This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

9351

Vol. 62, No. 41

Monday, March 3, 1997

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 BusinessCooperative 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: sbazzell@wdc.fsa.usda.gov

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
9352 Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations

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 nonconsecutive 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
Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations 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 programsagriculture.

7 CFR Part 1945

Disaster assistance, Loan programsagriculture.

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

§ 1910.1 [Amended]

2. Section 1910.1 is amended by

removing the last sentence of paragraph

(a).

§ 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.

§ 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:

§ 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.

§ 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,’’
9354 Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations

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:

§ 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 debtwrite 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 debtwrite 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.

* * * * *

§§ 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:

§ 1941.16 Loan purposes.

An applicant who obtained a writedown 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 Stateapproved 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.

§ 1941.17 [Amended]

11. Section 1941.17 is amended by

removing paragraphs (a) and (f), and by
Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations 9355

redesignating paragraphs (b) through (e)

as (a) through (d), respectively. 12. Section 1941.32 is revised to read

as follows:

§ 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:

§ 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

§ 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:

§ 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 debtwrite 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 debtwrite 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.
9356 Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations

(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:

§ 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.

§ 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:

§ 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.

§ 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).

§ 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:

§ 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:

§ 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.

§ 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.’’

§ 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:

§ 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:
Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations 9357

§ 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.

* * * * *

§ 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 nonfarm 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:

§ 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:

§ 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:

§ 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

§ 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:

§ 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:

§ 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:

§ 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,
9358 Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations

lender must retain the total

unguaranteed portion of the loan.

* * * * *

40. Section 1980.174 is added to read

as follows:

§ 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:

§ 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 Stateapproved 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.

* * * * *

§ 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:

§ 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
Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Rules and Regulations 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

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 97–NM–32–AD; Amendment

39–9952; AD 97–05–08]

RIN 2120–AA64

Airworthiness Directives; Boeing

Model 727 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule; request for

comments.

SUMMARY: This amendment adopts a

new airworthiness directive (AD) that is

applicable to all Boeing Model 727

series airplanes. This action requires

repetitive pre-modification inspections

to detect cracks in the forward support

fitting of the number 1 and number 3

engines; and repair, if necessary. This

AD also provides for an optional high

frequency eddy current (HFEC)

inspection, and, if possible,

modification of the fastener holes; and

various follow-on actions.

Accomplishment of these optional

actions would constitute terminating

action for the repetitive premodification inspections. This

amendment is prompted by reports

indicating that fatigue cracks were

found in the forward support fitting of

the number 1 and number 3 engines.

The actions specified in this AD are

intended to detect and correct such

fatigue cracking, which could result in

failure of the support fitting and

consequent separation of the engine

from the airplane.

DATES: Effective March 18, 1997.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of March 18,

1997.

Comments for inclusion in the Rules

Docket must be received on or before

May 2, 1997.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–103,

Attention: Rules Docket No. 97–NM–

32–AD, 1601 Lind Avenue, SW.,

Renton, Washington 98055–4056.

The service information referenced in

this AD may be obtained from Boeing

Commercial Airplane Group, P.O. Box

3707, Seattle, Washington 98124–2207.

This information may be examined at

the FAA, Transport Airplane

Directorate, 1601 Lind Avenue, SW.,

Renton, Washington; or at the Office of

the Federal Register, 800 North Capitol

Street, NW., suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Walter Sippel, Aerospace Engineer,

Airframe Branch, ANM–120S, FAA,

Seattle Aircraft Certification Office,

1601 Lind Avenue, SW., Renton,

Washington; telephone (206) 227–2774;

fax (206) 227–1181.

SUPPLEMENTARY INFORMATION: The FAA

has received several reports of cracks

found in the forward support fitting of

the number 1 and number 3 engines on

Boeing Model 727 series airplanes. In

two of these incidents, the cracks

emanated from the large fastener holes

next to the side of the fuselage. In a

third incident, a fitting was cracked

almost completely through. In other

incidents, cracks were found at a small

distance inboard from the fuselage side.

The cracking has been attributed to

fatigue, which was caused by corrosion

pitting damage on the surfaces of the

fastener holes in the fittings. These

conditions, if not detected and corrected

in a timely manner, could result in

failure of the support fitting and

consequent separation of the engine

from the airplane.

Explanation of Relevant Service

Information

The FAA has reviewed and approved

Boeing Service Bulletin 727–54A0010,

Revision 4, dated January 30, 1997,

which describes the following

procedures:

1. Performing repetitive visual

inspections to detect cracks of the upper

and lower flanges, and the vertical web

of the forward support fitting of the

number 1 and number 3 engines;

2. Performing repetitive high

frequency eddy current (HFEC)

inspections to detect cracks of the

forward flange of the support fitting

adjacent to the collars of two fasteners

of the number 1 and number 3 engines;

3. Performing repetitive detail visual

inspections to detect cracks of the upper

and lower flanges adjacent to six

fasteners of the number 1 and number

3 engines;

4. Repairing the cracked forward

support fitting; and

5. Performing a HFEC inspection to

detect cracks of the fastener holes in the

forward support fitting of the number 1

and number 3 engines, and, if possible,

modification of the fastener holes; and

various follow-on actions. (These

follow-on actions include installation of

fasteners, repetitive HFEC inspections,

and repair of cracked forward support

fittings.) The modification involves

oversizing the fastener holes until the

HFEC does not detect any cracks.

Accomplishment of this HFEC

inspection, modification, and follow-on

actions will eliminate the need for the

repetitive pre-modification inspections,

as described in items 1 though 3.

Explanation of the Requirements of the

Rule

Since an unsafe condition has been

identified that is likely to exist or

develop on other Boeing Model 727

series airplanes of the same type design,

this AD is being issued to detect and

correct fatigue cracking of the forward

support fitting, which could result in

failure of the support fitting and

consequent separation of the engine

from the airplane. This AD requires

repetitive pre-modification inspections

to detect cracks of the forward support

fitting of the number 1 and number 3

engines; and repair, if necessary. This

AD also provides for an optional HFEC

inspection, and, if possible,

modification of the fastener holes; and

various follow-on actions.

Accomplishment of these optional

actions constitutes terminating action

for the repetitive pre-modification

inspections. The actions are required to

be accomplished in accordance with the

service bulletin described previously.