 
(3) introductory text, and (3)(ii) to read as follows.


Sec.  766.115  Challenging the Agency appraisal.

    (a) * * *
    (1) Obtain a USPAP compliant technical appraisal review prepared by 
a State Certified General Appraiser of the Agency's appraisal and 
provide it to the Agency within 90 days of the request for 
reconsideration or appeal and prior to reconsideration or the appeal 
hearing;
    (2) Obtain an independent appraisal within 90 days of the request 
for reconsideration or appeal request and completed in accordance with 
Sec.  761.7 as part of the request or reconsideration or appeals 
process. The borrower must:
* * * * *
    (3) Use the second appraisal completed under paragraph (a)(2) of 
this section to negotiate the Agency's appraisal.
* * * * *
    (ii) If the difference between the two appraisals is greater than 
five percent, the borrower may request a third appraisal within 30 days 
from the date the second appraisal is provided to the Agency. The 
Agency and the borrower will share the cost of the third appraisal

[[Page 65045]]

equally. The average of the two appraisals closest in value will serve 
as the final value.
* * * * *

0
59. Add Sec.  766.120 to read as follows:


Sec.  766.120  Extending maturity date and installment schedule for 
direct loans with a balloon payment.

    (a) At a borrower's written request, the maturity date and 
installment schedule of a direct term loan with a balloon payment may 
be extended for up to an additional 8 years from the original maturity 
date using an addendum to the promissory note when the:
    (1) Loan was originally amortized for no more than 15 years with a 
balloon payment scheduled in the final year of the loan;
    (2) Loan has not received PLS, DBSA, or DSA;
    (3) Borrower has made all scheduled loan installments in the last 
36 months;
    (4) Balloon payment is due in less than 12 months;
    (5) Borrower does not have an outstanding DBSA or DSA on any loan;
    (6) Borrower has not received PLS on any loan in the last 36 
months;
    (7) Borrower has only had equal installments scheduled on any 
direct term loan in the last 36 months;
    (8) Borrower's direct loans are fully secured with each loan having 
a security value of at least 100 percent of the remaining balance of 
the loan;
    (9) Borrower is unable to partially or fully graduate;
    (10) Borrower has acted in good faith;
    (11) Borrower is not otherwise financially distressed or 
delinquent;
    (12) Borrower must pay a portion of the interest due on the loan; 
and
    (13) Addendum is signed by the borrower before the original 
maturity date.
    (b) In no event may the loan exceed applicable term limits 
described in this part.

Subpart E--Servicing Shared Appreciation Agreements and Net 
Recovery Buyout Agreements


Sec.  766.201  [Amended]

0
60. In Sec.  766.201, amend paragraphs (a)(2) and (b) introductory text 
by removing the word ``writedown'' and add ``write-down'' in its 
places.


Sec.  766.203  [Amended]

0
61. In Sec.  766.203, amend paragraphs (a)(1), (2), and (c) by removing 
the word ``writedown'' and adding ``write-down'' in its places.

Subpart H--Loan Liquidation


Sec.  766.351  [Amended]

0
62. In Sec.  766.351, amend paragraph (a)(3) by removing the words 
``family member'' and adding ``relative'' in their place.


Sec.  766.356  [Amended]

0
63. In Sec.  766.356, amend paragraph (b)(1)(iii)(B) by removing the 
word ``writedown'' and adding ``write-down'' in its place.

0
64. Add subpart J, consisting of Sec. Sec.  766.451 to 766.458, to read 
as follows:

Subpart J--DBSA

Sec.
766.451 General.
766.452 Eligibility.
766.453 DBSA amount limitations.
766.454 Borrower application requirements.
766.455 Borrower acceptance of DBSA.
766.456 Payments toward DBSA installments.
766.457 Canceling a DBSA agreement.
766.458 Reversal of DBSA.


Sec.  766.451  General.

    (a) DBSA is available to borrowers with at least one outstanding 
program loan authorized in subtitle A, B, or C of the CONACT (the loan 
must be an OL, FO, CL, SW, or EM), and who are a delinquent borrower or 
financially distressed borrower.
    (b) DBSA is not intended to circumvent other servicing available 
under this part.


Sec.  766.452  Eligibility.

    (a) Borrower eligibility. The borrower must meet all the following 
requirements to be eligible for DBSA:
    (1) The borrower must currently be operating the farm. Farmers who 
have rented out their land base for cash are not considered to be 
operating the farm.
    (2) The borrower must have acted in good faith, and the borrower's 
inability to make the current or upcoming scheduled loan payments must 
be for reasons not within the borrower's control.
    (3) The borrower cannot have more than one DBSA on each loan.
    (4) The borrower does not have sufficient income available to pay 
all family living and farm operating expenses, other creditors, and 
debts to the Agency. This determination will be based on:
    (i) The borrower's actual production, income and expense records; 
and
    (ii) Any other records required by the Agency;
    (5) For the next production cycle, the borrower must develop a 
feasible plan 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 
Agency debts. The borrower must provide documentation required to 
support the farm operating plan.
    (6) The borrower must not be in non-monetary default.
    (7) The borrower must not be ineligible due to disqualification 
resulting from Federal crop insurance violation according to 7 CFR part 
718.
    (8) The borrower must not become 165 days past due before the 
appropriate Agency DBSA documents are executed.
    (b) Loan eligibility. The loan must meet all the following 
requirements to be eligible for DBSA:
    (1) To be considered for DBSA the loan must have been either an OL, 
FO, CL, SW or EM outstanding prior to September 25, 2024.
    (2) All of the borrower's program and non-program loans must be 
current after the Agency completes DBSA for the scheduled payment 
installment.
    (3) All FLP loans must either be current or less than 150 days past 
due at the time the complete application for DBSA is received by the 
Agency.
    (4) The Agency has not accelerated the borrower's account.
    (5) For any loan that will receive DBSA, the remaining term of the 
loan must equal or exceed 2 years from the due date of the DBSA 
agreement.
    (6) The loan must not have an existing DBSA or DSA in place.
    (7) The loan must not have been consolidated with any other loan 
that would not be eligible for DBSA on its own merits.


Sec.  766.453  DBSA amount limitations.

    (a) The DBSA amount is limited to the lesser of:
    (1) The amount of the delinquent installment or upcoming scheduled 
installment; or
    (2) The amount the borrower is unable to pay the Agency. Borrowers 
are required to pay any portion of an installment they are able to pay.
    (b) The amount set aside will be the unpaid balance remaining on 
the installment at the time DBSA is complete. The 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.
    (c) Recoverable cost items may not be set aside.

[[Page 65046]]

Sec.  766.454  Borrower application requirements.

    (a) Requests for DBSA. To request DBSA:
    (1) A borrower must submit a request for DBSA to the Agency in 
writing.
    (2) All borrowers liable for the loan must sign the DBSA request.
    (b) Required financial information. When requesting DBSA:
    (1) The borrower must submit actual production, income, and expense 
records for the current and upcoming production cycle unless the Agency 
already has that information for the borrower.
    (2) The borrower must provide any additional information requested 
by the Agency.


Sec.  766.455  Borrower acceptance of DBSA.

    Subject to the 165-calendar day limitation in Sec.  766.452(a)(8), 
the borrower must execute the appropriate Agency documents within 45 
days after the borrower receives notification of Agency approval of 
DBSA, which will be within 30 days of having submitted a complete 
application.


Sec.  766.456  Payments toward DBSA installments.

    (a) Interest accrual. Interest will accrue on any principal portion 
of the DBSA installment at the rate of one eighth of a percent.
    (b) Due date. The DBSA amount, including interest accrued on the 
principal portion of the set-aside, is due on or before the final due 
date of the loan.
    (c) Applying payments. The Agency will apply borrower payments 
toward DBSA installments first to interest and then to principal.


Sec.  766.457  Canceling a DBSA agreement.

    (a) The Agency will cancel a DBSA agreement if the Agency takes any 
PLS action on the loan.
    (b) The Agency will cancel a DBSA agreement if the borrower pays 
the:
    (1) Current market value buyout in accordance with Sec.  766.113; 
or
    (2) The set-aside installment.


Sec.  766.458  Reversal of DBSA.

    If the Agency determines that the borrower received an unauthorized 
DBSA, the Agency will reverse the DBSA agreement after all appeals are 
concluded.

0
65. Revise appendix A to subpart C to read as follows:

Appendix A to Subpart C of Part 766--FSA-2510, Notice of Availability 
of Loan Servicing to Borrowers Who Are 90 Days Past Due

    This appendix A contains the notification (form letter) that the 
Farm Service Agency will send to borrowers who are at least 90 days 
past due on their loan payments. It provides information about the 
loan servicing that is available to the borrower. As stated below on 
the notification, the borrower is to respond within 60 days from 
receiving the notification (see Sec.  766.101(b)(2) and (d)(2) for 
the requirements). The notification is provided here as required by 
7 U.S.C. 1981d.
BILLING CODE 3410-E2-P

[[Page 65047]]

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[[Page 65048]]


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[[Page 65049]]


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[[Page 65050]]


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[[Page 65051]]


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[[Page 65052]]


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[[Page 65053]]


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[[Page 65054]]


[GRAPHIC] [TIFF OMITTED] TR08AU24.008


0
66. Revise appendix B to subpart C to read as follows:

Appendix B to Subpart C of Part 766--FSA-2510-IA, Notice of 
Availability of Loan Servicing to Borrowers Who Are 90 Days Past Due 
(for Use In Iowa Only)

    This appendix contains the notification (form letter) that the 
Farm Service Agency will send to borrowers with loans in Iowa who 
are at least 90 days past due on their loan payments. It provides 
information about the loan servicing that is available to the 
borrower. As stated below on the notification, the borrower is to 
respond within 60 days from receiving the notification (see Sec.  
766.101(b)(2) and (d)(2) for the requirements). The notification is 
provided here as required by 7 U.S.C. 1981d.
BILLING CODE 3410-E2-P

[[Page 65055]]

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[[Page 65056]]


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[[Page 65057]]


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[[Page 65058]]


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[[Page 65059]]


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[[Page 65060]]


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[[Page 65061]]


[GRAPHIC] [TIFF OMITTED] TR08AU24.015


[[Page 65062]]


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BILLING CODE 3410-E2-C

PA768--EQUITABLE RELIEF

0
67. The authority citation for part 768 continues to read as follows:

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


Sec.  768.1  [Amended]

0
68. Amend Sec.  768.1 as follows:
0
a. In paragraph (a) introductory text remove the words ``Agency loan 
requirements in this chapter'' and add ``direct FO, OL, or EM 
requirements'' in its places;
0
b. In paragraph (a)(1) and (a)(1)(ii), remove the words ``in this 
chapter''.
0
c. In paragraph (a)(3)(ii), remove the words ``for the loan''.

PART 769--FARM LOAN PROGRAMS RELENDING PROGRAMS

0
69. The authority citation for part 769 continues to read as follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989 and 25 U.S.C. 488.

Subpart B--Heirs' Property Relending Program

0
70. Amend Sec.  769.157 as follows:
0
a. In paragraph (b) introductory text, remove the words ``instrument, 
and'' and add ``instruments, if available,''; and
0
b. Revise paragraph (b)(15).
    The revision reads as follow.


Sec.  769.157  Intermediary's relending plan.

* * * * *
    (b) * * *
    (15) A description of the requirements for maintaining adequate 
hazard insurance, workmen's compensation insurance on ultimate 
recipients, and flood insurance.

0
71. Revise Sec.  769.159 to read as follows:


Sec.  769.159  Processing loan applications.

    (a) Intermediary loan application review. The Agency will review 
submitted applications from intermediaries for compliance with the 
provisions of this subpart.
    (b) Loan approval. Loan approval is subject to the availability of 
funds. The loan will be considered approved for the intermediary on the 
date the Agency signs the obligation of funds confirmation.
    (c) Preferences for loan funding. When necessary to address funding 
constraints, the Agency will fund eligible applications from 
intermediaries in the order specified in paragraphs (c)(1) through (4) 
of this section:
    (1) First, to those with not less than 10 years of experience 
serving socially disadvantaged farmers and ranchers that are located in 
states that have adopted a statute consisting of an enactment or 
adoption of the Uniform Partition of Heirs Property Act, as approved 
and recommended for enactment in all States by the National Conference 
of Commissioners on Uniform State Laws in 2010, that relend to owners 
of heirs property (as defined by the Uniform Partition of Heirs 
Property Act);
    (2) Second, to those that have applications from ultimate 
recipients

[[Page 65063]]

already in process, or that have a history of successfully relending 
previous HPRP funds;
    (3) Multiple applications in the same priority tier, will be 
processed based by date of application received; and
    (4) Any remaining applications, after priority tiers 1 and 2 have 
been funded as specified in paragraphs (c)(1) and (2) of this section, 
will be funded in order of the date the application was received.
    (d) Current information required. Information supplied by the 
intermediary in the loan application must be updated by the 
intermediary if the information is more than 90 days old at the time of 
loan closing.

0
72. In Sec.  769.162, revise paragraph (a)(1) to read as follows:


Sec.  769.162  Security.

    (a) * * *
    (1) Primary security for HPRP loan will consist of a pledge by the 
intermediary of all assets now or hereafter placed in the HPRP 
revolving loan fund, including cash and investments, notes receivable 
from ultimate recipients, and the intermediary's security interest in 
collateral pledged by ultimate recipients. A first lien in the 
intermediary's HPRP revolving loan fund account(s) will be accomplished 
by a deposit agreement. The deposit agreement with the depository bank 
will perfect the Agency's security interest in the intermediary's 
depository accounts. The deposit agreement must be approved by the 
Agency. The deposit agreement will not require the Agency's signature 
for withdrawals. The intermediary must use a depository bank that 
agrees to waive its offset and recoupment rights against the depository 
account and subordinate any liens it may have against the HPRP 
depository account in favor of the Agency;
* * * * *

0
73. Amend Sec.  769.164 as follows:
0
a. Revise the sectionheading;
0
b. In paragraph (d)(8) remove the word ``and'' at the end of the 
paragraph;
0
c. In paragraph (d)(9) introductory text, remove the period at the end 
and add a colon it its place;
0
d. In paragraph (d)(9)(i) remove the period at the end and add a 
semicolon and the word ``and'' it its place; and
0
e. Revise paragraphs (d)(9)(ii) and (10).
    The revisions read as follows:


Sec.  769.164  Post-award requirements.

* * * * *
    (d) * * *
    (9) * * *
    (ii) Any funds that have not been used within 6 months to make 
loans to an ultimate recipient must be returned to the Agency unless 
the Agency provides a written exception based on evidence satisfactory 
to the Agency that funds will be used within an additional 6 months;
    (10) All reserves and other cash in the HPRP revolving loan fund 
must be deposited in accounts in banks or other financial institutions. 
Such accounts must be fully covered by Federal deposit insurance or the 
HPRP revolving loan fund must be protected by alternative measures 
approved by the Agency. The account must be interest-bearing, if 
feasible, and any interest earned on the account remains a part of the 
HPRP revolving loan fund; and
* * * * *

PART 770--INDIAN TRIBAL LANDS ACQUISITION LOANS

0
74. The authority citation for part 770 is revised to read as follows:

    Authority:  5 U.S.C. 301 and 25 U.S.C. 5136.

0
75. In Sec.  770.6, revise paragraph (b) to read as follows:


Sec.  770.6  Rates and terms.

* * * * *
    (b) Interest rate. The interest rate charged by the Agency will be 
the lower of the interest rate in effect at the time of the loan 
approval or loan closing, which is the current rate available in any 
FSA office. The rate will be equal to the interest rate for direct farm 
ownership loans not to exceed 5 percent. Except as provided in Sec.  
770.10(b) of this chapter, the interest rate will be fixed for the life 
of the loan.


Sec.  770.10  [Amended]

0
76. Amend Sec.  770.10(e)(4)(i) to remove the word ``writedown'' and 
add ``write-down'' in its place.

Zach Ducheneaux,
Administrator, Farm Service Agency.
[FR Doc. 2024-16828 Filed 8-7-24; 8:45 am]
BILLING CODE 3410-E2-P