[Federal Register Volume 62, Number 41 (Monday, March 3, 1997)]
[Rules and Regulations]
[Pages 9351-9359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4840]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
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Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules 
and Regulations

[[Page 9351]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service

7 CFR Parts 1910, 1941, 1943, 1945, and 1980

RIN 0560-AE87


Implementation of the Direct and Guaranteed Loan Making 
Provisions of the Federal Agricultural Improvement Act of 1996

AGENCY: Farm Service Agency, Rural Housing Service, Rural Business-
Cooperative Service, and Rural Utilities Service, USDA.

ACTION: Interim rule with request for comments.

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

SUMMARY: This action is being taken to implement provisions of the 
Federal Agriculture Improvement and Reform Act of 1996 (1996 Act), 
which affect the making of direct and guaranteed farm credit program 
loans of the Farm Service Agency (FSA), formerly administered by the 
Farmers Home Administration (FmHA). This action is required by the 1996 
Act, provisions of which were effective upon enactment or 90 days after 
enactment. The intended effect is to complement provisions of the 1996 
Act and improve FSA's direct and guaranteed farm credit loan making 
function.

DATES: Effective March 24, 1997. Comments must be submitted by May 2, 
1997.

ADDRESSES: Submit written comments to the Director, Farm Credit 
Programs Loan Making Division, Farm Service Agency, Stop 0522, Post 
Office Box 2415, Washington, D.C. 20013-2415.

FOR FURTHER INFORMATION CONTACT:
Steven R. Bazzell, Senior Loan Officer, Farm Service Agency. Telephone: 
202-720-3889; facsimile: 202-690-1117; or e-mail: 
<a href="/cdn-cgi/l/email-protection#3a49585b40405f56567a4d5e59145c495b144f495e5b145d554c"><span class="__cf_email__" data-cfemail="4e3d2c2f34342b22220e392a2d60283d2f603b3d2a2f60292138">[email protected]</span></a>

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule was determined significant and was reviewed by the Office 
of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule since 
the Farm Service Agency (FSA) is not required by 5 U.S.C. 553, or any 
other provision of law, to publish a notice of proposed rulemaking to 
effect these administrative changes. See section 663(d) of the 1966 
Act.

The Unfunded Mandate Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA) Pub. L. 
104-4, established requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, FSA 
generally must prepare a written statement, including a cost-benefit 
analysis, for the proposed and final rules with ``Federal mandates'' 
that may result in expenditures to State, local, or tribal governments, 
in the aggregate, or to the private sector, of $100 million or more in 
any 1 year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires FSA to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objective of the rule.
    This rule contains no Federal mandates (under regulatory provisions 
of title II of the UMRA) for State, local, and tribal governments or 
the private sector. Thus, this rule is not subject to the requirements 
of section 202 and 205 of the UMRA.

Environmental Evaluation

    This action has no significant impact on the quality of the 
environment, and therefore, neither an Environmental Assessment nor an 
Environmental Impact Statement is required.

Executive Order 12778

    This interim rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. In accordance with this rule, (1) all State and 
local laws and regulations that are in conflict with this rule will be 
preempted, (2) no retroactive effect will be given to this rule, and 
(3) administrative proceedings in accordance with the agency 
procedures, or those regulations published by the Department of 
Agriculture to implement the provisions of the National Appeals 
Division as mandated by the Department of Agriculture Reorganization 
Act of 1994 (7 CFR parts 11 and 780), must be exhausted before bringing 
suit in court challenging action taken under this rule, unless those 
regulations specifically allow bringing suit at an earlier time.

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

Paperwork Reduction Act

    This interim rule does not impose any new information collection or 
recordkeeping requirements; however, the provisions of the 1996 Act do 
eliminate the need for some information previously collected and result 
in a revision to the number of estimated respondents from whom 
information will be collected. Therefore, the Agency is revising the 
information collection currently approved in support of the Direct Farm 
Ownership Loan program regulations under the Office of Management and 
Budget (OMB) control number 0560-0157 and the Application for Direct 
Loan Assistance under OMB control number 0560-1067. The Agency will 
publish a Federal Register notice in the near future requesting 
comments for a 60-day period regarding revisions resulting from the 
1996 Act; increases or decreases in program activity; and, changes to 
the estimated responses per respondent and estimated average hours per 
response. OMB emergency clearance has been obtained to allow continued 
use of the affected regulations and forms under OMB control number 
0560-0173.

Discussion of the Interim Rule

    The 1996 Act required certain provisions to be implemented no later

[[Page 9352]]

than 90 days from April 4, 1996, the date of enactment. Section 374 of 
the Consolidated Farm and Rural Development Act (CONACT) as added by 
section 649 of the 1996 Act, requires streamlined compliance 
certifications for applicants and borrowers. Implementation of this 
section does not require a regulatory change; instead, the Agency will 
revise the loan application to implement section 374. The other 
specific changes to the loan making provisions of the FSA farm credit 
programs are discussed by loan program as follows:

Operating Loan (OL) Program

    Subject to the limitations discussed below in the ``transition 
rule,'' the 1996 Act restricts direct OL eligibility to farmers and 
ranchers who meet the definition of a beginning farmer or rancher, but 
who have operated a farm or ranch for 5 year or less, or who have not 
previously received direct OL loans in more than 6 different years, and 
who have not had a CONACT debt forgiven through a write down or write 
off under section 353 of the CONACT, a compromise, adjustment, 
reduction, or charge-off of a debt or claim under section 331 of the 
CONACT, payment of a loss on a guaranteed loan under section 357 of the 
CONACT, or through the discharge of any portion of a debt as a result 
of bankruptcy. This restriction applies to all parties who have 
executed a promissory note. The 1996 Act did stipulate that borrowers 
who obtained a write-down on a direct or guaranteed loan under section 
353 of the CONACT would remain eligible for direct and guaranteed OL 
loans to pay farm and ranch annual operating expenses, which includes 
family subsistence expenses. A transition rule provides that if on 
April 4, 1996, a farmer or rancher had received direct OL loans in 4 or 
more previous years, the applicant is eligible for new direct OL loans 
for 3 additional years. The 4 or more previous years' OL loans may have 
been received in non-consecutive years. The new direct OL loans may 
also be made to the applicant in non-consecutive years. The loan 
repayment term and the time that a loan is outstanding are not 
considerations. In establishing the 5 years of experience, the 1996 Act 
specifically states that Rural Youth loans do not qualify as the 
operation of a farm or ranch. However, the Agency has never considered 
the recipient of a Youth Loan as a farm operator for establishing 
experience levels and this provision represents no change in regulatory 
procedures. The 1996 Act does specifically state that Youth Loans do 
not count against the recipient with regard to the OL eligibility time 
limits. A minor clarification has been added to state that Youth Loan 
purposes may be broader than regular operating loan purposes. For 
direct and guaranteed OL loans, the 1996 Act has changed the definition 
of a beginning farmer to eliminate the restriction that applicants may 
not own farm or ranch property that is greater than 25 percent of the 
median farm size. Direct OL loan purposes have been narrowed to 
eliminate non-farm enterprise, recreation, pollution abatement and 
control, small business, and solar energy as explicit loan purposes. 
The special beginning farmer or rancher operating loan assistance 
provisions have been removed because sections 318 and 310F of the 
CONACT were repealed by the 1996 Act. In addition, the prior statutory 
provision that required the Agency to extend additional direct annual 
operating loans to borrowers in default on loans with the Agency has 
been effectively eliminated. Debt refinancing under the direct OL loan 
program is still an eligible loan purpose but is now restricted under 
the 1996 Act, as follows: Applicants are eligible for refinancing with 
direct OL funds providing they have had direct or guaranteed OL loans 
refinanced 4 times or less, and they meet one of the following two 
conditions: (1) The applicant is an existing direct loan borrower who 
has suffered a qualifying loss because of a disaster declared by the 
President or designated by the Secretary, or (2) is an applicant 
refinancing a debt owed to a non-USDA creditor. The direct loan 
borrower referred to in (1) above may be indebted for any type of 
direct loan under the CONACT. The restriction on the number of times 
that OL loans may be refinanced will have little impact since the 
Agency very rarely ``refinances'' its own loans, which involves 
obtaining a new promissory note and obligating new funds. A lender who 
refinances a borrower's direct OL loan with an Agency loan guarantee 
will receive a 95-percent guarantee on the total unpaid amount of the 
direct loan refinanced. Borrowers participating in Agency's down 
payment farm ownership loan program will also receive 95-percent 
guarantees on their guaranteed FO or OL loans. The 1996 Act directs the 
Agency to use the current definition of war found in 38 U.S.C. section 
101(12) to determine eligibility for veteran's preference. This change 
makes veterans of the Persian Gulf War eligible for preferential 
funding when there is a shortage of funds. Farmers and ranchers must 
comply with the catastrophic risk protection insurance (CAT) 
requirement by either obtaining at least the CAT coverage level on 
economically significant crops, or waiving their eligibility for 
emergency crop loss assistance in connection with the uninsured crop. 
However, FSA direct emergency (EM) loss loan assistance is not 
considered emergency crop loss assistance for the purposes of 
implementing this statutory provision. In addition, chattel property 
acquired with direct OL loans must be covered by general hazard 
insurance at the tax or cost depreciated value of the property, 
whichever is less. Real estate serving as primary security must also be 
covered by insurance in accordance with 7 CFR part 1806, subpart A. A 
transition provision in section 2002 of the Omnibus Consolidated 
Rescissions and Appropriations Act of 1996 authorizes making and 
guaranteeing OL and EM loans as in effect prior to the date of 
enactment of the 1996 Act to a loan applicant less than 90-days 
delinquent on that date that had already submitted an application for 
the loan.

Farm Ownership (FO) Program

    The 1996 Act restricts direct FO eligibility to an applicant who 
has at least 3 years experience operating a farm or ranch and who 
either (1) meets the Agency's regulatory definition of a beginning 
farmer or rancher, or (2) has never received a direct FO loan, or (3) 
has not had a direct FO loan outstanding for more than 10 years before 
the new direct FO loan would be closed. In establishing the 3 years of 
experience, the 1996 Act specifically states that rural Youth loans do 
not qualify as the operation of a farm or ranch. However, as with the 
direct OL loan program, this is not a departure from previous Agency 
regulations on establishing experience levels. The 1996 Act contains a 
transition rule for existing borrowers, which allows (1) borrowers who, 
on April 4, 1996, the date of enactment of the 1996 Act, had a direct 
FO loan outstanding for less than 5 years to receive additional direct 
FO loans for 10 more years from April 4, 1996; and (2) 5 additional 
years for borrowers who had a direct FO loan outstanding for 5 or more 
years on April 4, 1996. The 1996 Act has changed the definition of a 
beginning farmer to raise the maximum amount of farm or ranch property 
that may be owned from 15 to 25 percent of the median farm size in 
which the property is located. However, the Agency will continue to use 
the mean rather than the median farm size in this definition since 
median farm sizes are unavailable in the Census of Agriculture. The 
scope of direct FO loan

[[Page 9353]]

purposes has been reduced by eliminating debt refinancing, pollution 
abatement and control, non-farm enterprises, non-fossil energy systems, 
and recreation uses and facilities as explicit loan purposes. 
Guaranteed FO loan purposes mirror the changes in the direct FO 
program, with the exception that refinancing remains as eligible 
guaranteed FO loan purpose. In fact, the 1996 Act provides a 95-
percent, as opposed to the normal 90-percent maximum, guarantee of 
unpaid principal and interest when the loan purpose is to refinance 
direct loan debts owned to the Agency. Hazard insurance is required by 
the 1996 Act as a direct FO loan condition. The FO applicant must 
provide evidence that hazard insurance has been obtained on any real 
estate improvements securing an FO loan. Farmers and ranchers must also 
comply with the catastrophic risk protection insurance (CAT) 
requirement by either obtaining at least the CAT coverage level on 
economically significant crops, or waiving their eligibility for 
emergency crop loss assistance in connection with the uninsured crop. 
FSA direct emergency (EM) loss loan assistance is not considered 
emergency crop loss assistance for the purposes of implementing this 
statutory provision. The 1996 Act allows the Agency to provide a four 
percent minimum interest rate to direct FO borrowers who obtain at 
least 50 percent of their real estate financing needs from a private 
creditor, with or without an FSA loan guarantee. The Agency's 
regulations establish a minimum of four percent in accordance with the 
1996 Act, with the intention that the Agency will adjust the rate 
periodically to reflect budgetary constraints and overall demand for 
direct FO loan funds. The 1996 Act stipulates that the Agency use the 
current definition of war found in 38 U.S.C. section 101(12) to 
determine eligibility for veteran's preference. This extends 
preferential treatment to veterans of the Persian Gulf war when there 
is a shortage of funds. Guaranteed FO loans made to eligible applicants 
participating in the Down payment Loan program will have their loans 
guaranteed at the rate of 95 percent.

Emergency (EM) Loan Program

    Rather than the previous statutory requirement for crop insurance 
to have covered crops affected by a disaster as a result of which an EM 
loan is sought, hazard insurance now must have covered property on 
which a farmer or rancher is seeking an EM physical loss loan. The 
minimum level of coverage must have been at the tax or cost depreciated 
value, whichever is less. Farmers and ranchers must also comply with 
the catastrophic risk protection insurance (CAT) requirement by either 
obtaining at least the CAT coverage level on economically significant 
crops, or waiving their eligibility for emergency crop loss assistance 
in connection with the uninsured crop. FSA direct EM loss loan 
assistance is not considered emergency crop loss assistance for the 
purposes of implementing this statutory provision. The test for credit 
threshold has been reduced from $300,000 to $100,00, which requires 
applicants with EM requests of greater than $100,000 to apply at a 
minimum of three commercial lenders to ensure that private credit, with 
or without an FSA loan guarantee, is unavailable. The maximum level of 
EM principal indebtedness has been reduced from $500,000 per qualified 
natural disaster to a total outstanding principal indebtedness of 
$500,000 per borrower. The financing of non-farm enterprises is no 
longer an eligible EM loan purpose. The procedure for appraising an EM 
applicant's agricultural assets to establish the security value has 
been changed. The Agency was previously required to use the higher of 
two market values for collateral valuation purposes. The first 
appraisal reflected the market value of the property 1 day before the 
State Governor's request to the Secretary for an EM disaster 
designation, while the second value reflected the market value 1 year 
and 1 day before the State Governor's request to the Secretary. The 
Agency will now use the market value 1 day before the first day of the 
disaster's incidence period.

List of Subjects

7 CFR Part 1910

    Application processing, Loan programs-agriculture.

7 CFR Part 1941 and 1943

    Applicant eligibility, Beginning farmers and ranchers, Loan 
programs-agriculture.

7 CFR Part 1945

    Disaster assistance, Loan programs-agriculture.

7 CFR Part 1980

    Beginning farmers and ranchers, Loan guarantees, Loan programs-
agriculture.

    For the reasons set forth in the preamble, 7 CFR chapter XVIII is 
amended as follows:

PART 1910--GENERAL

    1. The authority citation for part 1910 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subpart A--Receiving and Processing Applications


Sec. 1910.1  [Amended]

    2. Section 1910.1 is amended by removing the last sentence of 
paragraph (a).


Sec. 1910.3  [Amended]

    3. Section 1910.3 is amended in paragraph (c) by:
    a. Removing the third sentence; and
    b. Removing the words ``type entity as set out in FmHA loan making 
regulations'' in the ninth sentence.


Sec. 1910.4  [Amended]

    4. Section 1910.4 is amended by:
    a. Removing paragraph (b)(19);
    b. Redesignating paragraphs (b)(20) through (b)(23) as (b)(19) 
through (b)(22), respectively; and
    c. Removing the words ``and the Acquisition/Leasing of Agency 
Acquired Farmland'' from the title and from the first sentence of 
paragraph (f).
    5. Section 1910.10 is amended by revising paragraph (a)(1) to read 
as follows:


Sec. 1910.10   Preference.

    (a) * * *
    (1) Veteran's preference is given to any person applying for an RH, 
FO, SW, or OL loan who has been honorably discharged, including 
clemency discharges, or released from the active forces of the U.S. 
Army, Navy, Air Force, Marine Corps, or Coast Guard, and who served 
during a period of war, as defined in 38 U.S.C. 101(12).
* * * * *

PART 1941--OPERATING LOANS

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

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


Sec. 1941.4  [Amended]

    7. Section 1941.4 is amended by:
    a. Adding the words ``Except for OL loan purposes,'' at the 
beginning of paragraph (e) in the definition of ``Beginning farmer or 
rancher,''
    b. Removing the number ``15'' and adding the number ``25'' in its 
place in the first sentence of paragraph (e) of the definition of 
``Beginning farmer or rancher,''
    c. Removing the third sentence from the definition of ``Cosigner;''
    d. Removing the words ``and nonfarm'' from the introductory text of 
paragraph (d) of the definition of a ``Family farm,''

[[Page 9354]]

    e. Removing the second sentence from the definition of a ``Farm;''
    f. Removing all of the text before the semi-colon that follows the 
word ``debts'' in paragraph (b) of the definition of a ``Feasible 
plan;''
    g. Removing the third sentence from the definition of a 
``Financially viable operation;''
    h. Removing the second sentence from the definition of ``Nonfarm 
enterprise''; and
    i. Removing the definition of a ``Recreation enterprise.''
    8. Section 1941.12 is amended by adding new paragraphs (a)(8), 
(a)(9), (a)(10), (a)(11), (b)(9), (b)(10), (b)(11), and (b)(12) to read 
as follows:


Sec. 1941.12  Eligibility requirements.

* * * * *
    (a) * * *
    (8) Meet the definition of a beginning farmer or rancher, but have 
operated a farm or ranch for 5 years or less, or the applicant, or 
anyone who will execute the promissory note, has not had direct OL 
loans closed in more than 6 different years prior to the year in which 
the new direct OL loan is closed. Youth Loans are not counted as direct 
OL loans for the purpose of this paragraph.
    (9) Transition rule. An applicant is eligible for new direct OL 
loans for 3 additional years if as of April 4, 1996, the applicant, or 
anyone who will execute the promissory note, had direct OL loans closed 
in 4 or more separate years prior to the year in which the new direct 
OL loan is closed. The 4 previous years' direct OL loans, as well as 
the 3 additional years of new direct OL loans, may be in non-
consecutive years.
    (10) Have not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the Consolidated Farm and Rural Development Act 
(CONACT) by debt-write down, write-off, compromise under the provisions 
of section 331 of the CONACT, adjustment, reduction, charge-off or 
discharge in bankruptcy or through any payment of a guaranteed loss 
claim under the same circumstances. Notwithstanding the restrictive 
provisions of this paragraph, applicants who received a write-down 
under section 353 of the CONACT may receive direct and guaranteed OL 
loans to pay annual farm and ranch operating expenses, which includes 
family subsistence if the applicant meets all other eligibility 
requirements.
    (11) Not be delinquent on any direct or guaranteed loan made under 
the provisions of the CONACT. Notwithstanding the provisions of this 
paragraph, an operating loan may be made or guaranteed under the 
provisions of subtitle B of the CONACT as in effect on April 3, 1996, 
if the applicant was less than 90-days delinquent on April 4, 1996, and 
had submitted an application prior to April 5, 1996.
    (b) * * *
    (9) Have at least one member of the business entity who meets the 
definition of a beginning farmer or rancher, but has operated a farm or 
ranch for 5 years or less. Also, the applicant, or anyone who will 
execute the promissory note, must not have had direct OL loans closed 
in more than 6 different years prior to the year in which the new 
direct OL loan is closed. Youth Loans are not counted as direct OL 
loans for the purpose of this paragraph.
    (10) Transition rule. An applicant is eligible for new direct OL 
loans for 3 additional years if as of April 4, 1996, the applicant, or 
anyone who will execute the promissory note, had direct OL loans closed 
in 4 or more separate years prior to the year in which the new direct 
OL is closed. The 4 previous years' OL loans, as well as the 3 
additional years of new direct OL loans, may be in non-consecutive 
years.
    (11) Have not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the Consolidated Farm and Rural Development Act 
(CONACT) by debt-write down, write-off, compromise under the provisions 
of section 331 of the CONACT, adjustment, reduction, charge-off or 
discharge in bankruptcy or through any payment of a guaranteed loss 
claim under the same circumstances. Notwithstanding the restrictive 
provisions of this paragraph, applicants who received a write-down 
under section 353 of the CONACT may receive direct and guaranteed OL 
loans to pay annual farm and ranch operating expenses, which includes 
family subsistence if the applicant meets all other eligibility 
requirements.
    (12) Not be delinquent on any direct or guaranteed loan made under 
the provisions of the CONACT. Notwithstanding the provisions of this 
paragraph, an operating loan may be made or guaranteed under the 
provisions of subtitle B of the CONACT as in effect on April 3, 1996, 
if the applicant was less than 90-days delinquent on April 4, 1996, and 
had submitted an application prior to April 5, 1996.
* * * * *


Secs. 1941.14 and 1941.15  [Removed and Reserved]

    9. Sections 1941.14 and 1941.15 are removed and reserved.
    10. Section 1941.16 is revised to read as follows:


Sec. 1941.16  Loan purposes.

    An applicant who obtained a write-down under direct or guaranteed 
loan authorities is restricted to the purposes listed under paragraphs 
(c), (g) and (h) of this section. All other eligible applicants may 
only request OL funds for any of the following purposes:
    (a) Payment of costs associated with reorganizing a farm or ranch 
to improve its profitability.
    (b) Purchase of livestock, including poultry, and farm or ranch 
equipment, including quotas and bases, and cooperative stock for 
credit, production, processing or marketing purposes.
    (c) Payment of annual operating expenses, examples of which 
include, but are not exclusively limited to feed, seed, fertilizer, 
pesticides, farm or ranch supplies, cooperative stock, and cash rent.
    (d) Payment of costs associated with land and water development for 
conservation or use purposes.
    (e) Payment of loan closing costs.
    (f) Payment of costs associated with complying with Federal or 
State-approved standards under the Occupational Safety and Health Act 
of 1970 (29 U.S.C. 655 and 667). This purpose is limited to applicants 
who demonstrate that compliance with the standards will cause them 
substantial economic injury.
    (g) Payment of training costs required or recommended by the 
Agency.
    (h) Payment of farm, ranch, or home needs, including family 
subsistence. A portion of the loan is available to the borrower for use 
outside of a supervised bank account. This portion is the lesser of:
    (1) 10 percent of the OL loan;
    (2) $5,000; or
    (3) The amount needed to meet the subsistence needs of the family 
for a 3-month period.
    (i) Refinancing debts if the applicant has had direct or guaranteed 
OL loans refinanced (refinanced does not mean restructured) 4 times or 
less and one of the following conditions is met:
    (1) The need for refinancing was caused by a qualifying disaster 
declared by the President or designated by the Secretary; or
    (2) The debts to be refinanced are owned to a non-USDA creditor.


Sec. 1941.17  [Amended]

    11. Section 1941.17 is amended by removing paragraphs (a) and (f), 
and by

[[Page 9355]]

redesignating paragraphs (b) through (e) as (a) through (d), 
respectively.
    12. Section 1941.32 is revised to read as follows:


Sec. 1941.32  Catastrophic Risk Protection (CAT) insurance requirement.

    Applicants must comply with the CAT insurance requirement no later 
than loan closing by either:
    (1) Obtaining at least the CAT level of coverage, if available, for 
each crop of economic significance as defined by the Federal Crop 
Insurance Corporation, or,
    (2) By waiving eligibility of emergency crop loss assistance in 
connection with the uninsured crop. FSA emergency (EM) loss loan 
assistance is not considered emergency crop loss assistance for the 
purpose of the crop insurance waiver on the uninsured crop.

Subpart B--Closing Loans Secured by Chattels

    13. Section 1941.88 is amended by:
    a. Removing the introductory text;
    b. Removing paragraph (c);
    c. Redesignating paragraph (a) and (b) as (b) and (c), 
respectively;
    d. Amending paragraph (d) by removing all of the text between the 
words ``Borrowers'' and ``should'' located in the first sentence; and
    e. Adding a new paragraph (a); and revising redesignated paragraph 
(c) to read as follows:


Sec. 1941.88  Insurance.

    (a) Catastrophic Risk Protection (CAT) insurance requirement. 
Applicants must obtain at least the CAT level of crop insurance of 
coverage for each crop of economic significance, as defined by the 
Federal Crop Insurance Corporation, if such coverage is offered. The 
applicant can meet this requirement by either:
    (1) Obtaining at least the CAT level of coverage or,
    (2) Waiving eligibility for emergency crop loss assistance in 
connection with the uninsured crop. EM loss loan assistance is not 
considered emergency crop loss assistance for purposes of this waiver.
* * * * *
    (c) Chattels and real estate. Chattel property that secures OL 
loans must be covered by hazard insurance unless the Agency determines 
that coverage is not readily available or the benefit of the coverage 
is more than its cost. When insured, chattel property must at least be 
covered at its tax or cost depreciated value, whichever is less. Real 
property must be covered by general hazard and flood insurance in 
accordance with subparts A and B of part 1806 of this chapter.
* * * * *

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

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

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

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


Sec. 1943.4  [Amended]

    15. Section 1943.4 is amended by:
    a. Removing ``A beginning farmer'' and adding ``Except for OL loan 
purposes, a beginning farmer'' in its place at the beginning of 
paragraph (e) of the definition of ``Beginning farmer or rancher;''
    b. Removing the number ``15'' and adding the number ``25'' in its 
place in the first sentence of paragraph (e) of the definition of 
``Beginning farmer or rancher;''
    c. Removing the third sentence from the definition of ``Cosigner;''
    d. Removing the words ``and nonfarm'' from the introductory text of 
paragraph (d) of the definition of a ``Family farm.''
    e. Removing the second sentence from the definition of ``Farm.''
    f. Removing all the text to the end of the sentence following the 
word ``debts'' in paragraph (b) of the definition of a ``Feasible 
plan;'' and
    g. Removing the second sentence of the definition of ``Nonfarm 
enterprise.''
    16. Section 1943.12 is amended by:
    a. Removing the words ``and operating'' and the parenthetical text 
``(1 year's complete production and marketing cycle within the last 5 
years)'' from paragraph (a)(3);
    b. Removing the words ``and operating'' and the parenthetical text 
``(1 year's complete production and marketing cycle within the last 5 
years)'' from paragraph (b)(4)(ii); and
    c. Adding new paragraphs (a)(8), (a)(9), (a)(10), (a)(11), (b)(8), 
(b)(9), (b)(10) and (b)(11) to read as follows:


Sec. 1943.12  Farm ownership loan eligibility requirements.

* * * * *
    (a) * * *
    (8) Have operated a farm or ranch for at least 3 years and satisfy 
at least one of the following conditions:
    (i) Meet the definition of a beginning farmer or rancher.
    (ii) The applicant, or anyone who will execute the promissory note, 
has not had direct FO loans outstanding for more than a total of 10 
years prior to the date that the new FO loan is closed.
    (iii) Have never received a direct FO loan.
    (9) Transition rule. This applies to applicants with direct FO 
loans outstanding on April 4, 1996.
    (i) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for less than 5 years, the applicant is 
eligible for new direct FO loans through April 4, 2006.
    (ii) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for 5 years or more, those parties are 
eligible for new direct FO loans through April 4, 2001.
    (10) Have not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the Consolidated Farm and Rural Development Act 
(CONACT) by debt-write down, write-off, compromise provisions of 
section 331 of the CONACT, adjustment, reduction, charge-off or 
discharge in bankruptcy or through any payment of a guaranteed loss 
claim under the same circumstances.
    (11) Not be delinquent on any direct or guaranteed loan made under 
the provisions of the CONACT.
    (b) * * *
    (8) Have one or more members, constituting a majority interest in 
the business entity, who have operated a farm or ranch for at least 3 
years and who satisfy one of the following conditions:
    (i) Meet the definition of a beginning farmer or rancher.
    (ii) The applicant, or anyone who will execute the promissory note, 
has not had direct FO loans outstanding for more than a total of 10 
years prior to the date that the new FO loan is closed.
    (iii) Have never received a direct FO loan.
    (9) Transition rule. This applies to business entity applicants 
with direct FO loans outstanding on April 4, 1996.
    (i) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for less than 5 years, the applicant is 
eligible for new direct FO loans through April 4, 2006.
    (ii) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for 5 years or more, those parties are 
eligible for new direct FO loans through April 4, 2001.
    (10) Have not caused the Agency a loss by receiving debt 
forgiveness on all or a portion of any direct or guaranteed loan made 
under the authority of the Consolidated Farm and Rural Development Act 
(CONACT) by debt-write down, write-off, compromise provisions of 
section 331 of the CONACT, adjustment, reduction, charge-off or 
discharge in bankruptcy or through any payment of a guaranteed loss 
claim under the same circumstances.

[[Page 9356]]

    (11) Not be delinquent on any direct or guaranteed loan made under 
the provisions of the CONACT.
 * * * * *
    17-18. Section 1943.16 is revised to read as follows:


Sec. 1943.16  Loan purposes.

    Loan funds may only be used to:
    (a) Acquire or enlarge a farm or ranch. Examples of items that the 
Agency may authorize the use of FO funds for include, but are not 
limited to, the purchase of easements, the applicant's portion of land 
being subdivided, purchase of cooperative stock, appraisal and survey 
fees, and participation in special FO loan programs of this subpart. 
Down payments are authorized as a loan purpose subject to the 
following:
    (1) A deed is obtained and the transaction is properly documented 
by debt and security instruments.
    (2) Any prior liens meet the FO security requirements for the 
Agency's junior lien position.
    (3) For contract purchases, purchase contracts must properly 
obligate the buyer and seller to fulfill the terms of the contract, 
provide the buyer with possession, control and beneficial use of the 
property, and entitle the buyer to marketable title upon fulfillment of 
the contract terms. The deed must be held in trust by a bonded agent 
until transferred to the buyer. Upon buyer's default, the seller must 
give the Agency written notice of the default and a reasonable 
opportunity to cure the default. Any sums advanced by the Agency must 
be repaid by the borrower.
    (b) Make capital improvements. Examples of items that the Agency 
may authorize the use of FO funds for include, but are not limited to, 
the construction, purchase and improvement of farm dwellings, service 
buildings, and facilities that can be made fixtures to the real estate.
    (c) Promote soil and water conservation and protection. Examples 
include the correction of well-defined, hazardous environmental 
conditions, and the construction or installation of tiles, terraces, 
and waterways.
    (d) Pay closing costs.


Sec. 1943.17  [Amended]

    19. Section 1943.17 is amended by removing paragraphs (a)(4) and 
(a)(5).
    20. Section 1943.18 is amended by revising paragraph (b)(2) and 
adding a new paragraph (c) to read as follows:


Sec. 1943.18  Rates and terms.

 * * * * *
    (b) * * *
    (2) The farm business plan shows that installments at the higher 
rate, along with other debts, cannot be paid during the period of the 
plan.
 * * * * *
    (c) Interest rate with joint financing. When the applicant obtains 
financing from a private lender equivalent to 50 percent or more of the 
total funds needed, the interest rate on the direct FO loan will be 
fixed at a rate determined by the Agency Administrator but at not less 
than 4 percent for the term of the loan. The current rate is available 
in FSA offices.


Sec. 1943.19  [Amended]

    21. Section 1943.19 is amended by:
    a. Removing the word ``refinanced'' from the first sentence in 
paragraphs (a)(1) and (d)(3); and
    b. Removing the words ``or refinanced'' from the first sentence in 
paragraph (b)(1).


Sec. 1943.23  [Amended]

    22. Section 1943.23 is amended by:
    a. Removing the words ``or nonfarm enterprise'' from the first 
sentence of paragraph (g)(1); and
    b. Removing paragraphs (g)(3) and (g)(4).
    23. Section 1943.24 is amended by:
    a. Removing the words ``nonfarm enterprise facility or'' from the 
third sentence of paragraph (a);
    b. Removing the words ``, including any nonfarm enterprise,'' from 
the first sentence in paragraph (b)(1);
    c. Removing paragraph (b)(1)(iv);
    d. Removing the words ``and any nonfarm enterprise'' from the first 
sentence of paragraph (c);
    e. Removing paragraph (d)(3) and (d)(4);
    f. Redesignating paragraph (d)(2) as (d)(3);
    g. Removing paragraph (f);
    h. Redesignating paragraphs (g) through (k) as (f) through (j), 
respectively; and
    i. Revising paragraph (d)(1) and adding a new paragraph (d)(2) to 
read as follows:


Sec. 1943.24  Special requirements.

 * * * * *
    (d) * * *
    (1) Insurance must be obtained on any property acquired with, or 
serving as primary security on an FO loan in accordance with subpart A 
of part 1806 of this chapter.
    (2) Applicants must comply with the catastrophic risk protection 
insurance (CAT) requirement by either:
    (i) Obtaining at least the available CAT level of coverage for each 
crop of economic significance, as defined by the Federal Crop Insurance 
Corporation, or
    (ii) Waiving eligibility for emergency crop loss assistance in 
connection with the uninsured crop. FSA emergency (EM) loss loan 
assistance is not considered emergency crop loss assistance for the 
purpose of the crop insurance waiver on the uninsured crop.
* * * * *
    24. Section 1943.25 is amended by revising paragraph (b) to read as 
follows:


Sec. 1943.25  Options planning and appraisals.

* * * * *
    (b) Farm business plans will be completed as provided in subpart B 
of part 1924.
* * * * *
    25. Section 1943.54 is amended by removing the third sentence from 
the definition of ``Cosigner.''

PART 1945--EMERGENCY

    26. The authority citation for part 1945 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989, and 42 U.S.C. 1480.


Sec. 1945.154  [Amended]

    27. Section 1945.154 is amended by removing the third sentence from 
the definition of ``Cosigner,'' and by removing the second sentence 
from the definition of a ``Nonfarm enterprise.''


Sec. 1945.156  [Amended]

    28. Section 1945.156 is amended by removing ``$300,000'' from 
paragraphs (b)(2)(i) introductory text and (b)(2)(ii) introductory text 
and adding ``$100,000'' in its place.
    29. Section 1945.162 is amended by:
    a. Redesignating paragraphs (a) through (m) as paragraphs (b) 
through (n), respectively; and
    b. Adding a new paragraph (a) to read as follows:


Sec. 1945.162  Eligibility requirements.

* * * * *
    (a) Debt forgiveness. EM applicants are ineligible if they have 
caused the Agency a loss by receiving debt forgiveness on all or a 
portion of any direct or guaranteed loan made under the authority of 
the Consolidated Farm and Rural Development Act (CONACT) by debt-write 
down, write-off, compromise provisions of section 331 of the CONACT, 
adjustment, reduction, charge-off or discharge in bankruptcy or through 
any payment of a guaranteed loss claim under the same circumstances. 
Further, the EM applicant must not be delinquent on any direct or 
guaranteed loan made under the provisions of the CONACT.
* * * * *
    30. Section 1945.163 is amended by revising paragraph (e) to read 
as follows:

[[Page 9357]]

Sec. 1945.163  Determining qualifying losses, eligibility for EM 
loan(s) and the maximum amount of each.

* * * * *
    (e) EM loan limit. The loan will be limited to the amount necessary 
to restore the farm to its pre-disaster condition; however, this amount 
cannot exceed the lesser of the sum of the maximum production loss 
(paragraph (a)(2)(x) of this section) and the maximum physical loss 
(paragraph (b) of this section) or $500,000 total outstanding EM debt 
per borrower. The maximum principal amount of total EM debt that any 
one individual, business entity, or individual member of a business 
entity may have outstanding is $500,000.
* * * * *


Sec. 1945.166  [Amended]

    31. Section 1945.166 is amended by:
    a. Removing the comma after the word ``family'' in the first 
sentence of paragraph (a)(1) and adding the word ``and'' in its place;
    b. Removing the comma after the word ``farm'' in the first sentence 
of paragraph (a)(1) and adding the word ``credit'' in its place;
    c. Removing the phrase ``and non-farm enterprise credit, whichever 
is the lesser'' in the first sentence of paragraph(a)(1);
    d. Removing the entire second sentence of paragraph (a)(1);
    e. Removing the paragraph (b)(5); and
    f. Removing paragraph (c)(3) and redesignating paragraph (c)(4) as 
(c)(3).
    32. Section 1945.167 is amended by:
    a. Revising the section heading;
    b. Removing paragraphs (a) and (i);
    c. Redesignating the remaining paragraphs as (c) through (j), 
respectively and;
    d. Adding new paragraphs (a) and (b) to read as follows:


Sec. 1945.167  Insurance, loan limitations and special provisions.

    (a) EM loan funds cannot be used for physical loss purposes unless 
that physical property lost was covered by general hazard insurance at 
the time that the damage caused by the natural disaster occurred. The 
level of coverage in effect at the time of the disaster must have been 
the tax or cost depreciated value, whichever is less. Chattel property 
must also have been covered at the tax or cost depreciated value, 
whichever is less, when such insurance was readily available.
    (b) Applicants must comply with the CAT insurance requirement no 
later than loan closing by either:
    (1) Obtaining at least the CAT level of coverage, if available, for 
each crop of economic significance as defined by the Federal Crop 
Insurance Corporation, or,
    (2) By waiving eligibility for emergency crop loss assistance in 
connection with the uninsured crop. FSA EM loan assistance is not 
considered emergency crop loss assistance for the purpose of the crop 
insurance waiver on the uninsured crop.
* * * * *
    33. Section 1945.169 is amended by revising paragraph (1) to read 
as follows:


Sec. 1945.169  Security.

* * * * *
    (1) Crop insurance. If crop insurance is obtained, an assignment of 
indemnity is required. When payment of the insurance premium is not 
required until after harvest, crops may be released to make the 
payment. If a loss claim is paid to the borrower, the premium will be 
first deducted by the insurance carrier before making security 
releases.
* * * * *
    34. Section 1945.175 is amended by:
    a. removing paragraph (c)(3);
    b. redesignating paragraph (c)(4) as paragraph (c)(3); and
    c. revising paragraph (c)(2) and (c)(3) to read as follows:


Sec. 1945.175  Options, planning and appraisals.

* * * * *
    (c) * * *
    (2) The appraised value of assets securing EM loans is established 
as of the day before the beginning of the incidence period of the 
qualifying disaster.
    (3) Chattel appraisals will be completed on Form FmHA 1945-15, 
``Value Determination Worksheet (EM loans only),'' when chattels are 
taken as security. The property which will serve as security will be 
described in sufficient detail so it can be identified. Sources such as 
livestock market reports and publications reflecting values of farm 
machinery and equipment will be used as appropriate. Chattels owned by 
the applicant, and nonfarm chattel property offered as security (such 
as planes, house trailers, boats, etc.) will be appraised at the 
present market value only. Chattels that the applicant/borrowers did 
not own on the dates set forth in paragraphs (c)(2) (i) and (ii) of 
this section will be appraised at the present market value only.
* * * * *

PART 1980--GENERAL

    35. The authority citation for part 1980 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subpart A--General


Sec. 1980.20  [Amended]

    36. Section 1980.20 is amended in the introductory text of 
paragraph (a) by adding ``The Farm Service Agency loan guarantee limit 
is 90 percent unless otherwise stated in subpart B of this part.'' 
after the fourth sentence.
    37. Section 1980.106 is amended in paragraph (b) by:
    a. Adding the words ``Except for OL loans,'' to the beginning of 
paragraph (5) of the definition of a ``Beginning farmer or rancher;''
    b. Removing the number ``15'' and adding the number ``25'' in its 
place in the first sentence of paragraph (5) of the definition of a 
``Beginning farmer or rancher;''
    c. Removing the third sentence from the definition of ``Cosigner;''
    d. Removing the second sentence of the definition of ``Nonfarm 
enterprise;'' and
    e. Revising the definition of ``Veteran'' to read as follows:


Sec. 1980.106  Abbreviations and definitions.

* * * * *
    (b) * * *
    Veteran. One who has been honorably discharged, including clemency 
discharges, or release from the active forces of the U.S. Army, Navy, 
Air Force, Marine Corps, or Coast Guard, and who served during a period 
of war, as defined in 38 U.S.C. 101(12).
    38. Section 1980.108 is amended by revising paragraph (a)(3)(ii) to 
read as follows:


Sec. 1980.108  General provisions.

    (a) * * *
    (3) * * *
    (ii) Applicants must either:
    (1) Obtain at least the CAT level of crop insurance coverage, if 
available, for each crop of economic significance, as defined by the 
Federal Crop Insurance Corporation, or,
    (2) Waive eligibility for emergency crop loss assistance in 
connection with the uninsured crop. FSA EM loss loan assistance is not 
considered emergency crop loss assistance for purposes of this waiver.
* * * * *
    39. Section 1980.119 is amended by revising paragraph (d) to read 
as follows:


Sec. 1980.119   Lender's sale or assignment of guaranteed loan.

* * * * *
    (d) Retention of unguaranteed portion of loan. Lenders must retain 
at least 10 percent of the loan from the unguaranteed portion, except 
that when the loan guarantee exceeds 90 percent,

[[Page 9358]]

the lender must retain the total unguaranteed portion of the loan.
* * * * *
    40. Section 1980.174 is added to read as follows:


Sec. 1980.174  Percentage of guarantee.

    (a) A 95-percent loan guarantee will be provided in the following 
situations:
    (1) When the sole loan purpose of a guaranteed OL or FO loan is to 
refinance a direct FSA farm credit program loan.
    (2) When the purpose of an FO loan guarantee is to participate in 
the down payment loan program.
    (3) When a guaranteed OL is made to a farmer or rancher who is 
participating in the down payment loan program. The guaranteed OL must 
be made during the period that a borrower has a direct FO loan 
outstanding for acquiring a farm or ranch.
    (4) When a guaranteed OL or FO loan is requested for multiple 
purposes and only a portion of the loan is used to refinance a direct 
FSA farm credit program loan, in which case a weighted percentage of 
guarantee is provided.
    (b) Guarantees issued to CLP lenders are never at a guarantee rate 
of less than 80 percent.
    41-43. Section 1980.175 is amended by:
    a. Revising introductory text of paragraph (b);
    b. Removing paragraph (d)(7);
    c. Redesignating paragraphs (d)(2) through (d)(6) as (d)(3) through 
(d)(7), respectively;
    d. Revising paragraphs (c)(1), (c)(2) and (d)(1); and adding a new 
paragraph (d)(2); and
    e. Removing all the words between ``Borrowers'' and ``should'' in 
the first sentence of paragraph (i)(3); to read as follows:


Sec. 1980.175  Operating loans.

* * * * *
    (b) The applicant, and anyone who will execute the promissory note, 
has not caused the Agency a loss by receiving debt forgiveness on all 
or a portion of any direct or guranteed loan made under the authority 
of the Consolidated Farm and Rural Development Act (CONACT) by debt 
write-down, write-off, compromise under the provisions of section 331 
of the CONACT, adjustment, reduction, charge-off or discharge in 
bankruptcy or through any payment of a guaranteed loss claim under the 
same circumstances. Notwithstanding the restrictive provisions of this 
paragraph, applicants who received a write-down under section 353 of 
the CONACT may receive direct and guaranteed OL loans to pay annual 
farm and ranch operating expenses, which includes family subsistence if 
the applicant meets all other eligibility requirements. Further, the 
applicant, and anyone who will execute the promissory note, cannot be 
delinquent on any direct or guaranteed loan made under the provisions 
of the CONACT. Notwithstanding the provisions of this paragraph, an 
operating loan may be made or guaranteed under the provisions of 
subtitle B of the CONACT as in effect on April 3, 1996, if the 
applicant was less than 90-days delinquent on April 4, 1996, and had 
submitted an application prior to April 5, 1996.
* * * * *
    (c) Loan purposes--(1) Loan note guarantee. Loan funds may only be 
used for the following purposes:
    (i) Payment of costs associated with reorganizing a farm or ranch 
to improve its profitability.
    (ii) Purchase of livestock, including poultry, and farm or ranch 
equipment, including quotas and bases, and cooperative stock for 
credit, production, processing or marketing purposes.
    (iii) Payment of annual farm or ranch operating expenses, examples 
of which include feed, seed, fertilizer, pesticides, farm or ranch 
supplies, cash rent, family subsistence, and other farm and ranch 
needs.
    (iv) Payment of costs associated with land and water development 
for conservation or use purposes.
    (v) Refinancing indebtedness incurred for any authorized OL loan 
purpose, when the lender and loan applicant can demonstrate the need to 
refinance.
    (vi) Payment of loan closing costs.
    (vii) Payment of costs associated with complying with Federal or 
State-approved standards under the Occupational Safety and Health Act 
of 1970 (29 U.S.C. 655 and 29 U.S.C. 667). This purpose is limited to 
applicants who demonstrate that compliance with the standards will 
cause them substantial economic injury.
    (viii) Payment of training costs required or recommended by the 
approval official.
    (2) Contract of guarantee--line of credit. Lines of credit may be 
advanced for the following purposes:
    (i) Payment of annual operating expenses, family subsistence, and 
purchase of feeder animals.
    (ii) Payment of current annual operating debts advanced by other 
creditors. Under no circumstances can carry-over operating debts be 
refinanced.
    (d) Loan limitations. (1) No applicant or any individual who 
executes a promissory note may receive an additional guaranteed OL if a 
combination of guaranteed or direct OL loans were received (closed) in 
more than 15 previous years. Transition rule: If a borrower was 
indebted for a direct or guaranteed OL loan on October 28, 1992, and 
had any combination of direct or guaranteed OL loans closed in 10 or 
more prior calendar years, eligibility to receive new guaranteed OL 
loans is extended for 5 additional years from October 28, 1992, and the 
years need not run consecutively. However, in the case of a line of 
credit, each year in which an advance is made after October 28, 1992, 
counts toward the 5 additional years.
    (2) Real estate improvements and repairs can be made only when the 
loan applicant owns the property, or the loan applicant has a lease 
that either ensures use of the improvement or repair over its useful 
life or provides fair compensation for the unused economic life.
* * * * *


Sec. 1980.176  [Removed and Reserved]

    44. Section 1980.176 is removed and reserved.
    45. Section 1980.180 is amended by removing paragraphs (d)(4) and 
(d)(5); and by revising paragraph (c) to read as follows:


Sec. 1980.180  Farm ownership loans.

* * * * *.
    (c) Loans are authorized only to:
    (1) Acquire or enlarge a farm or ranch. Examples of items that the 
Agency may authorize the use of FO funds for include, but are not 
limited to, providing down payments, purchasing easements or the loan 
applicant's portion of land being subdivided, and participating in 
special FO loan programs of this subpart. In the case of a contract 
purchase, purchase contracts must properly obligate the buyer and 
seller to fulfill the terms of the contract, provide the buyer with 
possession, control and beneficial use of the property, and entitle the 
buyer to marketable title upon fulfillment of the contract terms. The 
deed must be held in trust by a bonded agent until transferred to the 
buyer. Upon buyer's default, seller must give the Agency written notice 
of the default and a reasonable opportunity to cure the default. Any 
sums advanced by the Agency must be repaid by the borrower.
    (2) Make capital improvements provided the loan applicant owns the 
farm, 0r has either a lease to ensure use of the improvement over its 
useful life or that compensation will be received for any remaining 
economic life. Examples of items that the Agency may

[[Page 9359]]

authorize the use of FO funds for include, but are not limited to, the 
construction, purchase, and improvement of farm dwellings, service 
buildings and facilities that can be made fixtures to the real estate.
    (3) Promote soil and water conservation and protection. Examples 
include the correction of well-defined, hazardous environmental 
conditions, and the construction or installation of tiles, terraces and 
waterways.
    (4) Pay closing costs, including but not limited to purchasing 
stock in a cooperative, and appraisal and survey fees.
    (5) Refinancing indebtedness incurred for authorized loan purposes, 
provided the lender and loan applicant demonstrate the need to 
refinance the debt.
* * * * *
    Signed at Washington, D.C., on February 19, 1997.
Dallas R. Smith,
Acting Under Secretary for Farm and Foreign Agricultural Services.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-4840 Filed 2-28-97; 8:45 am]
BILLING CODE 3410-05-M


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