[Federal Register Volume 62, Number 43 (Wednesday, March 5, 1997)]
[Rules and Regulations]
[Pages 10118-10159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5115]



[[Page 10117]]

_______________________________________________________________________

Part II





Department of Agriculture





_______________________________________________________________________



Rural Housing Service



Rural Business-Cooperative Service



Rural Utilities Service



Farm Service Agency



_______________________________________________________________________



7 CFR Part 1951, et al.



Implementation of the Delinquent Account Servicing Provisions of the 
Federal Agriculture Improvement and Reform Act of 1996; Interim Rule

Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules 
and Regulations

[[Page 10118]]



DEPARTMENT OF AGRICULTURE

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

7 CFR Parts 1951, 1956, 1962, 1965

RIN 0560-AE89


Implementation of the Delinquent Account Servicing Provisions of 
the Federal Agriculture Improvement and Reform Act of 1996

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

ACTION: Interim rule with request for comments.

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SUMMARY: The following changes implement provisions of the Federal 
Agriculture Improvement and Reform Act of 1996 (1996 Act) that affect 
the Farm Loan Programs of the Farm Service Agency (FSA), formerly 
administered by the Farmers Home Administration (FmHA). The provisions 
of this rule affect the direct and guaranteed farm ownership (FO), 
operating loan (OL) programs, and the direct emergency (EM) loan 
program. Implementation of these provisions will result in the 
streamlining and shortening of the loan servicing process and result in 
reduced losses to the Government.

DATES: Effective: March 14, 1997. Comments must be submitted by May 13, 
1997.

ADDRESSES: Submit written comments to Director, Farm Service Agency, 
United States Department of Agriculture, Farm Loan Programs Loan 
Servicing and Property Management Division, Ag Code 0523, Post Office 
Box 2415, Washington, DC 20013.

FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Senior Loan 
Officer, Farm Service Agency, U.S. Department of Agriculture, Room 
5449-S, Washington, DC 20250-0523; Telephone: 202-720-1659; Facsimile: 
202-690-0949.

SUPPLEMENTARY INFORMATION

Executive Order 12866

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

Regulatory Flexibility Act

    The Farm Service Agency certifies that this rule will not have a 
significant impact on a substantial number of small entities as defined 
in the Regulatory Flexibility Act, Pub. L. 96-534, as amended (5 U.S.C. 
601).

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' The issuing agencies have 
determined that this action does not significantly affect the quality 
of human environment, and in accordance with the National Environmental 
Policy Act of 1969, Pub. L. 91-190, an Environmental Impact Statement 
is not 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; (3) 
administrative proceedings in accordance with 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.

Executive Order 12372

    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.

The Unfunded Mandate Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L. 
104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on state, local and tribal 
governments and the private sector of $100 million or more in any one 
year. When such a statement is needed for a rule, section 205 of the 
UMRA, FSA generally must prepare a written statement, including a cost-
benefit analysis, for 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. 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 objectives 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 sections 202 and 205 of the UMRA.

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 will revise the 
information collection currently approved in support of its regulations 
pertaining to Farm Loan Programs account servicing policies under the 
Office of Management and Budget (OMB) control number 0560-0161 and debt 
settlement regulations under OMB control number 0575-0118. 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 numbers 
0560-0172 and 0560-0173.

Federal Assistance Programs

10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans.

Discussion of the Interim Rule

    Enacted on April 4, 1996, the Federal Agriculture Improvement and 
Reform Act (1996 Act) changed the qualifications for loan servicing 
benefits for borrowers with farm loans from FSA, formerly FmHA. The 
specific changes to FSA Farm Loan Programs are as follows:

Leaseback/Buyback Program

    The 1996 Act terminated the Leaseback/Buyback program effective 
April 4, 1996. Borrowers, former owners and their spouses, children, or 
former operators no longer have any priority right to purchase FSA 
inventory property or to lease such property with an option to 
purchase. This action will remove the regulations for this program. A 
transition rule provides that borrowers who had submitted a complete 
application for leaseback/buyback before the date of enactment

[[Page 10119]]

may still be considered for the program. The regulations governing 
leaseback/buyback for these applications can be found in the previous 
CFR volume containing revisions as of January 1, 1996 and the Agency's 
procedures, (available in any county office.)

Homestead Protection

    The application period for this program was changed by the 1996 Act 
from 90 to 30 days after notification of the former owner of FSA 
inventory property. The Agency is now required to advise the owner of 
program availability on or before the date that it acquires the 
property, instead of within 30 days of acquisition as was required by 7 
CFR 1951.911(b)(2)(iii).

Primary Loan Servicing

    The 1996 Act requires notification of loan servicing programs to 
borrowers who are 90 days past due on their FLP loan payment (or 60 
days delinquent, since accounts are not considered delinquent until 
they are 30 days past due). Formerly, these packets were sent when 
borrowers were 180 days delinquent (210 days past due). Application 
requirements have been modified to eliminate some forms and clarify 
that borrowers do not need to provide information that is already in 
their case files and still current, as determined by the approval 
official. Borrowers who request servicing before they become delinquent 
are required to pay at least a portion of the interest due on the 
account as a condition of rescheduling or reamortization. In making 
restructuring decisions, FSA will assume that the borrower needs up to 
110 percent of the amount indicated for payment of farm operating 
expenses, debt service obligations, and family living expenses, instead 
of the 105 percent required before the 1996 Act. Failure to achieve 
this 110 percent margin will not make a borrower ineligible for loan 
servicing, but in no case will the account be restructured with a cash 
flow of less than 100 percent. Borrowers who qualify for debt 
writedown, but whose accounts could be restructured without writedown 
at a margin of less than 110 percent, will be allowed to choose between 
the two options: (1) Restructuring with writedown, or (2) restructuring 
without writedown at a margin of less than 110 percent. Since section 
645 of the 1996 Act, which establishes the 110 percent cash flow, is 
not mandatory, FSA is offering borrowers the option to forego 
writedown. Thus, they would avoid the statutory debt forgiveness 
limitation explained below. Borrowers who choose writedown (with a 
higher cash flow margin than restructuring without writedown) will not 
be able to receive any additional debt forgiveness from FSA.

Debt Forgiveness

    Under the 1996 Act, borrowers can receive only one reduction or 
termination of a direct FLP loan in a manner that results in a loss to 
the Government. Those who have received debt forgiveness on a direct 
loan at any time in the past are no longer eligible for such relief on 
another loan. Pursuant to section 640(2) of the 1996 Act, debt 
forgiveness is defined as writing down or writing off a direct loan, 
debt settling a direct loan, paying a loss claim on a loan guarantee 
pursuant to section 357 of the Consolidated Farm and Rural Development 
Act (Con Act) and discharging a debt as a result of bankruptcy.

Buyout of Debt

    The loan servicing option of buying out a debt at its net recovery 
value was changed by the Act to buyout at current market value. The 
requirement for a recapture agreement, under which the Agency could 
recover a portion of its loss if the property is sold within 10 years, 
was eliminated.

Conservation Contracts

    Based on section 642 of the 1996 Act, the Agency has revised 
Exhibit H of this subpart to change the conservation easement program 
to a conservation contract program. Since section 642(1) of the 1996 
Act removed the requirement that the program restrict the usage of the 
property for not less than 50 years, FSA has exercised its discretion 
to provide a graduated reduction in the amount of debt written off, 
based on the time period that usage is restricted. Borrowers who agree 
to a 50-year contract will receive the maximum amount of debt 
writedown. Borrowers who agree to a 30-year contract will receive 60 
percent of the maximum writedown. Borrowers who agree to a 10-year 
contract will receive 20 percent of the maximum writedown.

Graduation

    When reviewing accounts for possible graduation from direct FLP 
credit, the Agency is authorized by the Act to submit a borrower 
prospectus to potential commercial lenders without the borrower's 
approval. Borrowers must be notified that such information has been 
provided. If an approved lender agrees to provide credit to that 
borrower in accordance with the terms of the prospectus, that borrower 
is ineligible for Farm Ownership or Farm Operating direct loan credit.

Annual Reviews and Eligibility

    Under section 635 of the 1996 Act, the County Committee must 
certify annually that a review has been made of each borrower's 
operation and of continued eligibility for Agency assistance. This is 
an internal agency requirement and therefore regulations governing this 
requirement are not published in the CFR.

Electronic Filing of Financing Statements

    Pursuant to section 662 of the 1996 Act, all lenders are authorized 
to file financing statements electronically in states having Uniform 
Commercial Code (UCC) laws allowing that practice.

Appeals

    The Agency has removed from this regulation the requirement that 
the borrower be notified of appeal rights in numerous instances where 
it previously appeared following authorization for an adverse decision. 
A guide to the mediation, appeals and review processes has been added 
as section 1951.904.

Miscellaneous

    Some material which was obsoleted, outdated, or repetitive has been 
omitted. Some references to other sections of the CFR have been revised 
for conformity purposes.

List of Subjects

7 CFR Part 1951

    Account servicing, Accounting, Debt restructuring, Foreclosure, 
Government acquired property, Credit, Loan programs--agriculture, Loan 
programs--housing and community development, Low and moderate income 
housing loans--servicing, Mortgages, Rural areas, Sale of government 
acquired property, Surplus government property.

7 CFR Part 1956

    Accounting, Loan programs--agriculture, Rural areas.

7 CFR Part 1962

    Crops, Government property, Livestock, Loan programs--agriculture, 
Rural areas.

7 CFR Part 1965

    Foreclosure, Loan programs--agriculture, Rural areas.

    Accordingly, chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:

[[Page 10120]]

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

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

Subpart F--Analyzing Credit Needs and Graduation of Borrowers

    2. Section 1951.262 is amended by revising paragraphs (f)(1) and 
(f) (2) to read as follows:


Sec. 1951.262  Farm Loan Programs--graduation of borrowers.

* * * * *
    (f) * * *
    (1) The Agency will distribute a borrower's prospectus to local 
lenders for possible refinancing. The borrower's permission is not 
required, however, the borrower must be notified of this action.
    (2) The borrower is responsible for any application fees. The 
borrower has 30 days from the date the borrower is notified of lender 
interest in refinancing to make application, if required by the lender, 
and refinance the FLP loan. For good cause, the borrower may be granted 
a reasonable amount of additional time by the Agency.

Subpart J--Management and Collection of Nonprogram (NP) Loans


Sec. 1951.454   [Amended]

    3. Section 1951.454 is amended by revising the words ``chapter; 
except that a borrower does have appeal rights if the decision involves 
the denial of NP loan assistance under the Leaseback/Buyback and 
Homestead Protection provisions of subpart S of this Part 1951'' to 
read ``chapter or parts 11 and 780 of this title.''


Sec. 1951.455   [Amended]

    4. Section 1951.455 is amended by:
    a. In paragraph (a) by removing ``Leaseback/Buyback and'' in the 
second sentence; by revising the words ``Leaseback/Buyback and 
Homestead Protection programs,'' to read ``Homestead Protection 
program'' in the fourth sentence; by removing the words ``FmHA or its 
successor agency under Public Law 103-354'' in the fifth sentence; by 
revising the words ``FmHA or its successor agency under Public Law 103-
354'' to read ``the Agency'' in the sixth sentence;
    b. In paragraph (b) by removing the first sentence; by revising the 
words ``FmHA or its successor agency under Public Law 103-354'' to read 
``FLP'' in the second sentence; by removing the words ``FmHA or its 
successor agency under Public Law 103-354'' in the fourth sentence; by 
revising the words ``FmHA or its successor agency under Public Law 103-
354'' and ``FP'' to read ``FLP'' in the fifth sentence;
    c. In paragraph (c) by revising the words ``FmHA or its successor 
agency under Public Law 103-354 office'' to read ``agency office'' and 
the words ``FmHA or its successor agency under Public Law 103-354 
credit'' to read ``FLP credit'' in the first sentence;
    d. In paragraph (e) by revising the words ``FmHA or its successor 
agency under Public Law 103-354 office'' to read ``agency office'' in 
the first sentence and removing the words ``FmHA or its successor 
agency under Public Law 103-354'' in the fourth sentence;
    e. In paragraph (f) by removing the first and third sentence;
    f. In paragraph (g) by revising the words ``FmHA or its successor 
agency under Public Law 103-354'' to read ``FLP'' in the introductory 
text; by removing paragraphs (g) (1) and (4); by revising the words 
``FmHA or its successor agency under Public Law 103-354 may'' to read 
``the agency may'' and the words ``FmHA or its successor agency under 
Public Law 103-354 retains'' to read ``the agency retains'' in the 
second sentence of paragraph (g)(2); and by redesignating paragraphs 
(g) (2), (3) and (5) as (g) (1) through (3);
    g. In paragraph (h) by revising the word ``FP'' to read ``FLP'';
    h. In paragraph (i) by removing the first sentence;
    i. In paragraph (j) by revising the words ``an FmHA or its 
successor agency under Public Law 103-354'' to read ``a''.
    5. Section 1951.457 is amended by revising paragraph (a) to read as 
follows:


Sec. 1951.457   Payments.

    (a) Receiving payments. Borrowers will mail or bring their payments 
to the county office. Borrowers will be responsible for any fees 
associated with converting cash payments to money orders. If the fee is 
not paid, it will be deducted from the payment.
* * * * *
    6. Section 1951.458 is revised to read as follows:


Sec. 1951.458   Servicing real estate taxes.

    Refer to subpart A of part 1925 of this chapter for servicing real 
estate taxes.

Subpart S--Farmer Program Account Servicing Policies

    7. Section 1951.901 is revised to read as follows:


Sec. 1951.901   Purpose.

    This subpart describes the policies and procedures that the agency 
will use in servicing most Farm Loan Program (FLP) loans. The loans 
include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water 
Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM), 
Economic Emergency Loan (EE), Economic Opportunity Loan (EO), 
Recreation Loan (RL), and Rural Housing Loan for farm service buildings 
(RHF) accounts. Cases involving unauthorized assistance will be 
serviced as described in subpart L of this part. When it has been 
determined that all the conditions outlined in Sec. 1951.558(b) of 
subpart L of this part have been met, the loan will be treated as an 
authorized loan and may be serviced under this subpart. Cases involving 
graduation of borrowers to other sources of credit will be serviced as 
described in subpart F of this part. This subpart does not apply to FLP 
Non-Program (NP) loans. Examples of Primary Loan Servicing actions are: 
consolidation, rescheduling and/or reamortization, deferral of 
principal and interest payments, reclassifying to ST loans, reducing 
interest rate on the loan, writedown of debt and conservation contract, 
or a combination of these actions. Preservation loan servicing is the 
Homestead Protection program. Any processing or servicing activity 
conducted pursuant to this subpart involving authorized assistance to 
agency employees, members of their families, known close relatives, or 
business or close personal associates, is subject to the provisions of 
subpart D of part 1900 of this chapter. Applicants for this assistance 
are required to identify any known relationship or association with an 
agency employee.
    8. Section 1951.902 is revised to read as follows:


Sec. 1951.902   General.

    Supervision and Servicing. It is a primary objective of the Agency 
to provide supervised credit to borrowers in financial, production or 
other difficulty in a manner that will assure the maximum opportunity 
for their recovery and, at the same time, get the best recovery for the 
Government. Supervision and servicing are continuing processes that 
begin the day a farmer comes into the office. Providing supervised 
credit has two objectives:
    (a) To help farmers set goals, work on problem areas and work 
toward graduation to commercial credit;
    (b) To recover the maximum possible amount for the Government.
    9. Section 1951.903 is revised to read as follows:

[[Page 10121]]

Sec. 1951.903   Authorities and responsibilities.

    (a) Responsibilities. Servicing officials will make full use of the 
National automated tracked system to track and manage the FLP primary 
and preservation loan servicing and debt settlement programs.
    (b) Authorities. All loan servicing decisions except as set forth 
in this section will be made by the servicing official except the 
approval of writedown and buyout of a borrower's debt. Also, all 
applications for debt settlement of FLP loans must be recommended by 
the County Committee (except where the debt has been discharged through 
bankruptcy), approved by the State Executive Director or the 
Administrator (depending upon the amount of debt to be settled), and 
processed in accordance with the provisions of subpart B of part 1956 
of this chapter. Servicing officials are authorized to accept a buyout 
payment when the borrower(s) pays the current market value of the 
security set forth in Sec. 1951.909 of this Instruction. Only State 
Executive Directors are authorized to approve writedown and buyout in 
accordance with Sec. 1951.909 of this part and release a divorced 
spouse from liability on the debt in accordance with Sec. 1951.909(a) 
of this part.
    10. Section 1951.904 is added to read as follows:


Sec. 1951.904  Mediation, reviews and appeals.

    (a) Participant rights. (1) For loan servicing under this subpart, 
mediation or a voluntary meeting of creditors will be offered if the 
DALR$ calculations indicate that a feasible plan of operation cannot be 
developed considering all primary loan service programs, Softwood 
Timber, and Conservation Contracts. In states with a USDA Certified 
Mediation Program, mediation will be offered. In all other states, a 
voluntary meeting of creditors will be offered.
    (2) Any negotiation of an Agency appraisal must be completed prior 
to the meeting of creditors or mediation.
    (3) If the borrower does not request mediation or a voluntary 
meeting of creditors as offered in Exhibit E of this subpart within 45 
days, the servicing official will issue the appropriate ``Notice of 
Intent to Accelerate or to Continue Acceleration and Notice of 
Borrowers' Rights.''
    (4) Whenever the servicing official makes a decision that will 
adversely affect a participant, the participant will be informed that 
the decision can be reviewed in accordance with 7 CFR part 780 and 
indicate whether it can be appealed to the USDA National Appeals 
Division (NAD) according to regulations set forth in 7 CFR part 11. 
Nonprogram (NP) participants are not entitled to appeal rights.
    (b) Non-appealable decisions. The following types of decisions are 
not appealable:
    (1) Decisions made by parties outside the agency, even when those 
decisions are used as a basis for the agency's decisions.
    (2) Decisions that do not meet the eligibility requirements of 7 
CFR part 11.
    (3) Interest rates as set forth in Agency procedures, except 
appeals alleging application of the incorrect interest rate.
    (4) Refusal to request or grant an administrative waiver permitted 
by program regulations.
    (5) Denials of assistance due to lack of funds.
    (6) In cases where the adverse decision is based on both appealable 
and non-appealable actions, the adverse action is not appealable.
    (7) Determinations previously made by the Agency that have been 
appealed, and a NAD decision adverse to the participant has been 
entered; or upon which the time frame for appeal has expired with no 
appeal being requested.
    (c) Next-level review. Any adverse decision, whether appealable or 
non-appealable, may be reviewed in accordance with 7 CFR part 780.
    (d) NAD review. (1) A participant may request that NAD review the 
Agency's determination that the decision may not be appealed.
    (2) A participant may request that NAD review any decision that is 
appealable.
    (3) NAD will review the participant's request in accordance with 7 
CFR part 11.
    (e) Agency actions pending outcome of appeal. Assistance will not 
be discontinued pending the outcome of an appeal of any adverse action. 
Releases for essential family living and farm operating expenses will 
not be terminated until the account has been accelerated.
    (f) Time limits. Time limits for action under this subpart will be 
tolled during the pendency of an appeal, but not during the pendency of 
a request that NAD determine that a matter is or is not appealable.
    11. Section 1951.906 is revised to read as follows:


Sec. 1951.906  Definitions.

    As used in this subpart, the following definitions apply:
    Borrower. An individual or entity which has outstanding obligations 
to the agency under any Farm Loan Programs (FLP) loan, without regard 
to whether the loan has been accelerated. This does not include any 
such debtor whose total loans and accounts have been foreclosed or 
liquidated, voluntarily or otherwise. Collection-only borrowers are 
considered borrowers. Borrower also includes any other party liable for 
the FLP debt. Nonprogram (NP) borrowers are not considered borrowers 
for the purposes of this subpart.
    CONACT or CONACT property. Property which secured a loan made or 
insured under the Consolidated Farm and Rural Development Act. Within 
this part, it shall also be construed to cover property which secured 
other FLP loans.
    Conservation contract. A contract under which a borrower agrees to 
set aside land for conservation, recreation or wildlife purposes in 
exchange for cancellation of a portion of an outstanding FLP debt. 
Relief obtained in this manner is not considered debt forgiveness as 
defined in this section.
    Consolidation. The combining and rescheduling of the rates and 
terms of two or more notes of the same type of OL or EO loans, EE 
operating-type loans or EM loans. EM actual loss loans will not be 
consolidated.
    Current market value buyout. Termination of a borrower's loan 
obligations to the agency in exchange for payment of the current 
appraised value of the security property, less any prior liens.
    Debt forgiveness. For the purposes of loan servicing, debt 
forgiveness is defined as a reduction or termination of a direct FLP 
loan in a manner that results in a loss to the Agency. Included, but 
not limited to, are losses from a writedown or writeoff under this 
subpart, subpart J of this part, subpart B of part 1956 of this 
chapter, after discharge under the bankruptcy code, and associated with 
release of liability. Debt cancellation through conservation contracts 
is not considered debt forgiveness under this subpart.
    Debt settlement. The settlement of debts owed the United States for 
FLP loans. The types of debt settlement programs are: compromise, 
adjustment, cancellation and chargeoff.These programs are administered 
in accordance with subpart B of part 1956 of this chapter. Any action 
through debt settlement which results in a loss to the Agency will be 
considered debt forgiveness.
    Deferral. An approved delay in making regularly scheduled payments, 
including softwood timber (ST) loans. Deferral is not considered debt 
forgiveness.

[[Page 10122]]

    Delinquent borrower. A borrower who has failed to make all or part 
of a payment which is due for 30 or more calendar days after the due 
date.
    Entity. A corporation, partnership, joint operation, or 
cooperative.
    Farm Loan Programs (FLP) loans. This refers to Farm Ownership (FO), 
Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), 
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood 
Timber (ST) loans, and Rural Housing loans for farm service buildings 
(RHF).
    Farm plan. Form FmHA 431-2, ``Farm and Home Plan,'' or other plans 
or documents acceptable to the agency that will accurately reflect the 
production and financial management of the farming operation for one 
production cycle. The agency will not require the use of consolidated 
financial statements.
    Feasible plan. A feasible plan must be based upon the applicant or 
borrower's actual records that show the farming operation's actual 
income, production and expenses. These records will include income tax 
returns and supporting documents (hereafter called income tax records). 
The records must be for the most recent five-year period or, if the 
borrower has been farming less than five years, for the period which 
the borrower has farmed. For borrowers who have been farming for less 
than five years, other available records will be used in the order 
listed in section Sec. 1924.57(d)(1) of subpart B of part 1924 of this 
chapter to complete a five-year history. Future production yields will 
be based on an average of the most recent past five years' actual 
production yields. Borrowers with yields affected by disasters in at 
least two of the five most recent years may exclude the crop year with 
the lowest actual yield. In addition, in accordance with section 
Sec. 1924.57(d)(1) of subpart B of part 1924 of this chapter, if the 
applicant's remaining disaster years' yields are less than the County 
average yield, and the borrower's yields were affected by the disaster, 
County average yields will be used for those years. If County average 
yields are not available, State average yields will be used. These 
records will be used along with realistic anticipated prices, including 
any planned FLP loan payments, to determine that the income from the 
farming operation, and any reliable off-farm income, will provide the 
income necessary for an applicant or borrower to at least be able to:
    (1) Pay all operating expenses and taxes which are due during the 
projected farm business accounting period.
    (2) Meet scheduled payments on all debts.
    (3) Meet up to 110 percent, but not less than 100 percent, of the 
amount indicated for payment of farm operating expenses, debt servicing 
obligations and family living expenses. The Agency will assume that a 
borrower needs this margin to meet all obligations and continue 
farming. However, this will not prohibit a borrower from receiving debt 
restructuring because the farm and home plan shows less than such a 
margin. In no case will a borrower with a cash flow of less than 100 
percent receive restructuring.
    (d) Provide living expenses for the family members of an individual 
borrower or a wage for the farm operator in the case of a cooperative, 
corporation, partnership, or joint operation borrower, which is in 
accordance with the essential family needs. Family members include the 
individual borrower or farm operator in the case of an entity, and the 
immediate members of the family which reside in the same household.
    Financially distressed. A financially distressed borrower is one 
who will not be able to make payments as planned for the current or 
next business accounting period. Borrowers will also be considered as 
in financial distress if it is determined that they will not be able to 
project a feasible plan of operation for the next business accounting 
period.
    Foreclosed. The completed act of selling security either under the 
``power of sale'' in the security instrument or through court 
proceedings.
    Good faith. An eligibility requirement for Primary Loan Servicing 
and Current Market Value Buyout. Borrowers are considered to have acted 
in ``good faith'' if they have demonstrated ``honesty'' and 
``sincerity'' in complying with the requirements of Form 1962-1, 
``Agreement for the Use of Proceeds/Release of Chattel Security,'' and 
any other written agreements made with the agency, as documented in the 
case file. In addition, the agency must substantiate any allegations of 
fraud, waste, or conversion with a written legal opinion from the 
Office of the General Counsel (OGC) when such allegations are used to 
deny a servicing request. A borrower will not be considered to lack 
``good faith'' if the sole basis for such a determination was the 
disposition of normal income security (Sec. 1962.4 of subpart A of part 
1962 of this chapter) prior to October 14, 1988, without the Agency's 
consent and the borrower demonstrates that the proceeds were used to 
pay essential family living and farm operating expenses that could have 
been approved according to Sec. 1962.17 of subpart A of part 1962 of 
this chapter.
    Homestead Protection. The right of a former owner to apply to 
lease, with an option to purchase the Homestead Protection property, 
not to exceed 10 acres.
    Homestead Protection property. This refers to the principal 
residence which secured a FLP loan.
    Indian Reservation. Indian reservation means all land located 
within the limits of any Indian reservation under the jurisdiction of 
the United States, notwithstanding the issuance of any patent, and 
including rights-of-way running through the reservation; trust or 
restricted land located within the boundaries of a former reservation 
of a Federally recognized Indian tribe in the State of Oklahoma; or all 
Indian allotments the Indian titles to which have not been extinguished 
if such allotments are subject to the jurisdiction of a Federally 
recognized Indian Tribe.
    Limited Resource Program. A reduction of interest rates for 
operating loans (OL), farm ownership loans (FO) and soil and water 
loans (SW).
    Liquidated. The completed act of voluntarily selling security to 
end the obligation for the debt, or involuntarily as the result of a 
completed civil suit against a borrower to recover collateral against 
the debt. The filing of a claim in a bankruptcy action is not a 
complete liquidation of the borrower's accounts. Collection-only 
accounts are not considered liquidated.
    Loan service program. A Primary Loan Servicing program or a 
Preservation Loan Servicing program (Homestead Protection) for FLP loan 
borrowers.
    New application. An application submitted on or after November 28, 
1990, for loan servicing programs. This does not include an application 
reconsidered after an appeal or revision of an application submitted 
before November 28, 1990.
    Nonessential assets. Nonessential assets are those in which the 
borrower has an ownership interest, that:
    (1) do not contribute a net income to pay essential family living 
expenses or to maintain a sound farming operation (see 1962.17 of 
subpart A of part 1962 of this chapter); and
    (2) are not exempt from judgment creditors or in a bankruptcy 
action. Each State Executive Director, with the guidance of the Office 
of the General Counsel, will issue a State Supplement to establish 
guidelines on items that are exempt from judgment creditors and are 
exempt under bankruptcy law in accordance with statute.
    Nonprogram (NP) loan. An NP loan results when a loan is made to an 
ineligible applicant or transferee in connection with a loan assumption 
and sale of inventory properties at ineligible

[[Page 10123]]

terms. Borrowers originally determined eligible by the agency and found 
to be ineligible after the loan was made due to an agency error are not 
considered to have nonprogram loans.
    Preservation loan service program. See Homestead Protection.
    Primary loan service program. Primary loan service program means:
    (1) loan consolidation, rescheduling, or reamortization;
    (2) interest rate reduction, including use of the limited resource 
program;
    (3) loan restructuring, including deferral, or writing down of the 
principal or accumulated interest; or
    (4) any combination of the above.
    Reamortization. Reamortization is rearranging the installment 
payments of a real estate loan, and may include changing the interest 
rate and terms of a loan made for Subtitle A purposes.
    Rescheduling. Rescheduling is rewriting the rates and/or terms of 
OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle 
B purposes.
    Writedown. For purposes of this subpart, writedown is reducing a 
borrower's debt to an amount that will result in a feasible plan of 
operation.
    12. In Sec. 1951.907, paragraphs (c), (d) and (e) are revised to 
read as follows and paragraph (f) is removed:


Sec. 1951.907  Notice of loan service programs.

* * * * *
    (c) Notification of borrowers 90 days past due on payments. FLP 
borrowers who are at least 90 days past due (60 days delinquent) will 
be sent Exhibit A of this subpart with attachments 1 and 2 by certified 
mail, return receipt requested. If the borrower submits an incomplete 
application, see paragraph (e) of this section for procedures on 
requesting additional information. Delinquent borrowers who have also 
violated their loan agreements with the agency will be handled in 
accordance with Sec. 1951.907(e). In addition to the requirements set 
forth above, servicing officials will provide Attachments 1 and 2 of 
Exhibit A of this subpart to these borrowers, as set forth below:
    (1) At the time an application is made for participation in an FLP 
loan service program, unless such application is the result of the 
notice provided to the borrower in accordance with this section,
    (2) On written request of any FLP borrower, whether delinquent or 
not, prior to the sending of a packet under paragraph (c) of this 
section, and
    (3) If a borrower has not previously received exhibit A and 
attachments 1 and 2 of this subpart, such exhibit and attachments will 
be provided before the earliest of:
    (i) Initiating any liquidation action,
    (ii) Accepting a voluntary conveyance of security, or the borrower 
requesting permission to sell security,
    (iii) Accelerating payments on the loan,
    (iv) Repossessing the borrower's property,
    (v) Foreclosing on property, or
    (vi) Taking any other collection action.
    (d) Notification of borrowers in non-monetary default; delinquent 
borrowers also in non monetary default, or when a junior or senior 
lienholder is foreclosing. FLP borrowers who are in non-monetary 
default will be sent attachments 1, 3, and 4 of exhibit A of this 
subpart by certified mail, return receipt requested. If a case is in 
the hands of the Department of Justice or in litigation, no loan 
servicing action will be taken without Department of Justice or OGC 
concurrence (see 1962.49 of this chapter). Any servicing request will 
be processed as indicated in Sec. 1951.909. The account will not be 
liquidated until the borrower has the opportunity to appeal any adverse 
decision. After any final appeal decision that does not result in a 
resolution of the loan defaults, the account will be accelerated.
    (e) Request for primary and preservation loan service programs.(1) 
To request consideration for Primary and Preservation Loan Service 
programs, borrowers who are sent exhibit A, with attachments 1 and 2 or 
attachments 1, 3, and 4 must complete and return attachment 2 or 
attachment 4, as appropriate, to the local county office within 60 days 
after receiving those documents, with the forms required by this 
paragraph for a completed application.
    (2) If borrowers are sent attachments 3 and 4 and do not request 
servicing within 60 days, the agency will proceed with liquidation in 
accordance with Sec. 1955.15 of this chapter.
    (3) If borrowers are sent exhibit A and attachments 1 and 2 of this 
subpart and do not submit a completed application within the 60-day 
time period, the servicing official will send attachments 9 and 10, or 
9-A and 10-A of exhibit A of this subpart, as applicable. These 
attachments will not be sent to borrowers who are being serviced in 
accordance with Sec. 1951.908. For borrowers receiving attachments 9 
and 10 or 9-A and 10-A, the agency will proceed with liquidation in 
accordance with Sec. 1955.15 of this chapter.
    (4) If a borrower has moved and left a forwarding address, the 
certified mail will be forwarded. If no forwarding address is given, 
the mail will be returned to the county office. The servicing official 
will immediately send the documents from the certified mail package to 
the borrower's last known address, first class mail. The borrower's 
response date for a completed application will begin on the date of 
receipt of the certified mail or 3 days following the date of first 
class mailing, whichever is earlier.
    (5) An application for loan service programs must include the 
following forms (available in any agency office), and data, unless the 
information is already in the borrower's case file and still current, 
as determined by the approval official:
    (i) Attachment 2 or 4 of exhibit A to this subpart, response form 
to apply for loan servicing.
    (ii) Form 410-1, ``Application for FmHA Services,'' including a 
current (within 90 days) financial statement of all individuals and 
entities personally liable for the FLP debt.
    (iii) Form 431-2, ``Farm and Home Plan,'' or any other form or 
submission acceptable to the agency that sets forth a plan of operation 
and the necessary information. Commodity prices supplied by the agency 
will be used to complete the forms.
    (iv) Form 440-32, ``Request for Statement of Debts and 
Collateral.''
    (v) Form RD 1910-5, ``Request for Verification of Employment.''
    (vi) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and 
Wetland Conservation (WC) Certification,'' if the one on file with the 
agency does not reflect all the land owned and leased by the borrower.
    (vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland 
Determination,'' if not previously on file with the agency for the farm 
operation. This form is included as part of the application after being 
completed by NRCS. (This form is available at NRCS local offices.)
    (viii) If the applicant wants to be considered for a conservation 
contract, a map or copy of an aerial photo of the farm, on which the 
applicant must show that portion of the farm and approximate acres to 
be considered in a request for debt restructuring provided for in the 
conservation contract program.
    (ix) The most recent five years' income tax returns and supporting 
documents, unless the borrower has been farming for less than five 
years. In such case, income tax returns and supporting documents for 
the tax years that the borrower farmed.
    (x) If the borrower is applying for debt settlement, Form RD1956-1,

[[Page 10124]]

``Application for Settlement of Indebtedness.''
    (6) The borrower will be provided with copies of these forms when 
Exhibit A is sent, and may request copies of regulations and the forms 
manual inserts (FMI) in writing within 30 days of receipt of the loan 
servicing notice. If these latter items are not provided within 10 days 
of such a request, the borrower's time for submission of a complete 
application will be increased by the period of delay in excess of 10 
days caused by the Agency.
    (7) Not more than one 60-day period will be provided to a borrower 
to respond to the notice of loan service programs except in accordance 
with Sec. 1951.908. Subsequent notices as provided for in this section 
will not be issued until the first notice is resolved.
    13. Section 1951.908 is revised to read as follows:


Sec. 1951.908  Servicing financially distressed current borrowers.

    A borrower who is financially distressed, but is not yet delinquent 
on FLP payments, may request servicing at any time.
    (a) Notification. If a current plan of operation demonstrates that 
the borrower is or will be financially distressed, as defined in 
Sec. 1951.906, or if the borrower otherwise requests servicing, the 
servicing official will provide attachments 1 and 2 of exhibit A of 
this subpart.
    (b) Eligibility. To be considered for servicing in accordance with 
this section, the borrower must submit to the county office within 60 
days Attachment 2 of exhibit A of this subpart and a complete 
application in accordance with the requirements of Sec. 1951.907(e).
    (1) The eligibility requirements of Sec. 1951.909(c) (1) and (2) 
apply to servicing under this section.
    (2) Eligible financially distressed borrowers who are current on 
their FLP loan payments may be considered for the Primary Loan Service 
programs described in Secs. 1951.909(e) (1), (2) and (3).
    (3) Financially distressed borrowers who are not delinquent are not 
eligible for writedown of debt or buyout as described in 1951.909.
    (c) Processing the application. The servicing official must process 
a completed application and notify the borrower of the decision.
    (1) Current borrowers will be considered only for the Primary Loan 
Servicing programs described in Secs. 1951.909 (e) (1), (2), and (3). 
The servicing official must use the Debt and Loan Restructuring System 
(DALR$) program, in accordance with exhibit J-1 of this subpart, to 
determine if a feasible plan can be developed as defined in 
Sec. 1951.906.
    (2) If a feasible plan can be developed, the borrower will be sent 
exhibit B of this subpart with attachment 1 and the printout of the 
DALR$ calculations as notification of the favorable decision. The 
borrower must accept the offer within 45 days of its receipt by 
returning attachment 1 to exhibit B of this subpart or the offer will 
expire. If the borrower accepts, loan restructuring will be processed 
in accordance with Secs. 1951.909 (e) (1), (2), or (3), as applicable.
    (3) If a feasible plan cannot be developed, the borrower will be 
informed of the reasons for the adverse decision. The DALR$ printout 
will be attached.
    (4) Current borrowers who have received notices under this section 
and who do not apply for primary loan servicing, or who refuse an offer 
to restructure their debt, and later become 90 days past due on the FLP 
loan payment, will be sent notices as described in Sec. 1951.907.
    (5) Borrowers whose accounts are not delinquent may receive 
rescheduling, reamortization, consolidation, or deferral under this 
subpart only after they have paid at least a portion of the interest 
due on their FLP debt. The portion due will be based on the applicant's 
ability to pay, as determined by thoroughly analyzing the farm 
operation, including any off-farm income. The payment must be made on 
or before the date that restructuring is closed. Borrowers in non-
monetary default, but not delinquent on their FLP debt, must cure the 
non-monetary default before they may be considered for servicing under 
this paragraph.
    14. Section 1951.909 is revised to read as follows:


Sec. 1951.909  Processing primary loan service programs requests.

    (a) Servicing official responsibilities. (1) After receipt of 
attachment 2 or 4 and a completed application in accordance with 
Sec. 1951.907(e), the servicing official will consider all primary 
service programs options in this subpart. That official must use the 
Debt and Loan Restructuring System (DALR$) computer program, in 
accordance with exhibit J-1 of this subpart for borrowers who submit a 
new application, to attempt to find the combination of loan service 
programs that will result in a feasible plan. Borrowers who request 
loan servicing and who have disposed of all the FLP loan security, 
including Collection-Only borrowers, will be processed in accordance 
with part 1956, subpart B, of this chapter. If the application includes 
a request for the Conservation Contract program, as indicated by the 
submission of the information required in Sec. 1951.907(e)(5)(viii), 
the servicing official will determine whether the borrower is eligible, 
based on criteria as set forth in exhibit H of this subpart. If the 
borrower is eligible, the servicing official will make an estimate of 
the information needed to permit the DALR$ program to make the 
calculations of feasibility of the Conservation Contract. The 
assumptions used to establish the estimates will be based on the 
servicing official's knowledge of the farmland values, the borrower's 
repayment ability, and the proposed contract acreage. When the DALR$ 
calculations for restructuring are completed, the borrower will be 
notified as set forth in paragraph (h) of this section.
    (2) When jointly liable individual borrowers have been divorced and 
one has withdrawn from the operation, the State Executive Director will 
consider, upon the recommendation of the servicing official, the 
release of liability for the individual who has withdrawn if the 
following conditions are met.
    (i) A divorce decree or property settlement document held the 
withdrawing party not responsible for the loan payments;
    (ii) The withdrawing party's interest in the security is conveyed 
to the borrower with whom the loan will be continued;
    (iii) The person withdrawing does not have any repayment ability 
for the loan, and does not own any nonessential assets, as defined in 
Sec. 1951.906;
    (iv) The individual withdrawing has never received debt forgiveness 
on another direct loan; and.
    (v) The withdrawing party provides a copy of the divorce decree and 
property settlement, evidence of conveyance, a current financial 
statement, verification of income and debts, and Form 431-2 or Form RD-
1944-3 as applicable.
    (3) If a completed application includes a request for a waiver from 
the training required by paragraph (c)(5) of this section, the County 
Committee will, prior to any offer of Primary Loan Servicing, evaluate 
the borrower's knowledge and ability in production and financial 
management and determine the need for additional training as set out in 
Sec. 1924.74 of this chapter.
    (b) Adverse determination. (1) If the approval official determines 
that the borrower is not eligible for any of the Primary Loan Service 
programs or

[[Page 10125]]

restructuring is not feasible because of debt held by other lenders, 
the borrower will be advised of mediation or meeting of creditors as 
provided in paragraph (h)(3) of this section. If mediation or the 
meeting of creditors does not result in a feasible plan, the borrower 
will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A of this 
subpart, as applicable.
    (2) Borrowers who do not buy out their debt at its current market 
value, or who indicate in writing that they do not wish to buy out, 
will automatically be considered for debt settlement if they submitted 
an ``Application For Debt Settlement.'' Any appeal of a primary loan 
servicing denial will be completed before the servicing official begins 
any further processing of a Debt Settlement or Homestead Protection 
request. If the adverse decision on restructuring is upheld on appeal, 
the borrower will be considered for these options. The servicing 
official will complete the processing of the borrower's application for 
Debt Settlement in accordance with part 1956 of this chapter. Homestead 
Protection will be processed in accordance with Sec. 1951.911. No 
acceleration or foreclosure will occur until the appeal process has 
been completed for servicing or debt settlement requests timely 
submitted under this subpart.
    (3) Applicants may request a negotiated appraisal in accordance 
with paragraph (i) of this section if they object to the agency's 
appraisal. Negotiation of the appraisal, if requested by the borrower, 
will take place before mediation or a voluntary meeting of creditors.
    (c) Eligibility. Applicants will be eligible for Primary Loan 
Service programs if the servicing official has determined that they 
meet all of the following requirements:
    (1) The delinquency or financial distress does exist and is due to 
circumstances beyond the control of the borrower, due to a reduction in 
income which reduces cash flow to a point where outflows exceed 
inflows, only as follows:
    (i) The reduction in essential income from a non-farm job due to 
unemployment or underemployment of the borrower-operator or spouse is 
caused by circumstances beyond their control;
    (ii) Illness, injury, or death of an individual borrower, 
stockholder, member or partner who operates the farm;
    (iii) Natural disasters, an outbreak of uncontrollable disease, or 
uncontrollable insect damage which caused severe loss of agricultural 
production that reduced repayment ability so that scheduled payments 
cannot be made; or
    (iv) Economic factors that are widespread and not limited to an 
individual case, such as high interest rates or low market prices for 
agricultural commodities as compared to production costs, that reduce 
repayment ability so that the scheduled payments cannot be made.
    (2) The borrower has acted in good faith.
    (3) Borrowers who do not meet the eligibility requirements of this 
section will be notified of the adverse decision by sending attachments 
5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.
    (4) Borrowers with sufficient nonessential assets to bring the FLP 
loan account current are not eligible for assistance under this subpart 
and will be processed in accordance with Sec. 1951.910 of this subpart.
    (5) The borrower must agree to meet the training requirements of 
Sec. 1924.74 of this chapter unless a waiver is granted in accordance 
with that section. The training requirement applies to all primary loan 
servicing programs.
    (d) Feasibility determinations. The servicing official must 
determine:
    (1) That the borrower will be able to develop a feasible plan.
    (2) If restructured, the loan will result in a net recovery to the 
Government that will be equal to or greater than the net recovery value 
from involuntary liquidation or foreclosure as calculated in accordance 
with paragraph (f) of this section. A comparison with net recovery to 
the Government, however, will not be made when establishing 
conservation contracts under exhibit H of this subpart.
    (e) Primary loan service programs. Any FLP borrower may request 
Primary Loan Servicing Programs described in this subpart at any time 
prior to becoming 90 days past due. However, borrowers must show that 
they are not able to pay their debt as scheduled before the agency will 
approve Primary Loan Servicing Programs. The agency will consider the 
borrower's other assets in accordance with Sec. 1951.910 of this 
subpart. Rescheduling, reamortization, consolidation, or deferral may 
be utilized for any eligible borrower. Existing deferrals will be 
cancelled at the same time additional primary loan servicing is 
received. The loan will be entered into DALR$ as if the deferral were 
already cancelled. If DALR$ shows that a borrower can develop a 
feasible plan without a writedown at a lower cash flow margin than with 
a writedown, that borrower will be provided the opportunity to choose 
between restructuring with or without a writedown.
    (1) Consolidation and rescheduling of OL and EO loans, EE 
operating-type loans and EM loans made for subtitle B purposes 
including EM loss loans. This subsection explains how to consolidate 
and/or reschedule existing loans, providing the borrower agrees to such 
actions. When the servicing official determines that consolidation and/
or rescheduling will assist in the orderly collection of the loan, the 
servicing official should take such action provided all of the 
following conditions exist:
    (i) The borrower meets the eligibility requirements in paragraph 
(c) of this section;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (iii) The borrower's account is not being serviced by the OGC or 
the U.S. Attorney and there are no plans to have the account serviced 
by either of these offices in the near future;
    (iv) Loans may be rescheduled or reamortized, as appropriate, to 
bring the account current or to keep the account from becoming 
delinquent. A sufficient number of notes including all delinquent notes 
will be rescheduled to permit the development of a feasible plan of 
operation;
    (v) The borrower will comply with the highly Erodible Land and 
Wetland Conservation provisions of exhibit M of subpart G of part 1940 
of this chapter, if applicable;
    (vi) Loans secured by real estate will not be consolidated and/or 
rescheduled, until the servicing official reviews the Government's real 
estate lien priority and value of security and decides that such an 
action will be in the best interest of the Government and the borrower. 
If there are any liens which were not in existence at the time the note 
was signed, the servicing official will ask the OGC for an opinion as 
to what lien position the Government will have if a new note is taken 
unless a State supplement authorizing this action has been issued on 
this subject;
    (vii) Only loans of the same type will be consolidated;
    (viii) EM actual loss loans will not be consolidated;
    (ix) Loans serviced under subpart L of this part will not be 
consolidated with another loan;
    (x) Loans that have been deferred under this section will not be 
consolidated and/or rescheduled during the deferral period;
    (xi) Terms of consolidated and/or rescheduled loans are as follows:

[[Page 10126]]

    (A) Consolidated and/or rescheduled loans will be repaid according 
to the borrower's repayment ability, but will not exceed 15 years from 
the date of the consolidation and/or rescheduling action, except:
    (B) Repayment of loans solely for recreation and/or nonfarm 
enterprise purposes may not exceed seven years from the date of the 
consolidation and/or rescheduling action (the date the new note is 
signed).
    (C) Repayment of EE loans may not exceed 15 years from the date of 
rescheduling.
    (xii) Interest rates of consolidated and/or rescheduled loans will 
be as follows:
    (A) The interest rate for consolidated and/or rescheduled loans 
will be the lesser of the current interest rate for that type of loan 
or the lowest original loan note rate on any of the original notes 
being consolidated and/or rescheduled. In the case of an OL-limited 
resource loan, it will be the lesser of the current limited resource OL 
loan rate or the original note rate. The interest rate for loans 
rescheduled but not consolidated will be the lesser of the current 
interest rate for that type of loan or the original loan note rate.
    (B) At the time of the consolidation and/or rescheduling action, OL 
loans that were not assigned a limited resource rate when the loan was 
received, may be assigned a limited resource rate if:
    (1) The borrower meets the requirements for the limited resource 
interest rate, and
    (2) A feasible plan cannot be developed at regular interest rates 
and maximum terms permitted in this section.
    (xiii) The original (old) note(s) will be marked ``Rescheduled'' 
and stapled to the new rescheduled promissory note and will be filed in 
the operation file. Copy(ies) for the borrower's(s') case file should 
be marked and stapled the same and filed in position 2 of the case 
file. If a transfer is involved, assumption agreement(s) will be marked 
and stapled with the note(s) and copies filed as indicated above. If 
part of a note is written down, the written down note will be marked 
``Rescheduled with Debt Write Down,'' and will be filed in the 
operation file.
    (xiv) For applications received before November 28, 1990, the 
amount of outstanding accrued interest more than 90 days overdue and 
any outstanding protective advances, as defined in Sec. 1965.11(b) of 
subpart A of part 1965 of this chapter, made on the loan will be added 
to the principal at the time of consolidation and/or rescheduling (the 
date the new note is signed by the borrower). Protective advances are 
not authorized for the payment of prior or junior liens except real 
estate tax liens. See section II E of exhibit J of this subpart for an 
explanation of how to schedule payment of interest not more than 90 
days overdue; and
    (xv) For new applications, the amount of outstanding accrued 
interest and any outstanding protective advances, as defined in 
Sec. 1965.11(b) subpart A of part 1965 of this chapter, made on the 
loan will be added to the principal at the time of consolidation and/or 
rescheduling (the date the new note is signed by the borrower) in 
accordance with the provisions of exhibit J-1 of this subpart. 
Protective advances are not authorized for the payment of prior or 
junior liens except real estate tax liens.
    (2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for 
real estate purposes. When the servicing official determines that a 
reamortization action will assist in the orderly collection of the 
loan, the servicing official should take such action, provided:
    (i) The borrower meets the eligibility requirements of 1951.909(c) 
of this subpart;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (iii) The borrower's account is not being serviced by the OGC or 
the U.S. Attorney, and there are no plans to have the account serviced 
by either of these offices in the foreseeable future;
    (iv) A feasible plan for the borrower cannot be developed with the 
existing repayment schedule. A sufficient number of notes, including 
all delinquent notes, will be reamortized to permit the development of 
a feasible plan of operation;
    (v) The borrower will comply with the Highly Erodible Land and 
Wetland Conservation requirements of exhibit M of subpart G of part 
1940 of this chapter, if applicable;
    (vi) Loans that have been deferred in this supbart will not be 
reamortized during the deferral period unless the deferral is 
cancelled;
    (vii) Terms of repayment of reamortized loans are as follows:
    (A) Reamortized installments usually will be scheduled for 
repayment within the remaining time period of the note or assumption 
agreement being reamortized. If repayment terms are extended, the new 
repayment period may not exceed 40 years from the date of the original 
note or assumption agreement or the useful life of the security, 
whichever is less. EE loans for real estate purposes, which are secured 
by chattels only, may be reamortized over a period not to exceed 20 
years from the date of the original note or assumption agreement, or 
the useful life of the security, whichever is less. RHF loans may not 
exceed 33 years from the date of the original note or assumption 
agreement.
    (B) The Agency's lien priority may be affected if the final due 
date of the original loan is extended. A State supplement will be 
issued to provide instructions on the effect that a change in the final 
due date has on security instruments and the actions necessary to 
retain the Government's lien priority. The State supplement will also 
include instructions for releasing the original security instrument 
when a new one is obtained.
    (viii) Interest:
    (A) The interest rate will be the current interest rate in effect 
on the date of reamortization (the date the new note is signed by the 
borrower), or the interest rate on the original Promissory Note to be 
reamortized, whichever is less. In the case of a limited resource loan, 
it will be the limited resource FO or SW loan rate or the original loan 
note rate, whichever is less.
    (B) At the time of the reamortization, an FO or SW loan that was 
not assigned a limited resource rate when the loan was received, may be 
changed to a limited resource interest rate if:
    (1) The borrower meets the requirements for a limited resource 
interest rate,
    (2) A feasible plan cannot be developed at regular interest rates 
and at the maximum terms permitted in this section, and
    (3) For SW loans, the loans funds were used for soil and water 
conservation and protection purposes as set forth in Sec. 1943.66 
(a)(1) through (a)(5) of subpart B of part 1943 of this chapter.
    (C) For applications received before November 28, 1990, the amount 
of accrued interest more than 90 days overdue and any protective 
advances, as defined in Sec. 1965.11(b) of subpart A of part 1965 of 
this chapter, charged to the borrower's account, will be added to the 
principal at the time of the reamortization action (the date the new 
note is signed by the borrower). Protective advances are not authorized 
for the payment of prior or junior liens except real estate tax liens. 
If there are no deferred installments, the first installment payment 
under the reamortization will be at least equal to the interest amount 
which will accrue on the new principal between the date the Form 1940-
17 is processed and the next installment due date. See section II

[[Page 10127]]

E of exhibit J of this subpart for an explanation of how to schedule 
payments of interest not more than 90 days overdue. For new 
applications, the amount of outstanding accrued interest and any 
outstanding protective advances made on the loan will be added to the 
principal at the time of reamortization (the date the new note is 
signed by the borrower) in accordance with the provisions of exhibit J-
1 of this subpart.
    (ix) The original (old) note(s) will be marked ``Reamortized'' and 
will be stapled to the new promissory note and filed in the operational 
file. Copies for the borrower(s) case file should be marked and stapled 
the same and filed in position 2 of the case file. If a transfer is 
involved, assumption agreement(s) will be marked and stapled with the 
note(s) and copies filed as indicated above. If a part of a note is 
written down, the written down note will be marked ``Reamortized with 
Debt Writedown'' and will be filed as indicated above in this 
paragraph.
    (3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE 
loans.--(i) Loan deferrals. Deferrals will be considered only after it 
has been determined that consolidation, rescheduling, and 
reamortization, in accordance with this subpart, will not provide a 
feasible plan.
    (ii) Conditions. In order to be considered for a deferral, the 
borrower must meet both of the following conditions:
    (A) The need for the deferral must be temporary. To be temporary 
means that the borrowers will be able to show to the satisfaction of 
the servicing official that they will be able to resume payment on the 
debt by the end of the deferral period, or the new payments, as 
established by using consolidation, rescheduling, or reamortization can 
be resumed at the end of the deferral period; and
    (B) Continuation of loan payments as presently scheduled without 
change, will unduly impair the borrower's standard of living. An unduly 
impaired standard of living is a condition whereby the borrower, due to 
circumstances beyond the borrower's control, is unable to pay essential 
family living expenses (partnerships, joint operators, corporations, 
and cooperatives do not have family living expenses), pay normal farm 
operating expenses, including reasonable and customary hired labor and/
or salary paid to the operator(s) of a partnership, a joint operation, 
a corporation, or a cooperative, maintain essential chattels and real 
estate, and meet the scheduled payments of all debts.
    (iii) Approval offical determinations. The approval official must:
    (A) Determine that the borrower meets the eligibility requirements 
of Sec. 1951.909(c) of this subpart;
    (B) Determine that a deferral of payments is necessary and 
appropriately document the conditions causing the need for deferral;
    (C) If a borrower owns 50 acres or more of marginal land as defined 
in exhibit G of this subpart and a feasible plan cannot be developed 
after consideration of a deferral, the servicing official will inform 
the borrower about the Softwood Timber (ST) loan program authorized by 
exhibit G of this subpart by sending Attachment 1 of exhibit G of this 
subpart by certified mail, return receipt requested, within 5 days 
after the adverse deferral determination. If the borrower requests the 
servicing official to determine that an ST loan may allow the borrower 
to continue to farm, within 15 days of the borrower's receipt of 
attachment 1, the servicing official will determine if the borrower is 
eligible, based on criteria as set forth in exhibit G of this subpart. 
If the borrower is eligible the servicing official will help the 
borrower to develop a plan to determine if a feasible operation can be 
developed utilizing this program. The discussion will be documented in 
the borrower's case file.
    (iv) Loan deferral considerations. The servicing official will 
assist the borrower in completing a typical-year plan. If there is no 
typical year, the servicing official will assist the borrower with 
completing a plan of operation for each year of the deferral. The plans 
must be considered in DALR$.
    (A) A sufficient number of loans must be considered for deferral to 
permit the borrower to have a feasible plan.
    (B) A deferral plan may include a reorganization of the farming 
operation, including the use of new enterprises, to overcome existing 
financial, economic or other limitations of the operation. If the 
proposed restructuring requires capital expenditures, a subordination 
or additional loan will be considered. Deferral of additional loan 
installments beyond those needed to allow the borrower to develop a 
feasible plan will not be used to create additional cash reserve for 
capital purchases. Such purchases are not considered operating 
expenses.
    (C) A typical year during the deferral period is a year which most 
closely represents the borrower's average operation for the entire 
deferral period. There may be no typical year for farming or ranching 
operations undergoing a major reorganization. If there is no typical 
year, then it will be necessary to develop a plan of operation for each 
year of the deferral. The plans must be considered in DALR$ to 
determine if each plan is feasible.
    (D) The deferral of loan installments is not intended to create a 
high net cash reserve where revenue substantially exceeds expenses. If 
the deferral of a complete note would cause a high net cash reserve 
during the entire deferral period, a full deferral should not be 
granted. In such a case, a partial deferral should be considered to 
obtain a feasible plan of operation. The same approach should be used 
for situations in which there is no typical year and debt payments must 
vary throughout the deferral period.
    (E) The borrower must have feasible plans of operation to support 
any deferral request. Plans of operation in conjunction with loan 
deferrals must be realistic and supported by the borrower's actual 
records.
    (v) Additional and subsequent deferrals. If, during the period of 
the initial deferral, the borrower is unable to make the scheduled 
payments, the borrower may again request primary loan service actions. 
When considering primary servicing actions, existing deferred notes 
must be entered into DALR$ as if they had not been deferred. If it is 
necessary to defer additional loans to develop a feasible plan, such 
action will be taken if the deferral will result in a greater net 
recovery to the Government than debt writedown. Borrowers may obtain 
subsequent deferrals after the deferral period provided the conditions 
of this subsection are met.
    (vi) Term and interest rate. A deferral period will not exceed five 
(5) annual installments. Deferral interest rates will be determined as 
specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
    (A) All loans being deferred will be consolidated, rescheduled or 
reamortized, as applicable. The promissory note rescheduled, 
reamortized or consolidated for the deferral will show ``zero'' as the 
installments due during the period of the deferral if the whole note is 
deferred and will not be changed during the deferral period unless the 
conditions of paragraph (e)(3)(v) of this section are met. The 
servicing official will determine the amount of interest that will 
accrue during the deferred period. This interest will be repaid in 
equal amortized installments during the term of the loan remaining 
after the deferral period. The calculated installments will be added to 
the remaining installments for the remaining principal balance and

[[Page 10128]]

inserted on the promissory note as a scheduled installment for the 
remaining period of the loan. The Finance Office will apply the 
payments made on the note in accordance with subpart A of this part. 
For applications received before November 28, 1990, the amount of 
outstanding accrued interest more than 90 days overdue and any 
outstanding protective advances, as described in Sec. 1965.11(b) of 
subpart A of part 1965 of this chapter, made on the loan will be added 
to the principal at the time of the deferral (the date the new note is 
signed by the borrower). Protective advances are not authorized for the 
payment of prior or junior liens except real estate taxes. See section 
II E of exhibit J of this subpart for an explanation of how to schedule 
payment of interest not over 90 days overdue. For new applications, the 
amount of outstanding accrued interest and any outstanding protective 
advances made on the loan will be added to the principal at the time of 
deferral (the date the new note is signed by the borrower).
    (B) The field office will process the deferral via the Automated 
Discrepancy Processing System (ADPS).
    (C) If a deferral is approved, the borrower's name and the date of 
approval will be recorded and maintained in accordance with subpart A 
of part 1905 of this chapter. The Finance Office will provide the 
county office with a quarterly status report for each borrower who has 
received a deferral.
    (D) Six months prior to the end of the deferral period the 
servicing official will notify the borrower in writing of the 
expiration of the deferral and the amount and date of the borrower's 
first upcoming installment of the debt.
    (E) A deferral will be cancelled if the loan is later restructured 
in accordance with this subpart. The cancellation will be processed via 
ADPS.
    (vii) Increase in repayment ability. At the time the servicing 
official makes the analysis required by Sec. 1924.60 of subpart B of 
part 1924 of this chapter, the servicing official will determine 
whether the borrower has had an increase in income and repayment 
ability. If an income increase is substantial enough to enable the 
borrower to graduate, the case will be handled in accordance with 
subpart F of this part. If an increase would enable the borrower to 
make some payments during the deferral period, the servicing official 
will, in writing, ask the borrower to sign a Form 440-9, 
``Supplementary Payment Agreement,'' within 30 days of the date of the 
written request. The borrower will be provided appeal rights. When 
doing the analysis to determine whether there is a substantial increase 
in income and repayment ability, the servicing official will determine 
whether this increase exists by comparing it to the original plan 
developed in the deferral application and also to plans developed for 
the current operating year to determine that the excess income is not 
needed for essential living and operating expenses or scheduled debt 
payment. Refusal to sign Form 440-9 will be considered a non-monetary 
default and will be handled as set forth in Sec. 1951.907(e) of this 
subpart. If the borrower signs Form 440-9 and later does not honor the 
terms and conditions of the repayment agreement, the borrower's account 
will be handled as set forth in Sec. 1951.907 of this subpart.
    (4) Writedown. The following conditions shall be met in order for a 
borrower to receive writedown of FLP debts:
    (i) No other Primary Loan Service programs, including deferral, nor 
any combination thereof, will produce a feasible plan that will permit 
the borrower to continue the operation. However, if DALR$ shows that a 
borrower can develop a feasible plan without a writedown at a lower 
cash flow margin than with a writedown, then the borrower will be 
provided the opportunity to choose between restructuring with or 
without a writedown;
    (ii) The borrower must never have received debt forgiveness on 
another direct loan at any time;
    (iii) The amount written off may not exceed $300,000.
    (iv) A feasible plan must be developed that will result in a 
present value of loans to be repaid to the Government which is equal to 
or more than a net recovery from an involuntary liquidation or 
foreclosure;
    (v) The borrower must comply with the Highly Erodible Land and 
Wetland Conservation requirements of exibibit M of subpart G of part 
1940 of this chapter, if applicable;
    (vi) The borrower must agree to a Shared Appreciation Agreement if 
the loan is secured by real estate;
    (vii) Loans written down with the Primary Loan Servicing programs 
will be rescheduled, reamortized, or deferred in accordance with 
paragraph (e) of this section; and
    (viii) Borrower must agree to a lien on certain assets as provided 
in 1951.910 of this subpart, including nonessential assets, where the 
net recovery value of these assets was not paid to the Agency. (The 
Agency's lien will be taken only at the time of closing the 
restructured loans); and
    (ix) Debt reduction received through conservation easements or 
contracts will not be counted toward the limitations in paragraphs 
(e)(4) (ii) and (iii) of this section.
    (f) Determining value of net recovery from involuntary liquidation. 
After receipt of a complete application for Primary and Preservation 
Loan Service programs, the servicing official will make the 
calculations required in this section and notify the borrower of the 
result. For New Applications, nonessential assets will be considered in 
accordance with Sec. 1951.910(a) of this subpart.
    (1) The servicing official will use the computer program, DALR$, to 
determine the net recovery to the Government equivalent to involuntary 
liquidation of the collateral securing the FLP debt in accordance with 
Exhibit J or J-1 of this subpart, ``Debt and Loan Restructuring 
System,'' as applicable, and will follow the guidance provided by State 
supplements and Exhibit I of this subpart, ``Guidelines for Determining 
Adjustments for Net Recovery Value of Collateral.'' The servicing 
official will determine the current market value of the collateral in 
the borrower's possession including tangible property in existence and 
of record in accordance with subpart E of part 1922 of this chapter for 
real estate property, and on Form 440-21, ``Appraisal of Chattel 
Property.'' The servicing official also will determine the current 
market value of any bank accounts, stocks and bonds, certificates of 
deposit and the like pledged to and/or in the possession of the Agency. 
Collateral may include real estate, chattels, tangible property and 
property such as bank accounts, stocks and bonds, certificates of 
deposit, and the like. Chattels include machinery, equipment, 
livestock, growing crops, and crops in storage. Tangible property may 
include accounts receivable (including Government payments), 
inventories, supplies, feed, etc. From the current market value of the 
collateral in the borrower's possession, or pledged to and/or in the 
possession of the Agency (in the case of bank accounts, stock and 
bonds, certificates of deposit, and the like), the following 
adjustments will be made:
    (i) Subtract the amount which would be required to pay prior liens 
on the collateral;
    (ii) Subtract taxes and assessments, depreciation, management 
costs, and interest cost to the Government based on the 90-day Treasury 
Bills (published in a National Office issuance). Taxes

[[Page 10129]]

and assessments, depreciation, management costs, as well as interest 
costs will be calculated on the current market value of the property 
for the average inventory holding period. The holding period for 
suitable inventory farm property will be established by each State as 
of July 1 each year using Report Code 597. The months that the suitable 
property is under lease will not be included in determining the average 
holding period for purposes of this subpart;
    (iii) Adjust the current market value for estimated increases or 
decreases in value of the property for the holding period specified in 
paragraph (f)(1)(ii) of this section;
    (iv) Subtract resale expenses, such as repairs, commissions, and 
advertising;
    (v) Other administrative and attorney's expenses;
    (vi) Add income which will be received after acquisition; and
    (vii) For a borrower who submits a ``new application'' as defined 
in Sec. 1951.906 of this subpart, add the value of any collateral that 
is not in the borrower's possession and that has not been approved on 
the Form 1962-1 or released in writing by the Agency, minus the value 
of any prior lienholder's interest. Collateral not in possession of the 
borrower is defined as any property specified in any agency security 
instruments for such borrower's FLP debt that the borrower has disposed 
of and that the Agency has not approved or released in writing. The 
value of normal income security not in possession of the borrower will 
not be added to the NRV if it could be post-approved for release in 
accordance with Sec. 1962.17 of subpart A of part 1962. The value of 
any collateral that is not in the possession of the borrower will be 
determined by the servicing official based upon the best information 
available about the value of the collateral on or about the time of its 
disposition. In determining the value of such property, the Agency will 
use such sources as the publications Hotline (Farm Equipment Guide) and 
Official Guide (Tractor and Farm Equipment), sale prices at local 
public auctions, public livestock sale barn prices, comparable real 
estate sales, etc. Agency appraisal forms will be used to record the 
value of the missing collateral and the basis for the valuation.
    (2) The State Executive Director will determine costs of 
involuntary liquidation of collateral for farm loans by analyzing the 
costs of involuntary liquidation within the geographic areas of their 
jurisdiction. The State Executive Director also will issue a State 
supplement of estimated costs and average holding time to be used as 
guidelines by servicing officials in making calculations of net 
recovery value under this subsection. Such cost analyses will be 
carried out in July of each year. The State Executive Director will 
consult with State Executive Directors of adjoining States, other 
lenders, real estate agents, auctioneers, and others in the community 
to gather and analyze the information specified in this subpart.
    (g) Determining net recovery value resulting from primary 
servicing. The value of the restructured debt will be based on the 
present value of payments the borrower would make to the Agency using 
any combination of primary loan service programs that will provide a 
feasible plan. Present value is a calculation concept which assigns a 
lower current value to dollars received in later years than to dollars 
received at the present time. Servicing officials will use a discount 
rate based on 90-day Treasury Bills as of the date the borrower files 
the application for restructuring. The National Office will publish the 
90-day Treasury Bill rate in a National Office issuance.
    (h) Notification requirements. In those instances where the 
applicable notice is sent certified mail, and the certified mail is not 
accepted by the borrower, the servicing official will immediately send 
the documents from the certified mail package to the borrower's last 
known address, first class mail. The appropriate response time will 
commence 3 days following the date of mailing.
    (1) Offer. If the calculations show that the value of the 
restructured debt is greater than or equal to the NRV as determined in 
paragraph (f) of this section, the servicing official will forward to 
the State Executive Director the borrower's Farm and Home Plan and the 
original printout of the DALR$ calculations. The servicing official 
will certify that the borrower meets all requirements for debt 
restructuring with the writedown amount specified on the printout. The 
State Executive Director's authorization to the servicing official to 
proceed with the writedown will be evidenced by the State Executive 
Director's signature affixed to the original copy of the DALR$ printout 
returned to the servicing official. Within 60 days after receiving a 
complete application, the servicing official will notify the borrower 
of the results of the calculations by sending Exhibit F of this 
subpart, certified mail, return receipt requested, and offer to 
restructure the debt. A printout of the DALR$ calculations will be 
attached to Exhibit F of this subpart.
    (i) Exhibit F of this subpart will inform the borrower(s) of the 
Agency's offer to restructure the debt, the right to request a copy of 
the agency's appraisal, and other options which may include payment of 
nonessential assets and negotiation of the appraisal. If the borrower 
accepts the offer within 45 days following any appeal, the servicing 
official will restructure the debt within 45 days after receipt of the 
written notice of the borrower's acceptance.
    (ii) If the borrower does not respond to exhibit F within 45 days, 
or declines the Agency's offer to restructure the debt without 
requesting an appeal or negotiation, the servicing official will send 
attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as 
applicable. If the borrower requests an appeal and the Agency is 
upheld, attachments 9-A and 10-A will not be sent until the borrower is 
given the opportunity to accept the original offer within 45 days 
following the final appeal decision. These borrowers will not have an 
additional opportunity to appeal the offer in attachments 9-A and 10-A. 
If attachment 10 or 10-A is not returned within 30 days of the 
borrower's receipt of the attachments, the account will be accelerated 
or foreclosed in accordance with Sec. 1955.15 of subpart A of part 1955 
of this chapter.
    (iii) If the borrower submitted a new application and requests a 
negotiated appraisal within 30 days of receiving exhibit F, the 
negotiation of the appraisal will be completed in accordance with 
paragraph (i) of this section.
    (A) After completing a negotiation of the appraisal, if the debt 
can be restructured, the servicing official will send exhibit F to the 
borrower making the new offer in accordance with paragraph (h)(1)(i) of 
this section.
    (B) If the negotiated appraisal changes the DALR$ calculations so 
that the debt cannot be restructured, the borrower will be sent exhibit 
E, ``Notification of Adverse Decision for Primary Loan Servicing, 
Mediation or Meeting of Creditors and Other Options,'' in accordance 
with paragraph (h)(3) of this section. The appraisal cannot be 
negotiated again and is not subject to appeal.
    (2) Conservation contracts. If the borrower returned attachment 2 
or 4 to Exhibit A of this subpart within 60 days, requesting a 
conservation contract by submitting a map or aerial photo showing the 
portion of the farm and approximate acres to be considered in the 
request, the servicing official will proceed with processing the 
request for debt relief as set forth in Exhibit H of this subpart. 
Borrowers who did not

[[Page 10130]]

previously ask for this option can make a request for the contract at 
this time by submitting a map or copy of an aerial photo indicating 
that portion of the farm and appropriate acres to be considered. 
Borrowers must submit the photo within 30 days of receiving Exhibit E 
of this subpart.
    (3) Mediation/voluntary meeting of creditors. If the DALR$ 
calculations indicate a feasible plan of operation cannot be developed 
considering all Primary Loan Service Programs, Softwood Timber, or 
Conservation Contracts, the servicing official will take the following 
actions within 15 days from the date of the determination that the 
borrower's debt cannot be restructured as requested:
    (i) Exhibit E, ``Notification of Adverse Decision for Primary Loan 
Servicing, Mediation or Meeting of Creditors and Other Options,'' of 
this subpart will be sent to the borrower in all cases by certified 
mail, return receipt requested. A printout of the DALR$ calculations 
will be attached to exhibit E of this subpart.
    (A) When the borrower is in a State with a USDA Certified Mediation 
Program, paragraph I in exhibit E will be used. Paragraph I tells the 
borrower that the Agency is requesting mediation with the borrower's 
creditors in an effort to obtain debt adjustment which would permit the 
development of a feasible plan of operation. If the borrower submitted 
a new application, the borrower must respond to exhibit E of this 
subpart if the borrower wants to negotiate the Agency's appraisal in 
accordance with paragraph (i) of this section. The borrower may request 
a copy of the Agency's appraisal. The Agency must participate in USDA 
Certified Mediation Programs whether or not the borrower responds to 
exhibit E of this subpart. Any negotiation of the appraisal must be 
completed prior to any mediation.
    (B) In States without a certified mediation program, exhibit E of 
this subpart will be sent by certified mail, return receipt requested, 
to inform the borrower about the applicable options which may include a 
request for a copy of the Agency's appraisal, a meeting of creditors, 
payment of nonessential assets, negotiation of the appraisal and a 
request for an independent appraisal. Paragraph I of exhibit E of this 
subpart will be deleted. The purpose of the voluntary meeting of 
creditors is to develop a feasible plan. Paragraph II of exhibit E of 
this subpart, therefore, will be used to offer a voluntary meeting of 
creditors when the borrower has undersecured creditors who hold a 
substantial part of the borrower's total debt. A ``substantial part of 
the borrower's total debt'' means that the debt of the undersecured 
creditors is large enough so that if it were written down to zero, a 
feasible plan could be developed considering all primary servicing 
options. The servicing official will document such determination in the 
case file, and the servicing official will not offer to carry out a 
voluntary meeting of creditors when the undersecured debt is not a 
substantial part of the borrower's total debt. Such borrower will be 
informed later of additional rights, including appeal rights, when the 
Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of 
exhibit A of this subpart. Any appeal may challenge the Agency's 
determination not to offer a voluntary meeting of creditors because the 
undersecured debt is not a substantial part of the borrower's total 
debt.
    (C) Any negotiation of the Agency's appraisal must be completed 
prior to the meeting of creditors or mediation. If the borrower does 
not request any of the options offered in exhibit E of this subpart 
within 45 days, the servicing official will send attachments 5 and 6, 
or 5-A and 6-A of exhibit A of this subpart, as applicable, certified 
mail, return receipt requested.
    (ii) If mediation or the voluntary meeting of creditors is held but 
is not successful, the borrower will be sent attachments 5 and 6, or 5-
A and 6-A, of exhibit A of this subpart, as applicable, certified mail, 
return receipt requested, within 15 days of the unsuccessful mediation 
or meeting. The DALR$ computer printout will be attached to attachment 
5 or 5-A of exhibit A of this subpart.
    (4) Buyout of loans. The following notification and processing 
provisions also apply to buyout as offered in Attachments 5 and 5-A of 
Exhibit A of this subpart. After July 3, 1996, buyout will be at the 
Current Market Value (CMV) of the security.
    (i) Eligible borrowers will have 90 days after the receipt of the 
notification of ineligibility for Primary Loan Service programs to buy 
out their loans at Current Market Value, or the balance of their unpaid 
FLP debt, whichever is lower.
    (ii) The present value of the restructured loan must be less than 
the net recovery value to receive buyout.
    (iii) The Agency will not provide direct or guaranteed credit for a 
buyout.
    (iv) The borrower must never have received debt forgiveness on 
another direct loan. (Applies if any debt will be written off.)
    (v) The amount written off may not exceed $300,000.
    (vi) The borrower must have acted in good faith.
    (vii) Debt reduction received through conservation easements or 
contracts will not be counted toward the limitations in paragraphs 
(h)(4) (iv) and (v) of this section.
    (viii) The mortgage or deed of trust will be released in accordance 
with paragraph (k) of this section.
    (ix) The State Executive Director must approve the buyout prior to 
offering buyout to the borrower if the Agency will be writing off any 
debt.
    (i) Administrative appeals and negotiation of appraisals.--(1) 
Appeals. The time limit to pay the current market value of the 
security, as set out in paragraph (h)(4) of this section, will start on 
the day the borrower receives the final appeal or review decision 
upholding the initial decision. The borrower will have conclusively 
presumed to have received that decision within 3 days of mailing.
    (2) Appeal process. (i) If the administrative appeal process 
results in a determination that the borrower is eligible for Primary 
Loan Servicing, the servicing official will process the request 
pursuant to Sec. 1951.909 of this subpart. The information used will be 
that which the appeal officer used in making the decision on the 
appeal, unless stated otherwise in the final appeal decision letter. In 
cases of debt restructure resulting from appeals, the interest rate 
will be the lesser of the current rate or the original note rate on the 
date of the closing of the transaction. If implementation of the appeal 
decision would cause writedown or writeoff of more than $300,000 
because of interest accrued after the adverse decision, the servicing 
official will process the action so as to complete the transaction.
    (ii) If the administrative appeal process results in a 
determination that the borrower is ineligible for Primary Loan 
Servicing, the servicing official will send Exhibit K and Attachment 1 
of this subpart and continue processing any application for debt 
settlement that may have been submitted in accordance with subpart B of 
part 1956 of this chapter. If the borrower does not return Attachment 1 
of Exhibit K within 15 days of the date that it is sent, the servicing 
official will continue to process the application for Preservation Loan 
Servicing and any debt settlement. The account will not be accelerated 
or foreclosure will not continue until the borrower has the opportunity 
to appeal any denial of the Preservation Loan Servicing and any Debt 
Settlement request. If the borrower returns Attachment 1 of Exhibit K 
within 15

[[Page 10131]]

days of its mailing, the account will be accelerated.
    (3) Appraisal appeals. (i) Borrowers appealing the current market 
appraisal completed by the Agency may obtain an appraisal by an 
independent appraiser selected from a list of at least three names 
provided by the servicing official. A borrower who submitted a new 
application may appeal the Agency's appraisal, if it has not previously 
been negotiated under paragraph (i)(4) of this section, and the denial 
of other issues of Primary Loan Service programs in which the 
appraisal, as part of the NRV calculation, is relevant. The cost of the 
independent appraisal must be paid by the borrower. The borrower will, 
upon request, have access to the case file and receive a copy of the 
Agency's appraisal. The independent appraiser must be a State certified 
general appraiser.
    (ii) The appraisal report must conform to subpart E of part 1922 of 
this chapter for real estate and Form 440-21 for chattels.
    (iii) If either the servicing official or the borrower discovers 
any mathematical or property description errors in the appraisal prior 
to or at the time of the review and comparison, necessary corrections 
may be made if both parties agree. The party discovering the error must 
contact the other for a meeting to approve the corrections.
    (iv) If the Agency's appraisal and the borrower's independent 
appraisal vary in value by five percent or less, the borrower will 
select the appraisal to be used for servicing under this subpart.
    (4) Negotiation of appraisals. A borrower who submits a new 
application may request to negotiate the appraisal one time only. 
Negotiation of appraisals is offered in Exhibits E and F of this 
subpart, as discussed in paragraph (h) of this section. All appraisals 
used in the negotiations must reflect the value of the property as of 
the same time frame as the Agency's initial appraisal. Errors will be 
handled in accordance with paragraph (i)(3)(iii) of this section.
    (i) The borrower can request the list of independent appraisers 
from the servicing official on Attachment 2 of Exhibits E and F of this 
subpart. The borrower must provide the servicing official with a copy 
of his or her independent appraisal within 30 days of requesting 
negotiation. The borrower must pay for this independent appraisal. The 
borrower's independent appraiser and appraisal report must meet the 
qualifications described in paragraph (i)(3)(ii) of this section, but 
the independent appraiser need not be on the Agency's list of qualified 
appraisers. If the Agency's appraisal and the borrower's independent 
appraisal vary in value by five percent or less, the borrower will 
select the appraisal to be used for servicing under this subpart. No 
further negotiation will occur.
    (ii) If the two appraisals differ by more than five percent, the 
servicing official will give the borrower a list of qualified, 
independent appraisers. The borrower will select one appraiser from the 
Agency's list to conduct a third appraisal. The appraiser cannot have 
conducted either the Agency's or the borrower's independent appraisal, 
and must meet the qualifications set out in paragraph (i)(3) of this 
section. The borrower, the appraiser and the servicing official will 
complete and sign the Appraisal Agreement (Attachment 3 of Exhibit F of 
this subpart). The appraiser will be sent a copy of the appraisal 
standards, subpart E of part 1922 of this chapter, for real estate and 
Form 440-21 for chattels. The borrower will submit to the servicing 
official the original or a copy of the third appraisal and its 
attachments and the appraiser's bill. The Agency will pay 50 percent of 
the cost. The borrower is responsible for paying the appraiser directly 
the remaining 50 percent of the cost.
    (iii) Following the completion of the third appraisal, the three 
appraisals will be compared by the servicing official, who will average 
the two that are the closest in value. The average of the two closest 
in value will become the final appraised value. Errors will be handled 
in accordance with paragraph (i)(3)(iii) of this section.
    (j) Processing of writedown. Borrowers who are eligible for Primary 
Loan Service Programs with writedown will have their loans rescheduled 
or reamortized in accordance with this subpart. All loan servicing 
actions approved in connection with the writedown must take place 
simultaneously. The borrower and servicing official will complete 
exhibit D to this subpart, ``Shared Appreciation Agreement.'' Exhibit D 
provides for recapture as specified in 1951.914 of this subpart of a 
portion of any appreciation in the value of the real property securing 
the debt remaining after the writedown. The DALR$ computer program will 
be used to determine the notes to be written down.
    (1) A separate Form 1940-17, ``Promissory Note,'' will be used for 
each note or assumption agreement being reamortized.
    (2) A Form 1940-17 will be completed, signed, and distributed as 
provided in the FMI.
    (3) The loan servicing action date of approval is also the date 
that will be inserted on the rescheduled or reamortized Form 1940-17 in 
accordance with the provisions in the ADPS manual when establishing an 
equity record.
    (4) A Form 1940-17 may be processed provided the County Office has 
possession of the original note being reamortized. If the County Office 
does not have possession of the original note, the servicing official 
will ask the Finance Office to return the original note so that it is 
in the County Office before Form 1940-17 is processed.
    (5) The field office will process the reamortization or 
consolidation via the Automated Discrepancy Processing System (ADPS) in 
accordance with Form 1940-17, and complete exhibit D of this subpart.
    (6) The original (old) note(s) will be marked ``Rescheduled or 
Reamortized with Writedown of Debt'' and stapled to the new rescheduled 
or reamortized promissory note(s) and will be filed in the promissory 
note file in the operation file. Copies for the borrower(s) case file 
should be marked and stapled the same and filed in position 2 of the 
case file. If a transfer is involved, assumption agreement(s) will be 
marked and stapled with the note(s) and copies will be filed as 
indicated above.
    (7) A lien will be taken on assets in accordance with Sec. 1951.910 
of this subpart.
    (k) Real estate liens. The Agency's real estate liens will be 
maintained even if the writedown of the borrower's real estate debt 
results in all real estate debts to the Agency being written down. The 
Agency's real estate lien will not be subordinated to increase the 
amount of the prior liens during the shared appreciation period. Shared 
appreciation agreements will be serviced in accordance with 
Sec. 1951.914 of this subpart. Upon payment by the borrower of current 
market value in a buyout, the original mortgage or deed of trust will 
be released on real estate for the FLP loans bought out. The notes will 
be marked ``Satisfied at Current Market Value'' and returned to the 
debtor or the debtor's legal representative. Existing net recovery 
buyout recapture agreements will be serviced in accordance with 
Sec. 1951.913 of this subpart.
    (l) Non-real estate liens. If a borrower's FLP loan(s) were not 
secured by real estate, there will be no recapture and the borrower 
will not be required to enter into a recapture agreement. Upon payment 
by the borrower of the current market value in a buyout, the original 
security instruments will be released on

[[Page 10132]]

chattel security for the FLP loans bought out. These notes will be 
marked ``Satisfied at Current Market Value'' and returned to the debtor 
or the debtor's legal representative.
    (m) Notes. Notes evidencing real estate debts written down in full 
or written off as a result of Primary Servicing will be returned to the 
debtor at the end of any recapture period. If there is no recapture 
period, the notes will be returned when the County Office verifies that 
the transaction has been recorded in the Finance Office. For a market 
value buyout, the original and copies of the notes will be marked 
``Satisfied by Approved Current Market Value Buyout.'' For writedown in 
full, the original and copies of the notes will be marked ``Satisfied 
by Approved Debt Writedown.'' If a note is only partially written-down, 
it will be returned to the debtor when paid in full. The original and 
copies of such notes will be marked ``Satisfied by Approved Partial 
Writedown.'' Original chattel security notes will be marked ``Satisfied 
at Current Market Value'' and released to the debtor upon payment of 
their current market value in a buyout.
    15. Section 1951.910 is revised to read as follows:


Sec. 1951.910  Consideration of borrower's other assets for new 
applications.

    If a delinquent borrower has other assets that are not serving as 
collateral for the FLP debt, the servicing official will determine 
whether these assets are nonessential, as defined in Sec. 1951.906 of 
this subpart.
    (a) Nonessential assets. The net recovery value (NRV) of 
nonessential assets must be considered when the borrower's application 
is processed for loan servicing in accordance with this subpart. The 
Agency will not write down or write off any debt or portion of a debt 
that could be paid by liquidation of nonessential assets, or by payment 
of the loan value of the assets that could be received from non-Agency 
sources. The loan value of the assets will be considered as the same as 
the NRV of the assets.
    (1) Determining the value of nonessential assets. The NRV of the 
nonessential assets is the market value less any prior liens and any 
selling costs which may include such items as taxes due, commissions 
and advertising costs. The determination of NRV of nonessential assets 
does not include a deduction for carrying the property in inventory. 
The market value of the nonessential assets must be estimated by a 
current appraisal in accordance with subpart E of part 1922 of this 
chapter for real estate property, and on Form 440-21, ``Appraisal of 
Chattel Property,'' for chattels. Borrowers who disagree with the 
Agency's appraisal may request a negotiated appraisal or appeal in 
accordance with Sec. 1951.909(i) of this subpart.
    (2) Eligibility. If the NRV of the nonessential assets is 
sufficient to bring the delinquent FLP account current, the borrower is 
not eligible for primary loan servicing including buyout in accordance 
with this subpart. The borrower, instead, will be sent attachments 5-A 
and 6-A of exhibit A of this subpart. The servicing official will 
indicate the values of both the NRV of nonessential assets and the FLP 
security on attachment 5-A. The borrower's nonessential assets and 
their NRVs also will be listed on attachment 5-A. The borrower will 
have 90 days to bring the FLP account current from the date of the 
receipt of attachments 5-A and 6-A. If the borrower does not pay 
current within this time period, the account will be accelerated after 
all appeal rights have been exhausted. If the NRV of the nonessential 
assets is not sufficient to bring the FLP account current, then the 
nonessential assets will be considered as set out in paragraph (a)(3) 
of this section.
    (3) Inclusion in NRV. If the NRV of the nonessential assets is not 
sufficient to bring the FLP account current, then the servicing 
official will add the NRV of these assets to the NRV of the FLP 
collateral according to Sec. 1951.909(f) of this subpart. The servicing 
official will encourage, but not require the borrower to liquidate 
those nonessential assets and apply the proceeds to his/her outstanding 
debts. If the borrower liquidates the nonessential assets, or obtains a 
loan against the equity in such assets, and pays the Agency the NRV of 
the nonessential assets within 45 days of receiving exhibit E or F of 
this subpart, as appropriate, the payment will be subtracted from the 
FLP debt and then the servicing official will recalculate the debt 
restructuring without considering the NRV of the nonessential assets. 
If the borrower does not sell these assets, the servicing official will 
include their NRV in calculating the debt restructuring and take a lien 
on the assets at the time of closing the restructured loan.
    (b) Lien on certain assets. Delinquent borrowers must pledge 
certain assets, essential and nonessential, unencumbered to the Agency 
as security at the time FLP loans are restructured, as follows:
    (1) The best lien obtainable will be taken on all assets owned by 
the borrower. When the borrower is an entity, the best lien obtainable 
will be taken on all assets owned by the entity, and all assets owned 
by all members of the entity. Different lien positions on real estate 
are considered separate and identifiable collateral.
    (2) Security will include, but is not limited to, the following: 
land, buildings, structures, fixtures, machinery, equipment, livestock, 
livestock products, growing crops, stored crops, inventory, supplies, 
accounts receivable, certain cash or special cash collateral accounts, 
marketable securities, certificates of ownership of precious metals, 
and cash surrender value of life insurance.
    (3) Security will also include assignments of leases or leasehold 
interests having mortgageable value, revenues, royalties from mineral 
rights, patents and copyrights, and pledges of security by third 
parties.
    (4) The exceptions set forth in Sec. 1941.19(c) of subpart A of 
part 1941 of this chapter apply.
    (5) These assets will be considered as additional security for the 
loans as well as any shared appreciation agreement. The value of the 
essential assets will not be included in the NRV calculation to 
determine restructuring. The Agency's lien will be taken only at the 
time of closing the restructured FLP loans.
    16. Section 1951.911 is revised to read as follows:


Sec. 1951.911  Homestead protection.

    (a) General. If the Agency has only chattel property as security, 
preservation servicing will not be offered. Borrowers who submitted a 
complete application prior to April 4, 1996 will be considered for 
leaseback/buyback in accordance with the previous CFR volume containing 
revisions as of January 1, 1996 and Agency procedures, (available in 
any county office.) Inventory property which is located within the 
boundaries of an Indian reservation of a Federally recognized Indian 
Tribe and the previous owner is a member of the Indian Tribe that has 
jurisdiction over that reservation should be handled in accordance with 
Sec. 1955.66(d) of subpart A of part 1955 of this chapter.
    (b) Homestead protection. Borrowers and former borrowers who had or 
have an FLP loan secured by the real property containing the dwelling 
owned by them and used as their principal residence may apply for 
homestead protection before or after the Agency acquires the property. 
Real property that is in inventory as of the effective date of the 
statute or is acquired in the future will be considered for homestead 
protection as set forth in this subpart.

[[Page 10133]]

    (1) Purpose. The purpose of the Homestead Protection Program is to 
permit borrowers or former borrowers to retain their dwellings through 
a lease or purchase. Such lease or purchase could permit these 
individuals to have a home and providing an opportunity to continue to 
farm.
    (2) Notification and processing. If a feasible plan for 
restructuring debt cannot be developed using Primary Loan Service 
programs, the borrower will be advised by the use of Exhibit K with 
Attachment 1 of this subpart that the Agency will continue with the 
processing of Preservation Service programs, if applicable. A borrower 
who desires homstead protection must request it in accordance with 
Sec. 1951.907. A borrower who meets the eligibility requirements of 
paragraph (b)(3) of this section will be permitted to retain possession 
of the homestead, in accordance with paragraph (b)(2)(ii) of this 
section, before title is acquired or under a lease with an option to 
purchase after title is acquired.
    (i) Determining homestead protection property. (A) The homestead 
protection property will include the borrower's principal residence and 
not more than 10 acres of adjoining land that is used to maintain the 
borrower's family and a reasonable number of farm service buildings 
located on land adjoining the residence which are useful to the 
occupants of the dwelling.
    (B) The servicing official will review the proposed homestead 
protection property. If the servicing official does not agree with the 
proposed shape or size of the property, an alternate configuration will 
be negotiated with the borrower.
    (C) If the borrower and the servicing official cannot agree on the 
proposed shape and size of the property, the servicing official will 
make the determination.
    (D) When the size and shape of the property is agreed upon and the 
borrower has been found eligible, the servicing official will request a 
licensed surveyor to survey the property, have a legal description 
prepared, and mark the property lines with permanent type markers.
    (E) Appraisals will be completed in accordance with paragraphs 
(b)(6) and (b)(7)(ii)(B) of this section.
    (ii) Processing homestead protection before the Agency acquires 
title. (A) A borrower will be considered for homestead protection when 
it is determined that the Primary Loan Service programs cannot resolve 
the delinquency. To process an application, the borrower must indicate 
the buildings and land to be included in the request for homestead 
protection. If determined eligible for homestead protection, the 
borrower and the servicing official will enter into a Homestead 
Protection Program Agreement (Exhibit L of this subpart) to lease the 
property if and when the Agency acquires title. A copy of Form 1955-20, 
``Lease of Real Property,'' will be attached to the agreement as an 
exhibit.
    (B) Concurrently with the execution of the preacquisition Homestead 
Protection Program Agreement, the borrower will deliver a completed 
Form RD 1955-1 to the Agency. The Agreement is subject to the 
provisions of subpart A of part 1955 of this chapter. If the Agency 
acquires title during the processing of a preacquisition Homestead 
Protection Agreement, processing of the agreement will be terminated 
and the owner will be given homestead protection rights pursuant to 
paragraph (b)(2)(iii) of this section.
    (C) The Agency's obligation to lease the dwelling to the borrower 
will be contingent on the Agency's prior compliance with all State and 
local laws, ordinances and regulations governing the subdivision of 
land. If the Agency cannot satisfy the conditions within 2 years from 
the date of the agreement, the agreement (and the Agency's obligation 
to lease with option to purchase) will terminate. If an agreement has 
been entered into, but title to the property has not been conveyed to 
the Agency (or acquisition has been determined not to be in its 
financial interest), the Agency will continue with acceleration and 
foreclosure of the property. It is not the intent of the 2-year term of 
the agreement to limit the Agency's ability to foreclose on the 
property, provided that all the terms have been met except that title 
has not been conveyed.
    (iii) Application for homestead protection when the Agency acquires 
title. When the Agency acquires title to the farm property, the 
borrower will be sent Exhibit M of this subpart, by certified mail, 
return receipt requested, no later than the date of acquisition. The 
borrower must request homestead protection by notifying the servicing 
official in writing not later than 30 days after the date of 
acquisition and must provide the information set forth in 
Sec. 1951.907(e) of this subpart and indicate the buildings and land to 
be included in the request.
    (iv) Lease with option. A lease with an option to purchase will be 
entered into with an eligible borrower on Form 1955-20 after the Agency 
acquires title to the property. Form 1955-20 will be completed in 
accordance with Sec. 1951.911 (b)(8) of this subpart.
    (3) Eligibility. The servicing official will make the determination 
on eligibility. To qualify for homestead protection, the borrower must 
meet the following requirements:
    (i) An applicant must be an individual who is or was personally 
liable for the Farm Loan Programs (FLP) loan that was secured in part 
by the Homestead Protection property, or, if a non-borrower pledged the 
property to secure the FLP loan, the owner of the property. In either 
case, the applicant must be or have been the owner of the Homestead 
Protection property. A member of an entity who is or was personally 
liable for a loan that is or was secured by the Homestead protection 
property is considered an owner for homestead protection purposes, so 
long as either the member of the entity or the entity itself held fee 
title to the property.
    (ii) When more than one member of an entity was personally liable 
for an FLP loan, each such member who possessed and occupied a separate 
dwelling as his or her principal residence, on property that is or was 
security for the loan may apply separately for homestead protection of 
their individual dwellings;
    (iii) The applicant and any spouse must have received, from the 
farming or ranching operations, gross farm income reasonably 
commensurate with the size and location of the farm and reasonably 
commensurate with local agricultural conditions (including natural and 
economic conditions) in at least 2 calendar years during the 6-year 
period preceding the calendar year in which the application is made. 
Farms used for comparison purposes must be of similar size, type of 
operation and locality. For the purposes of Secs. 1951.911(b)(3) (iii) 
and (iv) of this subpart, income from farming or ranching operations 
will include rent paid by a lessee of agricultural land during any 
period in which the borrower, due to circumstances beyond his or her 
control, such as economic, natural disaster or health problems, was 
unable to actively farm that property. The borrower's records will be 
used in determining whether the gross farm income was reasonably 
commensurate with the farm size and location and local agricultural 
conditions. When applying for homestead protection, the borrower will 
give the servicing official at least 2 calendar years of records of 
planned and actual gross farm income for the 6-year period preceding 
the calendar year in which the application is made. If such records do 
not exist, they may be developed by the applicant

[[Page 10134]]

and servicing official from information relating to yields, expenses 
and prices found in the borrower's county office case file, agency 
records, or other reliable sources;
    (iv) The applicant and any spouse must have received, from the 
farming or ranching operations, at least 60 percent of their gross 
annual income in at least 2 of the 6 calendar years preceding the 
calendar year in which the application is made;
    (v) The applicant must have continuously occupied the homestead 
protection property during the 6-year period preceding the calendar 
year in which the application is made, unless it was necessary to leave 
for a period of time not to exceed 12 months during the 6-year period 
due to circumstances beyond the borrower's control, such as illness, 
employment, or conditions that made the dwelling uninhabitable; and
    (vi) The applicant must have sufficient income to make rental 
payments for the term of the lease and the ability to maintain the 
property in good condition, and must agree to all the terms and 
conditions set forth in paragraph (b)(7) of this section and in Form 
1955-20.
    (4) Transfer of homestead protection. An applicant's right to 
request homestead protection and rights under the Agreement or lease 
entered into pursuant to this section are not transferable or 
assignable by the applicant or by operation of law, except that, in the 
case of death or incompetency of the applicant, such rights and 
agreements shall be transferable to the spouse upon agreement to comply 
with the terms and conditions of the lease.
    (5) Property requirements. (i) The proposed homestead protection 
property tract must meet all requirements for the division into a 
separate legal lot as required by State and local laws. All 
environmental considerations required under subpart G of part 1940 of 
this chapter will be complied with.
    (ii) Costs for a survey, legal description or other service needed 
to establish, appraise, define or describe the homestead protection 
property as a separate tract, will be paid for by the Agency. No 
repairs or improvements will be paid for by the Agency except as 
provided for in Sec. 1955.64 (a) of subpart A of part 1955 of this 
chapter.
    (iii) If necessary, the Agency will grant or retain for the benefit 
of adjoining property reasonable easements for ingress, egress, 
utilities, water rights, etc.
    (6) Appraisal. The current market value of the homestead protection 
property shall be determined by an independent appraisal made within 6 
months from the date of the borrower's application for homestead 
protection. The applicant will select an independent real estate 
appraiser from a list of appraisers approved by the servicing official. 
The cost of such an appraisal will be handled in accordance with 
paragraph (b)(5)(ii) of this section.
    (7) Terms of the lease and exercising the option. (i) All leases 
will have an option to purchase. Any reference to a lease for homestead 
protection purposes will mean a lease with an option to purchase. The 
lease will be offered with an option to purchase on Form 1955-20 and 
will be for a period of not more than 5 years as requested by the 
applicant. A lease of less than 5 years may be extended, but not beyond 
5 years from the date of the beginning of the term of the original 
lease.
    (A) The amount of the rent will be based upon equivalent rents 
charged for similar residential properties in the area in which the 
dwelling is located.
    (B) Lease payments will be retained by the Government.
    (C) Failure to make lease payments as scheduled or to maintain the 
property in good condition shall constitute cause for the termination 
of all rights of the lessee to possession and occupancy of the dwelling 
and property under this section. If a lease default is not cured within 
30 days of notice, the servicing official will notify the lessee in 
writing of the termination of the lease and option.
    (D) Any interference by the lessee with the Government's efforts to 
lease or sell the remainder of farm inventory property shall constitute 
cause for the termination of all rights of the lessee to possession and 
occupancy of the dwelling and property including the right to exercise 
the option to purchase.
    (ii) Exercising the option to purchase.
    (A) The lessee may exercise the option in writing at any time prior 
to the expiration of the lease by delivering to the servicing official 
a signed, written statement notifying the Agency that the lessee is 
exercising the option to purchase the property. Failure to exercise the 
option within the lease period will end the lessee's rights under the 
option to purchase.
    (B) When the lessee exercises the option to purchase the property, 
the purchase price will be the current market value of the property. 
That value will be determined by an appraisal in accordance with 
paragraph (b)(6) of this section providing the appraisal is not more 
than 1 year old. If the appraisal is more than 1 year old, the current 
market value will be determined by a new appraisal requested in 
accordance with paragraph (b)(6) of this section.
    (C) At the time the lessee exercises the option, the lessee must 
notify the servicing official if he or she wants to purchase the 
property for cash or finance it through a credit sale from the Agency.
    (D) If a credit sale is involved, the applicant must furnish the 
servicing official the information required by Sec. 1951.907 (e) to 
assist in determining whether or not the applicant has adequate 
repayment ability.
    (8) Rates and terms for a credit sale. Terms for a credit sale of 
homestead protection property when the lessee is exercising the option 
to purchase will be in accordance with subpart J of this part.
    (9) Closing. A credit sale will be closed in accordance with 
subpart J of this part.
    (10) Conflict with State law. In the event of a conflict between a 
borrower's homestead protection rights and any provisions of the law of 
any State relating to the right of a borrower to designate for separate 
sale or redeem part or all of the property securing a loan foreclosed 
on by a lender, such provision of State law shall prevail. A State 
supplement will be prepared as necessary to supplement paragraph (b) of 
this section.
    (11) Servicing homestead protection loans. Homestead protection 
loans will be serviced as set forth in subpart J of this part.


Sec. 1951.914   [Amended]

    17. Section 1951.914 is amended by removing paragraph (a)(5)(iii) 
and redesignating paragraphs (a)(5)(iv) through (a)(5)(vi) to 
(a)(5)(iii) through (a)(5)(v) respectively.


Secs. 1951.917 and 1951.918   [Removed and reserved]

    18. Sections 1951.917 and 1951.918 are removed and reserved.
    19. Exhibit A is revised to read as follows:

Exhibit A--Notice of the Availability of Loan Servicing and Debt 
Settlement Programs for Delinquent Farm Borrowers

    Dear (Borrower's Name):
    This notice is to inform you that you are behind with your loan 
payments and to inform you of your options.

I. Loan Servicing Programs Available

    Primary loan servicing programs are intended to adjust the debt 
so that you can continue farming and the Agency will receive a 
better recovery on the money it loaned you.
    The Preservation loan servicing program (Homestead Protection) 
is intended to help

[[Page 10135]]

farmers who may lose their land to the Agency get their home back 
through a lease with an option to buy.

II. Application Information

Time Limits

    You must notify the county office within 60 days of getting this 
notice if you want to be considered for these programs.

How to Apply

    To apply, you must complete and return the required forms 
enclosed with this notice, including your signed Acknowledgment Of 
Notice Of Program Availability within the 60-day time limit. The 
county office will process your completed forms and let you know if 
you qualify.
    Included With This Notice You Will Find:
    (1) A summary of primary loan servicing programs options;
    (2) A summary of the preservation loan servicing program;
    (3) A summary of debt settlement programs;
    (4) The forms you need to apply for services;
    (5) Information on how to get copies of the Agency's 
regulations;
    (6) A description of the National Appeals Division appeal 
process.

III. Foreclosure and Liquidation

What Happens if You Do Not Apply Within 60 Days?

    The Agency will accelerate your loan if you continue to be 
delinquent or in nonmonetary default. Acceleration of your loan is 
very severe. This means the Agency will take legal action to collect 
all the money you owe them.
    After acceleration, the Agency will start foreclosure 
proceedings. They will repossess or take legal action to take any 
real estate, personal property, crops, livestock, equipment, or any 
other assets in which the Agency has a security interest. The Agency 
will also stop allowing you to use your crop, livestock, and milk 
checks to pay living and operating expenses. The Agency will also 
take by administrative offset money which other federal agencies owe 
you.
        Sincerely,

Attachment 1--Primary and Preservation Loan Servicing and Debt 
Settlement Programs Purpose

Purpose

    These programs are to help you repay the loan and keep your farm 
property and settle your Farm Loan Programs loan debt. This notice 
tells you:

(1) How To get more information
(2) How to apply
(3) Your appeal rights if you apply and are turned down

How To Get More Information

    Ask at any county office for copies of the rules describing 
these programs. These rules must be given to you within 10 days of 
when we receive your request.

Who Can Apply?

    All ``farm loan programs borrowers'' who have one of the 
following loans:

Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)

    Borrowers that are current on their scheduled payments but are 
financially distressed through no fault of their own may be eligible 
for some assistance to restructure their debt.

You May Need Help in Applying

    The legal requirements for these programs are very complicated. 
You may need help to understand them. You may want to ask an 
attorney to help you. If you cannot get an attorney, there are 
organizations that give free or low-cost advice to farmers. Ask your 
State Department of Agriculture or the USDA Extension Service what 
services are available to your state.

    Note: Agency employees cannot recommend a particular attorney or 
organization.

I. Primary Loan Service Programs

(1) Loan Consolidation

    Two or more of the same type of loans can be combined into one 
larger loan. For example, operating loans can only be joined with 
operating loans.

(2) Loan Rescheduling

    The payment schedule can be altered to give you longer to repay 
loans secured by equipment, livestock, or crops. For example, the 
time for repayment of an operating-type loan can be extended up to 
15 years from the date the loan is rescheduled. When a loan is 
rescheduled, the interest rate may be reduced.

(3) Loan Reamortization

    The payment schedule can be changed to give you longer to repay 
loans secured by real estate. For example, a Farm Ownership loan 
payback period may be extended to 40 years from the date the 
original loan was signed. When a loan is reamortized, the interest 
rate may be reduced.

(4) Interest Rate Reduction

Regular Interest Rate

    FSA has specific interest rates for each type of loan. These 
interest rates change quite often. They depend on what it costs the 
Government to borrow money. Each type of loan will have a regular 
rate.

Limited Resource Interest Rate

    If you have an Operating Loan (OL), Soil and Water (SW) loan or 
a Farm Ownership (FO) loan, it may be possible for you to get a 
``limited resource interest rate.'' The limited resource interest 
rate can be as low as 5 percent. It changes quite often and depends 
on what it cost the Government to borrow money.

Interest Rate for Loan Servicing

    When loans are consolidated, rescheduled, or reamortized, the 
interest rate on the new loan will be either the interest rate on 
the original loan or the current regular rate of interest for that 
type of loan, whichever is less. The borrower may be able to get the 
limited resource interest rate on OL, SW, or FO loans.
    For information about current interest rates, contact the FSA 
county office.

(5) Loan Deferral

    Payments of principal and interest can be temporarily delayed 
for up to 5 years. You must show that you cannot pay essential 
living expenses or maintain your property and pay your debts. You 
must also show you will be able to pay at the end of the deferral 
period.
    The interest rate on a deferred loan will be either the current 
rate of interest for loans of the same type or the original rate on 
the loan, whichever one is lower.
    The interest that builds up during the deferral period will be 
added to the principal of the loan. You must pay this interest in 
yearly payments for the rest of the loan term.

    Note: You can only get a loan deferral if the FSA determines 
options 1-4 will not work for you.

(6) Softwood Timber Program

    Marginal land including highly erodible land and pasture can be 
planted in softwood timber. If you qualify, a debt of up to $1000 an 
acre can be deferred up to 45 years. Interest will be charged during 
the deferral period. The debt must be paid when the timber is sold.

(7) Conservation Contract Program

    You may enter into a contract with the Secretary of Agriculture 
to protect highly erodible land, wetlands, or wildlife habitat 
located on your property that serves as security for your farm loan 
debt. In exchange for the contract, FSA will reduce your FSA debt. 
The amount of land left after the contract must be enough to 
continue your farming operation.

(8) Debt Writedown

    This is not available to borrowers who are current in their loan 
payments or to borrowers who have had previous debt forgiveness on 
another direct loan.
    Debt writedown means the FSA debt you owe is reduced. FSA can 
reduce both the principal and interest of your debt. Your debt can 
be reduced to the recovery value.
    Recovery value. The recovery value is the fair market value of 
the collateral pledged as security for FSA loans minus all of the 
expenses such as sale costs, attorneys fees, management costs, taxes 
and payment of prior liens on the collateral that FSA would have to 
pay if it foreclosed on and sold the collateral. The fair market 
value of any collateral that is not in your possession and has not 
been released for sale by FSA in writing will also be used in 
determining recovery value.
    Also considered, will be the fair market value of any other 
assets that you may own that are not essential for family living or 
for farm operation, and are not exempt from your judgment creditors 
or in a bankruptcy action, minus the value of any creditors' prior 
security interests and your selling costs. The

[[Page 10136]]

value of the collateral and any other assets must be decided by a 
qualified appraiser.
    In order to get debt writedown, you must show that after the 
writedown, you will have up to 110 percent, but not less than 100 
percent, of income available to pay all of your family living and 
farming operating expenses and scheduled debt payments. This means 
you must have a feasible plan of operation. FSA will not write down 
more of the debt than is necessary for you to show a feasible plan. 
You have the choice to select a smaller cash flow margin without a 
writedown. If you choose to do this, you will avoid taking your one 
time debt forgiveness as explained below.
    The writedown is used only when the loan servicing programs 
listed in 1-7 above alone will not be enough for you to have a 
feasible plan. If you get writedown, some of the principal and 
interest on your loans will be written down in addition to changing 
the payback period, and possibly the interest rate, using 1-7 above.
    You can receive a writedown if you have not previously received 
any form of debt forgiveness from FSA on any other direct farm loan. 
The maximum debt that can be written down on all loans is $300,000.

II. Who Can Qualify for Primary Loan Service Programs

    To qualify you must prove that:
    (1) You cannot repay your FSA debt due to circumstances beyond 
your control. If you have certain nonessential assets with a value 
high enough to bring your account current, then you are not eligible 
for Primary Loan Service Programs. These assets are only those that 
are not essential for necessary family living or for your farm 
operation. FSA cannot reduce or write off any of your debt that you 
could pay by selling any of these assets or borrowing against your 
equity in the assets.
    You must have had less income than expected due to such things 
as:

(a) A natural disaster, weather, or insect problems;
(b) Family illness or injury;
(c) Loss or reduction of off-farm income;
(d) Disease in your livestock;
(e) Low commodity prices and high operating expenses in your local 
area; or
(f) Other circumstances beyond your control.

    (2) You have acted in ``good faith'' to keep your agreements 
with FSA in that you have kept all written agreements with FSA 
including those for the use of proceeds and release of property used 
to secure the loan, and your file shows no fraud, waste, or 
conversion.
    You must agree to give FSA a lien on certain other assets for 
additional security for the FSA debt. If you are offered 
restructuring and accept the offer, you must provide this lien at 
closing.
    You must agree to meet, at your own cost, FSA's training 
requirements in production and financial management. The cost will 
be included in your farm plan as an operating expense. The training 
must be completed within 2 years from the date of restructuring. 
This requirement may be waived if you are able to demonstrate that 
you have adequate training in this area. To request a waiver of this 
training requirement, complete Form FmHA 1924-27, ``Request for 
Waiver of Borrower Training Requirements,'' and submit with your 
request for FSA servicing. This training requirement is not 
applicable if you have previously received a waiver or you have 
successfully completed the required FSA Borrower Training program.

Who Will Decide if You Qualify?

    The FSA servicing official will decide if you qualify. The 
servicing official will decide whether you can pay as much or more 
on the loan as FSA would get if they foreclosed and sold the 
collateral for the loan plus the value of any nonessential assets. 
To do this, the servicing official must decide whether the total 
payments of principal and interest on your adjusted debt will be at 
least as much as the ``recovery value'' defined in part I above.

Can You Get Your Debts Written Down?

    Only if FSA will get as much or more by writing down part of 
your debt than through foreclosure or sale of the collateral for the 
loan and any nonessential assets. You also must be delinquent on 
your FSA debt payments.

Conditions of the New Agreement if You Qualify

    You must sign a shared appreciation agreement for 10 years. 
Under the terms of the agreement:
    <bullet> You must repay a part of the sum written down.
    <bullet> The amount you must repay depends on how much your real 
estate collateral increases in value.
    During this 10 years, FSA will ask you to repay part of the debt 
written down if you do one of the following:

(1) Sell or convey the real estate
(2) Stop farming
(3) Pay off the entire debt

    If you do not do one of these things during the 10 years, FSA 
will ask you to repay part of the debt written down at the end of 
the 10 year period.
    FSA can only ask you to repay if the value of your real estate 
collateral goes up.
    If either 1, 2, or 3 above occurs in the first four years of the 
agreement, FSA will ask you to pay 75 percent of the increase in 
value of the real estate. In the last 6 years, you will be asked to 
pay only 50 percent of the increase in value. FSA will not ask you 
to pay more than the amount of the debt written down.

Date To Begin Restructured Agreement

    If you are found eligible, you will be informed of the date for 
an appointment so your debt can be restructured. You must notify FSA 
that you accept its offer to restructure your debt within 45 days of 
when you receive the offer.

III. Preservation Loan Servicing Program

Purpose

    This program applies when the primary loan service programs 
cannot help you.
    Homestead Protection. (Keeping your farm home.) You may lease 
your farm home, certain outbuildings and up to 10 acres of land. The 
lease time will be for up to 5 years. The lease will include an 
option for you to purchase the property you lease.

IV. Who Can Qualify for Homestead Protection?

    (1) Your gross annual income from your farm or ranch must have 
been similar to other comparable operations in your area. This must 
be true for at least 2 years of the last 6 years.
    (2) Sixty percent (60%) of your gross annual income in at least 
2 of the last 6 years must have come from the farming operation.
    (3) You must have lived in your homestead property for 6 years 
immediately before your application. If you had to leave for less 
than 12 months during the 6-year period and you had no control over 
the circumstances, you still may qualify.
    (4) You must be the owner or former owner of the property.
    (5) If FSA has already taken your property, you must apply 
within 30 days of the date FSA took your property.

How To Lease Your Dwelling

    (1) You may lease your home and up to 10 acres if you pay FSA 
reasonable rent. The rent prices FSA charges you will be similar to 
comparable property in your area.
    (2) You must maintain the property in good condition during the 
term of the lease.
    (3) You may lease for up to 5 years.
    (4) You cannot sublease your property.
    (5) If you do not keep up your rental payments to FSA, FSA will 
force you to leave.
    You can buy back your homestead property at current market value 
at any time during the lease. FSA may place an easement on your 
property to protect and restore any wetlands or converted wetlands. 
Current market value will be decided by an independent appraiser. 
The appraisal will be made within 6 months of your application for 
homestead protection. The appraised value of your property will 
reflect the value of the land after any placement of a wetland 
conservation easement.
    You should be aware that any real property, located in special 
areas or having special characteristics, which comes into FSA's 
inventory, may have restrictions or easements placed on the property 
which prevent your use of all or a portion of the property, should 
you choose to lease or buy your former dwelling. These restrictions 
and encumbrances will be placed in leases and in deeds on properties 
containing wetlands, floodplains, endangered species, wild and 
scenic rivers, historic and cultural properties, coastal barriers, 
and highly erodible soils.

V. Debt Settlement Programs.

Purpose

    These programs apply after it has been determined that primary 
loan service programs cannot help you. You may be eligible for both 
debt settlement and homestead protection. If you do not have FSA 
collateral you will need to apply for debt settlement only. Under 
these programs, the debt you owe FSA may be settled for less than 
the amount you owe. You may apply for debt settlement at any time by 
submitting an application for debt settlement on Form

[[Page 10137]]

FmHA 1956-1. These programs are subject to the discretion of the 
agency and are not a matter of entitlement or right.

Programs Available

    (1) Compromise offer: A lump-sum payment of less than the total 
FSA debt owed.
    (2) Adjustment offer: One or more payments of less than the 
total amount owed to FSA. Your payments can be spread out over a 
maximum of five years if FSA decides you will be able to make the 
payments as they become due.
    (3) Cancellation: The final settlement of a debt without any 
payment. FSA must decide there is no FSA security or other asset 
from which FSA can collect. You must be unable to pay any part of 
the debt now or in the future.

Approval Requirements

    If you sell your collateral, you must apply the proceeds from 
the sale to your FSA account before you can be considered for debt 
settlement. In the case of compromise and adjustment, however, you 
may keep your collateral if you are unable to pay your total FSA 
debt and pay FSA the present fair market value of your collateral 
along with any additional amount you are able to pay as determined 
by FSA. You will be allowed to retain a reasonable equity in 
essential nonsecurity property to continue your normal operations 
and meet minimum family living expenses. FSA will not finance a 
compromise or adjustment offer.
    All debt settlements of FLP loans must be recommended by the 
County Committee with a finding that the statements on your 
application are true. The committee must certify that you do not 
have assets or income in addition to what you stated in your 
application. You must also have not previously received any form of 
debt forgiveness from FSA on any other direct farm loan. If you 
qualify, your application must also be approved by the FSA State 
Executive Director or the FSA Administrator depending on the amount 
of the debt to be settled.

VI. How to Apply for Primary and Preservation Loan Servicing 
Programs.

Application Forms and Information Needed

    The forms set out below should be included with this notice. If 
they are not, you can obtain them from the FSA county office or as 
directed below.
    (1) Attachment 2 or 4 of Exhibit A Response form to apply for 
loan services.
    (2) FmHA 410-1 Application for FSA Services (The financial 
statement on this form must include information no more than 90 days 
old. The financial statement must be for all individuals and 
entities personally liable for the FSA debt.
    (3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of 
operation. The commodity prices to use for this plan of operation or 
Farm and Home Plan are included with the form. You may request the 
servicing official to assist you in completing your plans.
    (4) FmHA 440-32 Request for Statement of Debts and Collateral. 
Complete the name and address of the creditor, account number, if 
applicable, and your name. All parties liable to the creditor must 
sign and date the forms. FSA will obtain the creditor information.
    (5) FmHA 1910-5 Request for Verification of Employment. Complete 
employer's name and address, employee's name and address, social 
security number, sign and date. FSA will send the form to your 
employer to obtain the needed information.
    (6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation 
Determination (This form must be obtained from and completed by the 
Natural Resources Conservation Service office, if not already on 
file with FSA.)
    (7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland 
Conservation (WC) Certification (You will be required to complete 
this form in the FSA office if the one you have on file does not 
reflect all the land you own and lease.)
    (8) FmHA 1960-12 Financial and Production Farm Analysis Summary 
(Complete the backside of the form or other similar type worksheets 
to provide production and expense history for crops, livestock, 
livestock products, etc. for each of the five years immediately 
preceding the year of application or the years you have been 
farming, whichever is less and if not already in the FSA case file. 
You must be able to support this information with farm or income tax 
records.)
    (9) Copies of income tax records and any supporting documents 
for the last five years immediately preceding the year of 
application if not already on file with the FSA county office. (If 
you have been farming for less than 5 years, submit the tax records 
for the tax years immediately preceding the year of application 
during which you farmed. If copies of tax records are not readily 
available, you can obtain copies from the Internal Revenue Service 
(IRS).)
    (10) Map or aerial photo of your farm from FSA or Natural 
Resources Conservation Service if you are applying for the 
conservation contract program. (Identify on the map or photo the 
portion of the land and approximate number of acres to be considered 
in the contract.)
    (11) RD 1956-1 Application for Settlement of Indebtedness 
(Complete this form only if you wish to apply for debt settlement.)

Time to Apply for Primary and Preservation Loan Servicing Programs

    To apply, you must complete the appropriate forms and return 
them and the required information to the FSA county office within 60 
days from the date you received this notice.

VII. What Happens When You Are Not Eligible for Primary Loan 
Service Programs?

    If the servicing official decides you are not eligible, you may 
request a meeting with that official so the official can explain the 
decision.
    If you do not agree with the FSA servicing official's decision, 
you can tell the official why. If you can make the necessary 
realistic changes to your Farm and Home Plan to show a feasible 
plan, you should show these changes to the servicing official.

Negotiation of the Appraisal

    A negotiation of the appraisal is a process whereby the borrower 
objects to the FSA appraisal, obtains an independent appraisal at 
the borrower's own costs, pays one-half of the cost for a third 
appraisal, and the average of the two appraisals closest in value is 
taken as the final appraised value to be used in considering 
restructuring. In all cases of primary and preservation loan 
servicing where the borrower presents an independent appraisal which 
is conducted by a qualified appraiser and is within 5 percent of the 
value of the FSA appraisal, the borrower must choose one of these 
two appraisals for the servicing official to use to continue 
processing the request. Negotiation of appraisal may affect your 
right to appeal the appraisal.

You May Request Mediation of Other Loans

    If you cannot show a feasible farm plan because you owe too much 
to other creditors and suppliers, FSA will help you try to get your 
other creditors to adjust your debts. This will be done by FSA 
asking for mediation if your State has a mediation program approved 
by the United States Department of Agriculture. If there is no State 
mediation program, FSA will try to set up a meeting with your other 
creditors and suppliers if it can be shown that a reduction in these 
debts can provide a feasible farm plan.

You Have the Right to Appeal

    Appeal. Appeal rights will be provided to you after FSA has made 
a decision on your request for primary loan servicing. If you first 
request a meeting with the servicing official instead of an appeal, 
the time for requesting an appeal will be extended until you are 
advised of the results of your meeting. You will be provided with 
the address of USDA's National Appeals Division. Your request for an 
appeal must be postmarked no later than 30 days from the date you 
received the agency's adverse decision. If you disagree with FSA's 
determination that any determination is not appealable, you may 
request a determination of appealability from the National Appeals 
Division.

You May Buyout (Pay Off) Your Loan at the ``Current Market Value''

    (1) Current market Value. If the analysis of your debt shows 
that you cannot ``cash flow'' even if your debt to FSA is reduced to 
the value of the collateral, the servicing official will advise you 
in writing that you can buyout the loan by paying the ``current 
market value'' minus any prior liens. The current market value is 
determined by a current appraisal completed by a qualified 
appraiser.
    (2) Limits. You may receive a buyout if you have not previously 
received any form of debt forgiveness from FSA on any other direct 
farm loan. The maximum debt that can be written off with buyout is 
$300,000.
    (3) Eligibility. To qualify you must prove that:
    You cannot repay your FSA delinquent debt and the reason you 
cannot repay was due to circumstances beyond your control,
    You have acted in good faith, and

[[Page 10138]]

    The value of your restructured loan is less than the recovery 
value.
    (4) Time Limit. If you want to buy out your farm loan debt at 
the current market value, you must pay FSA within 90 days of the 
date you receive the offer. If you appeal the servicing official's 
decision not to give you primary loan servicing, this 90 days will 
not start until the administrative appeal process ends.
    (5) Cash. If you pay off the loan at the current market value, 
you must pay in cash. FSA will not make or guarantee a loan for this 
purpose.

Consideration for Preservation Loan Service Program

(Homestead Protection)

    You will be considered for homestead protection if:
    (1) You applied for primary loan servicing as required and did 
not qualify.
    (2) You do not appeal your primary loan servicing denial, or do 
not win your appeal.
    (3) You do not pay off the loan through buyout.
    (4) You agree to give FSA title to your land at the time FSA 
signs the written homestead protection agreement with you. FSA will 
not accept title and will deny your preservation request if it is 
not in FSA's best financial interest to accept title. FSA will 
compute the costs of taking title including the cost of paying other 
creditors who have outstanding liens on the property. FSA will take 
title only if it can obtain a recovery on its cost. Any written 
agreement for preservation loan servicing will include the amount 
you must pay for rent, the number of years you can rent, and an 
option to purchase the property at the fair market value at the time 
you exercise the option to purchase.
    (5) You must request Homestead Protection within 30 days of FSA 
obtaining title to the property.

Consideration for Debt Settlement Programs

    If you wish to be considered for debt settlement, you will need 
to request and return a completed Form RD 1956-1. You may request 
debt settlement at any time. Usually, the most appropriate time for 
making this request is when FSA has determined that Primary Loan 
Servicing options will not provide the best net recovery to the 
Government and you are requesting preservation loan servicing. If 
you no longer have any security remaining for the outstanding FSA 
loans, you may want to request debt settlement instead of primary 
and preservation loan servicing.

VIII. What Happens When You Are Turned Down for Homestead 
Protection or Debt Settlement Programs?

    If FSA decides that you cannot get homestead protection or debt 
settlement you can ask for
    (1) A meeting with FSA to discuss the decision, or
    (2) Appeal the determination.

The Right to a Meeting

    The servicing official will send you a letter telling you why 
FSA decided not to give you homestead protection or debt settlement. 
That letter will give you 15 days to ask for a meeting with FSA.

The Right to an Appeal

    Appeal rights will be provided to you after FSA has made a 
decision on your request for homestead protection. If you first 
request a meeting with the servicing official instead of an appeal, 
the time for requesting an appeal will be extended until you are 
advised of the results of your meeting. You will be provided with 
the address of USDA's National Appeals Division. Your request for an 
appeal must be postmarked no later than 30 days from the date you 
received the final determination.
    On appeal, you can contest FSA's rental amount and its decision 
not to give you homestead protection. You can also contest FSA's 
decision to reject your debt settlement application.

IX. Acceleration and Foreclosure

    If you do not appeal an adverse determination or if you are 
denied relief on appeal, FSA will accelerate your loan account and 
make demand for payment of the whole debt. FSA will stop allowing 
you to use any of your crop, livestock, and milk checks, on which 
they have a claim, to pay for living and operating expenses. FSA 
will repossess the collateral or start legal foreclosure or 
liquidation proceedings to take and sell the collateral, including 
your equipment, livestock, crops, and land. FSA will also take by 
administrative offset money which FSA and other Federal Government 
agencies owe you.
    FSA may refrain from taking these actions if you agree to do 
one, or a combination of the following actions, within an agreed 
upon time, with FSA's approval:
    (1) Sell all the collateral for the loan at market value.
    (2) Convey (legally transfer) the collateral to FSA.
    (3) Apply to transfer the collateral to someone else and have 
that person assume all or part of the FSA debt. (This is called 
transfer and assumption.)
    If any of these options result in payment of less than you owe, 
you may apply or reapply for debt settlement. You may apply or 
reapply for homestead protection even if you applied before and were 
not accepted. However, applications for homestead protection or debt 
settlement filed after the 60-day time period provided in this 
notice will not delay acceleration, offset, and foreclosure.

Attachment 2--Acknowledgment of Notice of Program Availability

    I have been given a notice explaining the primary and 
preservation loan service and debt settlement programs.
    The date on the notice was ________________.
    This notice explained that FSA programs are available to help me 
keep my property or settle my debt with FSA.
    I ask FSA to consider me for all of these programs.
    I understand that I will be notified of my rights to appeal 
after FSA decides on my request.

Signature--------------------------------------------------------------

Date-------------------------------------------------------------------

Attachment 3--Notice to Borrowers With Non-Monetary Defaults, Non-
Monetary Defaults and Delinquency, or That a Prior Lienholder or Junior 
Lienholder is Foreclosing

Dear
    FSA has reviewed your loan account. Our record shows:
[  ] You are now $________ behind on your payments. This is a 
violation of your loan agreement.
[  ] You have disposed of some of your property used to secure your 
loan. You did not get written approval for this. This property is
----------------------------------------------------------------------
(Describe property.)
[  ] You have stopped farming or ranching. This is a violation of 
your loan agreement.
[  ] A foreclosure action has been filed against you by 
____________. This is a violation of your loan agreement.

[  ] You have----------------------------------------------------------
----------------------------------------------------------------------
(Insert reasons for proposed action.)

FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They 
will foreclose on real estate and repossess equipment and other 
property used to secure your loans. They will also stop the release 
of money from the sale of crops or other property. They will take by 
administrative offset money you are owed by other Federal agencies.

Steps You Can Take Before FSA Accelerates Your Loans

    You can apply for the programs described in Attachment 1. These 
are called Primary and Preservation Loan Service and Debt Settlement 
Programs. You can also ask for a meeting. At this meeting you can 
explain why you think FSA's records, as indicated on this Notice, 
are wrong. You can also suggest things you can do to correct these 
problems, so as to avoid acceleration and foreclosure. You can 
request loan servicing, debt settlement and a meeting at the same 
time. For example, if this Notice states that you are delinquent, 
and also have disposed of property without FSA's written consent, 
you can request servicing to deal with the delinquency problem and 
request a meeting on the question of unauthorized disposition of 
property. Please read the section on debt settlement programs for 
guidance in requesting and receiving consideration of a request for 
debt settlement.

Forms Attached to This Notice

    You will find:
    (1) A summary of all primary loan service programs;
    (2) A summary of the preservation loan servicing program;
    (3) A summary of all debt settlement programs;
    (4) Copies of the forms needed to apply; and
    (5) Advice on how to get copies of FSA regulations.

[[Page 10139]]

Purpose of Primary Service Programs

    These loan service programs are to help you repay the loan and 
keep your farm property.

Purpose of the Preservation Loan Service Program

    This program is intended to help farmers who may lose their land 
to FSA to get their home back, either by purchase or through a lease 
with an option to purchase.

Purpose of Debt Settlement Programs

    These programs apply after it has been determined that primary 
loan service programs cannot help you. You may be eligible for both 
debt settlement and preservation loan service programs. If you no 
longer have FSA collateral you will need to apply for debt 
settlement only. Under these programs, the debt you owe FSA may be 
settled for less than the amount you owe. You may apply for debt 
settlement at any time by requesting and submitting an application 
for debt settlement on Form RD 1956-1.

How to Apply for Loan Servicing

    Complete Attachment 4 and the appropriate forms included with 
this notice.
    You must return these within 60 days of receiving this notice.

Right to a Meeting

    You have the right to meet with your FSA servicing official 
before they decide to accelerate your loan. You must check the box 
on Attachment 4 saying you want a meeting. (Attachment 4 is the 
``Response to Notice of Intent to Accelerate and Notice of Borrower 
Rights.'')

How to Ask for a Meeting

    You must check the box on Attachment 4 asking for a meeting 
within 15 days from the date of this notice. Return it to your 
county office. Do this as soon as possible. It is wise to call also 
to set up the meeting.

The Right to Appeal

    <bullet> You can ask for an administrative appeal even if the 
meeting does not resolve your problems.
    <bullet> You can ask for an appeal even if you do not have a 
meeting.
    <bullet> You have the right to appeal even if you do not want to 
apply for loan servicing programs or debt settlement.

How to Ask for an Appeal

    Your request for appeal must be in writing and sent directly to 
the National Appeals Division, (NAD), <NAD Area Director's address>. 
Your letter must describe FSA's decision and why you believe the 
decision was not correct. In order for this decision to be changed, 
you will have to show why the decision should be reversed. Mail a 
copy of your request to the FSA county office. Your request for 
appeal must be postmarked no later than 30 days from the date you 
receive this notice.

    Note: If you do not check the box on the Attachment 4 to ask for 
primary and preservation loan service programs, you will not be 
considered for those programs.

    If you do not ask for a meeting to try and resolve the issues, 
you will not get another chance later.

The Right Not To Be Discriminated Against

    Federal law does not allow discrimination of any kind. You 
cannot be denied a loan because of your race, color, religion, 
national origin, sex, marital status, handicap, or age (if you can 
legally sign a contract). You cannot be denied a loan because all or 
part of your income is from a public assistance program. If you 
believe that you have been discriminated against for any of these 
reasons, you can write the Secretary of Agriculture, Washington, 
D.C. 20250.
    You cannot be denied a loan because you exercised your rights 
under the Consumer Credit Protection Act. You must have exercised 
these rights in good faith. The Federal Agency responsible for 
seeing this law is obeyed is the Federal Trade Commission, 
Washington, DC 20580.
        Sincerely,

Attachment 4--Response to Notice Informing Me of FSA's Intent To 
Accelerate My Loan

Notice of My Rights

TO: Farm Service Agency

FROM:------------------------------------------------------------------
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to 
accelerate my loan which I received with this form.
    I want to: (Check one or more of the following boxes).
    [  ] 1. Request a meeting with the FSA servicing official.
    My phone number is ____________.
    I must return this form in 15 days. I understand I do not lose 
my right to appeal by asking for a meeting.
    [  ] 2. Be considered for all primary and preservation loan 
service and debt settlement programs. I must return this form along 
with all applicable forms in 60 days.
    I understand that if I want to appeal FSA's decision to 
accelerate my loan, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice.

Date:------------------------------------------------------------------

Signature:-------------------------------------------------------------
            (Sign here.)

Attachment 5--Notice of Intent To Accelerate or To Continue 
Acceleration and Notice of Borrowers' Rights

Name and Address

    Dear (Borrower's Name):
    You are not eligible for debt restructuring.
    I. [  ] FSA has reviewed your application for primary loan 
servicing (debt restructuring) and based upon the information 
available, you are not eligible.
    Your Farm and Home Plan does not show you can pay all your 
family living expenses, farm operating expenses, and scheduled debt 
repayments even with FSA help.
    The attached computer printout shows that in order to develop a 
feasible plan and receive primary loan servicing, you would need to 
increase your cash available to pay your debts by $________.
    II. [  ] FSA has reviewed your application and your case file. 
You have broken your agreement with FSA. Your Farm and Home Plans 
shows you can pay all of your family living expenses, farm operating 
expenses, and scheduled debt repayments if FSA uses primary loan 
servicing, softwood timber, and conservation contract programs to 
restructure your loans.
    You have broken loan agreements with FSA in the following way:
    [  ] You are $________ behind in your scheduled loan payments.
    [  ] You have sold or otherwise disposed of property you used to 
secure the FSA loan without proper approval from FSA. This property 
is ______________________________
        (Describe property.)
    [  ] You no longer are farming or ranching.
    [  ] You have
----------------------------------------------------------------------
    III. [  ] You have already received your lifetime limit of at 
least one form of debt forgiveness on other direct loans.

IV. FSA Intends to Foreclose

    FSA will accelerate your loan because you are not eligible for 
primary loan servicing.
    FSA will take legal action to collect the money you owe.
    FSA may:
    (1) Repossess and sell your equipment, crops, livestock, 
livestock products, and other personal property used to secure your 
FSA loan;
    (2) Foreclose and sell your real estate mortgaged to FSA;
    (3) Stop any release of money from the sale of crops, livestock, 
livestock products, or other property you need to live and operate 
your farm;
    (4) Take by administrative offset any money you are owed by 
Federal agencies;
    (5) File lawsuits to collect money you owe to FSA.

V. WHAT YOU CAN DO TO STOP FORECLOSURE

    Before FSA can take action against you, you can:
    (1) Request a meeting with the FSA servicing official.
    If you disagree with FSA's decision that you broke your loan 
agreement or the decision not to give you debt restructuring, you 
should request a meeting with the FSA servicing official. The 
servicing official can explain the FSA decision. You can also 
present changes in your Farm and Home Plan which may show that you 
can make the amount of payment listed above in Section I.
    To ask for this meeting, check the box #1 on the Response Form: 
(Attachment 6).
    Time limit: You must return the ``Response Form'' to the county 
FSA office within 15 days from the date you get this letter. You 
should also call the county office to set up the meeting.

[[Page 10140]]

    (2) Appeal.
    You may appeal FSA's decision. On appeal, you may challenge the 
ways FSA says you broke your loan agreement. You may also challenge 
FSA's decision that you cannot present a feasible Farm and Home Plan 
for primary loan servicing if your notice states FSA believes you 
cannot present a feasible plan.
    You may also ask for an independent appraisal of your property 
used to secure the FSA loan. This independent appraisal may be 
important if you think FSA has put too high or too low a value on 
your property when it considered you for primary loan servicing. You 
will have to pay for this appraisal. FSA will give you three names 
of appraisers to choose from. Check box #2 on the ``Response Form'' 
if you want the independent appraisal.
    If you request a meeting with the FSA servicing official, you 
will be given another chance to appeal after that meeting. If you do 
not want to request the meeting but do want to appeal, you must send 
a letter requesting appeal directly to the National Appeals 
Division, (NAD), <NAD Area Director's address>. Your letter must 
describe FSA's decision and why you believe the decision was not 
correct. In order for this decision to be changed, you will have to 
show why the decision should be reversed. Mail a copy of your 
request to the FSA county office. Your request for appeal must be 
postmarked no later than 30 days from the date you receive this 
notice.
    If you want to request a meeting and appeal at the same time, 
you must request the meeting on the ``Response Form'' and appeal in 
writing to NAD.
    (3) Buy Out the Loan at the Current Market Value.
    You have this option if you meet the eligibility requirements 
and the recovery value is greater than the value of the restructured 
loan. The recovery value is $________. The restructured loan value 
is $________.
    You [may] or [may not] buy out your FSA loans at the current 
market value of the property securing the loan, minus prior liens, 
in the amount of $________. (This amount could change if the prior 
lien indebtedness changes before the buyout date.)

    Note: The attached computer printout summarizes FSA's 
calculations.

    If you are eligible and pay the buyout amount, FSA will write 
off the rest of your debt.
    Time Limit. If you are eligible and want to buy out your FSA 
debt, you must pay FSA the above amount within 45 days from the date 
you received this letter. You must pay FSA in cash, legal money 
order, or certified check.
    If you appeal FSA's adverse decision, the 45-day period to buy 
out will not start until all of the appeals are completed. Check box 
#3 on the ``Response Form'' if you want to buy out.

(4) Consideration for Homestead Protection

    After all appeals are concluded, and your time to buy out, if 
eligible, has expired, FSA will automatically consider you for 
Homestead protection if your home is mortgaged to FSA. [You applied 
for this program when you applied for primary loan servicing (debt 
restructuring).] FSA will notify you that it will be considering you 
for this program and will request some additional information when 
the time comes to consider you.

VI. What Happens If You Do Not Cure Your Default or Buyout?

    If you do not cure your default or buyout, FSA will accelerate 
or continue with acceleration of your FSA debts. This is a very 
severe action. FSA will take any of the actions listed above to 
collect on your debt.

The Right Not to Be Discriminated Against

    Federal law does not allow discrimination of any kind. You 
cannot be denied a loan because of your race, color, religion, 
national origin, sex, marital status, handicap, or age (if you can 
legally sign a contract.) You cannot be denied a loan because all or 
part of your income is from a public assistance program. If you 
believe you have been discriminated against for any of these 
reasons, you can write the Secretary of Agriculture, Washington, DC 
20250.
    You cannot be denied a loan because you exercised your rights 
under the Consumer Credit Protection Act. You must have exercised 
these rights in good faith. The Federal Agency responsible for 
seeing that this law is obeyed is the Federal Trade Commission, 
Washington, DC 20580.
    Sincerely,

Attachment 5-A--Notice of Intent To Accelerate or To Continue 
Acceleration and Notice of Borrowers' Rights

(To Be Used for Applications Submitted On or After November 28, 1990)

Name and Address

    Dear (Borrower's Name):
    You are not eligible for debt restructuring.
    I. [  ] FSA has reviewed your application for primary loan 
servicing (debt restructuring) and based upon the information 
available, you are not eligible.
    Your Farm and Home Plan does not show you can pay all your 
family living expenses, farm operating expenses, and scheduled debt 
repayments even with FSA help.
    The attached computer printout shows that in order to develop a 
feasible plan and receive primary loan servicing, you would need to 
increase your cash available to pay your debts by $________.
    II. [  ] FSA has reviewed your application and your case file. 
Your Farm and Home Plans shows you can pay all of your family living 
expenses, farm operating expenses, and scheduled debt repayments if 
FSA uses primary loan servicing, softwood timber, and conservation 
contract programs to restructure your loans.
    But you have not acted in good faith.
    You have broken loan agreements with FSA in the following way:
    [  ] You are $________behind in your scheduled loan payments.
    [  ] You have sold or otherwise disposed of property you used to 
secure the FSA loan without proper approval from FSA.
This property is-------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
        (Describe property.)
    [  ] You no longer are farming or ranching.
[  ] You have----------------------------------------------------------
----------------------------------------------------------------------
    III. [  ] FSA has reviewed your application and case file. You 
have sufficient nonessential assets to bring your FSA account 
current. The net recovery value (NRV) of the nonessential assets is 
$________. Your nonessential assets and their NRVs are as follows:
Nonessential Assets----------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NRVs-------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
    The NRV is the current appraised market value minus any prior 
liens and any costs of sale such as taxes due, commissions and 
advertising costs.
    The amount needed to bring your FSA account current is $______.
    If you intend to sell the nonessential assets or borrow against 
their value to obtain the money to pay FSA current, you must do so 
immediately so that you can pay FSA current within 90 days from the 
date you receive this letter.
    If you do not pay FSA current within 90 days or appeal this 
adverse decision (see part VI of this notice), FSA will accelerate 
your account (see part V). If you appeal the decision, the 90-day 
period to pay FSA current will not start until all the appeals are 
completed. You must check the appropriate block on the response form 
and return it to FSA within the specified time limit. Since FSA 
believes you have sufficient nonessential assets to bring your FSA 
account current, you are not now eligible for buyout (option 3 on 
Attachment 6-A). If you disagree, see part VI for an explanation of 
your rights.
    IV. [  ] You have already received your lifetime limit of at 
least one form of debt forgiveness for which you are entitled.
    [  ] Your writedown or writeoff of debt exceeded $300,000.

V. FSA Intends to Foreclose

    FSA will accelerate your loan because you are not eligible for 
primary loan servicing.
    FSA will take legal action to collect the money you owe.
    FSA may:
    (1) Repossess and sell your equipment, crops, livestock, 
livestock products, and other personal property used to secure your 
FSA loan;
    (2) Foreclose and sell your real estate mortgaged to FSA. This 
could include your dwelling, if it was used to secure your farm 
loan;
    (3) Stop any release of money from the sale of crops, livestock, 
livestock products, or other property you need to live and operate 
your farm;
    (4) Take by administrative offset any money you are owed by 
Federal agencies;
    (5) File lawsuits to collect money you owe to FSA.

VI. What You Can Do To Stop Foreclosure

    Before FSA can take action against you, you can:

[[Page 10141]]

    (1) Pay your FSA account current.
    (2) Request a meeting with the FSA servicing official.
    If you disagree with FSA's decision that you broke your loan 
agreement or the decision not to give you debt restructuring, you 
should request a meeting with the FSA servicing official. The 
servicing official can explain the FSA decision. You can also 
present changes in your Farm and Home Plan which may show that you 
can make the amount of payment listed above in section I.
    To ask for this meeting, check the box #1 on the Response Form: 
(Attachment 6-A).
    Time limit: You must return the ``Response Form'' to the county 
FSA office within 15 days from the date you get this letter. You 
should also call the county office to set up the meeting.
    (3) Appeal.
    You may appeal FSA's decision. On appeal, you may challenge the 
ways FSA says you broke your loan agreement. You may challenge FSA's 
decision that you cannot present a feasible Farm and Home Plan for 
primary loan servicing if your notice states FSA believes you cannot 
present a feasible plan. You may challenge FSA's decision that you 
are ineligible for debt restructuring because you have already 
received a writedown, buyout, or other form of debt forgiveness from 
FSA on another direct farm loan.
    If you did not previously negotiate your appraisal, you may ask 
for an independent appraisal of your property including any 
nonessential assets that FSA says you own. This independent 
appraisal may be important if you think FSA has put too high or too 
low a value on your property. You will have to pay for this 
appraisal. The FSA servicing official will give you a list of three 
appraisers to choose from. Check box #2 on the ``Response Form'' if 
you want the independent appraisal. If the FSA appraisal contains 
mathematical or property description errors, you and the servicing 
official can make the necessary corrections if you both agree to 
such changes.
    If you submit an independent appraisal and it is within five 
percent of the value of the FSA appraisal, you must select which of 
the two appraisals you want FSA to use for your request. This will 
be the final appraisal. It cannot be appealed.
    If you request a meeting with the FSA servicing official, you 
will be given a chance to appeal after that meeting. If you do not 
want to request the meeting but do want to appeal, you must send a 
letter requesting appeal directly to the National Appeals Division, 
<NAD Area Director's address>. Your letter must describe FSA's 
decision and why you believe the decision was not correct. In order 
for this decision to be changed, you will have to show why the 
decision should be reversed. A copy of your request should be sent 
to the FSA county office. Your request for an appeal must be 
postmarked no later than 30 days from the date you received this 
notice.
    If you want to request a meeting and appeal at the same time, 
you must request the meeting on the ``Response Form'' and appeal in 
writing to NAD.

(4) Buy Out the Loan at the Current Market Value.

    You have this option if the recovery value is greater than the 
value of the restructured loan, you cannot repay your FSA debt due 
to circumstances beyond your control, and you have acted in good 
faith and tried to keep your loan agreements with FSA. The recovery 
value in this case is $________. The restructured loan value is 
$________.
    In addition, buyout is subject to certain lifetime limitations 
regarding the maximum amount and number of benefits that can be 
received. A further explanation of these limits can be found in the 
Primary and Preservation Loan Service and Debt Settlement Programs 
Purpose notice which was sent to you earlier.
    You [may] or [may not] buy out your FSA debt at the current 
market value of the property securing the loan and any nonessential 
assets, minus prior liens, in the amount of $______. (This amount 
could change if the prior lien indebtedness changes before the 
buyout date.)

    Note: The attached computer printout summarizes FSA's 
calculations.

    If you are eligible and pay the buyout amount, FSA will write 
off the rest of your debt up to $300,000.
    Time Limit. If you are eligible and want to buy out your FSA 
debt, you must pay FSA the above amount within 90 days from the date 
you received this letter. You must pay FSA in cash, legal money 
order, or certified check.
    If you appeal FSA's adverse decision, the 90-day period to buy 
out will not start until all of the appeals are completed. Check box 
#3 on the ``Response Form'' if you want to buy out.

(5) Consideration for Homestead Protection and Debt Settlement.

    After all appeals are concluded and your time to buyout, if 
eligible, has expired, FSA will automatically consider you for 
Homestead protection if your home is mortgaged to FSA. [You applied 
for this program when you applied for primary loan servicing (debt 
restructuring).] FSA will notify you that it will be considering you 
for this program and will request some additional information when 
the time comes to consider you. If you applied for Debt Settlement 
by returning Form FmHA 1956-1, will also consider you for this 
option at this time. If you did not apply for Debt Settlement 
before, you can apply now. Copies of Form FmHA 1956-1 are available 
at your FSA County Office.

VII. WHAT HAPPENS IF YOU DO NOT CURE THE DEFAULT OR BUYOUT?

    If you do not cure the default or buyout, or if you do not 
respond to this letter by completing and returning the enclosed 
Attachment 6-A, FSA will accelerate or continue with acceleration of 
your FSA debts. This is a very severe action. FSA will take any of 
the actions listed in section V above to collect on your debt.

The Right Not To Be Discriminated Against

    Federal law does not allow discrimination of any kind. You 
cannot be denied a loan because of your race, color, religion, 
national origin, sex, marital status, handicap, or age (if you can 
legally sign a contract.) You cannot be denied a loan because all or 
part of your income is from a public assistance program. If you 
believe you have been discriminated against for any of these 
reasons, you can write to the Secretary of Agriculture, Washington, 
D.C. 20250.
    You cannot be denied a loan because you exercised your rights 
under the Consumer Credit Protection Act. You must have exercised 
these rights in good faith. The Federal Agency responsible for 
seeing this law is obeyed is the Federal Trade Commission, 
Washington, DC 20580.
    Sincerely,

Attachment 6--Response to Notice Informing Me of FSA'S Intent To 
Accelerate or Continue With Acceleration and Notice of My Rights

TO: Farm Service Agency

FROM:------------------------------------------------------------------
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to 
accelerate or continue with acceleration of my loan which I received 
with this response form.
    I want to:

[Check appropriate box or boxes.]

    [  ] (1) Request a meeting with an FSA servicing official.
    My current telephone number is ____________.
    I understand that I do not lose my appeal rights by asking for 
this meeting.
    [  ] (2) Request an independent appraisal of my property that 
secures the FSA loans.
    I understand that I must pay for this appraisal. I understand 
that the FSA servicing official will give me the names of three 
appraisers, from which I must choose one.
    [  ] (3) Buy out my loan at the current market value.
    I understand that I must pay FSA ________ in cash, certified 
check, or legal money order. I understand I should contact the 
servicing official when I am ready to pay this amount as it may be 
different if my prior lien indebtedness changes before the buyout 
date. I understand that I must pay FSA within 45 days of the date I 
received this letter, or if I appeal, I must pay within 45 days from 
the adverse decision on appeal. I understand that if I pay this 
amount FSA will write off the rest of my debt.
    I understand that if I want to appeal FSA's decision to 
accelerate my loan, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice.
Borrower's signature---------------------------------------------------

Date-------------------------------------------------------------------

[[Page 10142]]

Attachment 6-A-- Response to Notice Informing Me of FSA'S Intent To 
Accelerate or Continue With Acceleration and Notice of My Rights

TO: Farm Service Agency

FROM:------------------------------------------------------------------
        (Please print your name and address.)
    I have read the notice informing me of FSA's intent to 
accelerate or continue with acceleration of my loan which I received 
with this response form.
    I want to:

[Check appropriate box or boxes.]

    [  ] (1) Request a meeting with an FSA servicing official.
    I must return this ``Response Form'' within 15 days to request a 
meeting.
    My current telephone number is ____________.
    I understand that I do not lose my appeal rights by asking for 
this meeting.
    [  ] (2) Request an independent appraisal of my property 
including any nonessential assets.
    I must return this ``Response Form'' within 30 days to request 
an independent appraisal.
    I understand that I must pay for this appraisal. I understand 
that the FSA servicing official will give me names of three 
appraisers, from which I must choose one if I am also requesting an 
appeal.
    [  ] (3) Buy out my loans at the current market value.
    I understand that I must pay FSA $____________ in cash, 
certified check, or legal money order. I understand I should contact 
the servicing official when I am ready to pay this amount as it may 
be different if my prior lien indebtedness changes before the buyout 
date. I understand that I must pay FSA within 90 days of the date I 
received this letter, or if I appeal the FSA decision, I must pay 
within 90 days from the end of the appeal of the FSA decision.
    [  ] (4) Pay my FSA account current.
    I understand that I must pay FSA $____________ to pay my account 
current. I will pay this amount to FSA within 90 days of the date I 
received this letter, or if I appeal the FSA decision, I will pay 
within 90 days from the end of the appeal process on the FSA 
decision. I understand that when I pay this amount FSA will continue 
with my account.
    I understand that if I want to appeal FSA's decision to 
accelerate my loan, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice.
Borrower's signature---------------------------------------------------
Date-------------------------------------------------------------------

Attachments 7 and 8--Obsolete

Attachment 9--Notification of Intent To Accelerate or Continue 
Acceleration of Loans and Notice of Your Rights

Name and Address

Date

    Dear (Borrower's Name):
    FSA will accelerate your loan because you have not asked or have 
not accepted the offer for primary loan service programs.
    You can:
    (1) Ask for meeting with your FSA servicing official.
    (2) Appeal FSA's decision.
    (3) Ask to voluntarily convey to FSA the property used to secure 
your loan and ask to be released from your debt.
    (4) Ask to keep your home if the FSA acquires ownership of it.
    You are behind with your payments to FSA, and a review of your 
account shows:
    [  ] You are ____________ behind in your FSA loan payments.
    This is a violation of your loan agreement.
    [  ] You have sold or otherwise disposed of property used to 
secure your FSA loan. You did not get written approval for this.
The property is--------------------------------------------------------
----------------------------------------------------------------------
        (Describe property.)
      [  ] You are no longer farming or ranching.
    This is a violation of your loan agreement.
[  ] You have----------------------------------------------------------
----------------------------------------------------------------------
        (Insert reason for proposed action.)

FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They 
will foreclose on real estate and other property used to secure your 
loans. They may also stop the release of money from the sale of 
crops or other property. They will take by administrative offset any 
money you are owed by other Federal agencies.

Steps You Can Take Before FSA Accelerates or Continues Acceleration 
of Your Loans

    (1) Ask for a meeting. You can ask to meet with your FSA 
servicing official before they decide to accelerate or continue 
acceleration of your loan. You must check the box on Attachment 10 
saying you want a meeting. [Attachment 10 is the ``Response to 
Notice of Intent to Accelerate or Continue Acceleration of My 
Loan.'']
    How Soon Must I Ask for a Meeting? You must ask for a meeting 
within 15 days from the date of this notice. Check the box on 
Attachment 10. Return it to your county office. Do this as soon as 
possible.
    (2) Appeal. You can ask for an administrative appeal. On appeal, 
you can contest FSA's decision to accelerate or continue 
acceleration of your loan. You can ask for an independent appraisal 
of your land. You will have to pay for this appraisal. FSA will give 
you three names of approved appraisers to choose from. Check box 3 
if you want an independent appraisal.
    You can ask for an administrative appeal, even if you have asked 
for a meeting and your problems were not resolved at that meeting. 
However, you only have the opportunity to appeal an issue once. For 
example, if you previously appealed or had the opportunity to appeal 
a favorable debt restructuring offer and were not successful on 
appeal, or did not appeal within the time alloted, you cannot appeal 
this offer again. You can ask for an appeal even if you do not have 
a meeting.
    How to Ask for an Appeal. Your request for appeal must be in 
writing and sent directly to the National Appeals Division, (NAD), 
<NAD Area Director's address>. Your letter must describe FSA's 
decision and why you believe the decision was not correct. In order 
for this decision to be changed, you will have to show why the 
decision should be reversed. Mail a copy of your request to the FSA 
county office. Your request for appeal must be postmarked no later 
than 30 days from the date you receive this notice.
    What Happens if You Do Not Respond? If you do not respond to 
this notice by filling out Attachment 10, or requesting an appeal, 
FSA will accelerate or continue acceleration of any loans. This 
means they will take legal action to collect the unpaid loan, 
including foreclosure as described above.

    Note: Foreclosure means you lose the title to your land. But you 
can still apply for homestead protection to keep possession of your 
house. [See Exhibit A, Attachment 1 sent to you on ________. If you 
did not get these forms, contact your county office within 15 days 
of this notice.]

The Right Not to Be Discriminated Against

    Federal law does not allow discrimination of any kind. You 
cannot be denied a loan because of your race, color, religion, 
national origin, sex, marital status, handicap, or age (if you can 
legally sign a contract). You cannot be denied a loan because all or 
a part of your income is from a public assistance program. If you 
believe you have been discriminated against for any of these 
reasons, you can write to the Secretary of Agriculture, Washington, 
D.C. 20250.
    You cannot be denied a loan because you exercised your rights 
under the Consumer Credit Protection Act. You must have exercised 
these rights in good faith. The Federal Agency responsible for 
seeing this law is obeyed is the Federal Trade Commission, 
Washington, DC 20580.
    Sincerely,

Attachment 9-A--Notification of Intent To Accelerate or Continue 
Acceleration of Loans and Notice of your Rights

(To Be Used for Borrowers Receiving Notices on or After November 
28,1990)

Name and Address

    Date
    Dear (Borrower's Name):
    FSA will accelerate your loan because you have not asked or have 
not accepted the offer for primary loan service programs.
    You can:
    (1) Ask for meeting with your FSA servicing official.
    (2) Appeal FSA's decision.
    (3) Ask to voluntarily sign over to FSA the property used to 
secure your loan and ask to be released from your debt.

[[Page 10143]]

    (4) Ask to keep your home if the FSA acquires ownership of it.
    You are behind with your payments to FSA, and a review of your 
account shows:
    [  ] You are $____________ behind in your FSA loan payments.
    This is a violation of your loan agreement.
    [  ] You have sold or otherwise disposed of property used to 
secure your FSA loan. You did not get written approval for this.
The property is--------------------------------------------------------
----------------------------------------------------------------------
(Describe property.)
    [  ] You are no longer farming or ranching.
    This is a violation of your loan agreement.
[  ] You have----------------------------------------------------------
----------------------------------------------------------------------
    (Insert reason for proposed action.)

FSA Will Accelerate Your Loans

    FSA will take legal action to collect the money you owe. They 
will foreclose on real estate and other property used to secure your 
loans. They may also stop the release of money from the sale of 
crops or other property. They will take by administrative offset any 
money you are owed by other Federal agencies.

Steps You Can Take Before FSA Accelerates or Continues Acceleration 
of Your Loans

    (1) Ask for a meeting. You can ask to meet with your FSA 
servicing official before they decide to accelerate or continue 
acceleration of your loan. You must check the box on Attachment 10-A 
saying you want a meeting. [Attachment 10-A is the ``Response to 
Notice of Intent to Accelerate or Continue Acceleration of My 
Loan.'']
    How Soon Must I Ask for a Meeting? You must ask for a meeting 
within 15 days from the date of this notice. Check the box on 
Attachment 10-A. Return it to your county office. Do this as soon as 
possible.
    (2) Appeal. You can ask for an administrative appeal. On appeal, 
you can contest FSA's decision to accelerate or continue 
acceleration of your loan. You can ask for an administrative appeal, 
even if you have asked for a meeting and your problems were not 
resolved at that meeting. However, you only have the opportunity to 
appeal an issue once. For example, if you previously appealed or had 
the opportunity to appeal a favorable debt restructuring offer and 
were not successful on appeal, or did not appeal within the time 
alloted, you cannot appeal this offer again. You can ask for an 
appeal even if you do not have a meeting.
    How to Ask for an Appeal. Your request for appeal must be in 
writing and sent directly to the National Appeals Division, (NAD), 
<NAD Area Director's address>. Your letter must describe FSA's 
decision and why you believe the decision was not correct. In order 
for this decision to be changed, you will have to show why the 
decision should be reversed. Mail a copy of your request to the FSA 
county office. Your request for appeal must be postmarked no later 
than 30 days from the date you receive this notice.
    What Happens if You Do Not Respond? If you do not respond to 
this notice by filling out Attachment 10-A, or request an appeal, 
FSA will accelerate or continue acceleration of any loans. This 
means they will take legal action to collect the unpaid loan, 
including foreclosure as described above.

    Note: Foreclosure means you lose the title to your land. But you 
can still apply for homestead protection to keep possession of your 
house. [See Exhibit A, Attachment 1 sent to you on ________. If you 
did not get these forms, contact your county office within 15 days 
of this notice.]

The Right Not To Be Discriminated Against

    Federal law does not allow discrimination of any kind. You 
cannot be denied a loan because of your race, color, religion, 
national origin, sex, marital status, handicap, or age (if you can 
legally sign a contract). You cannot be denied a loan because all or 
a part of your income is from a public assistance program. If you 
believe you have been discriminated against for any of these 
reasons, you should write to the Secretary of Agriculture, 
Washington, DC 20250.
    You cannot be denied a loan because you exercised your rights 
under the Consumer Credit Protection Act. You must have exercised 
these rights in good faith. The Federal Agency responsible for 
seeing this law is obeyed is the Federal Trade Commission, 
Washington, DC 20580.
    Sincerely,

Attachment 10--Response to Notice Informing Me of FSA'S Intent To 
Accelerate or Continue To Accelerate My Loan

Notice of My Rights

TO: Farm Service Agency

FROM:------------------------------------------------------------------
          (Please print your name and address.)
    I want to: (Check one or more of the following boxes)
    [  ] (1) Request a meeting with the FSA servicing official.
    My telephone number is ____________.
    I understand I do not lose my right to appeal if I ask for a 
meeting.
    [  ] (2) Voluntarily sign over to FSA all the property used to 
secure my loan and settle my debt.
    [  ] (3) Request an independent appraisal of property securing 
my loans. I understand I must pay for this appraisal. I understand 
FSA will give me names of three qualified appraisers.
    [  ] (4) Homestead Protection.
    I understand that if I want to appeal FSA's decision to 
accelerate my loan, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice.
Signed-----------------------------------------------------------------
Date-------------------------------------------------------------------

Attachment 10-A--Response to Notice Informing Me of FSA'S Intent To 
Accelerate or Continue To Accelerate My Loan

(To Be Used for Borrowers Receiving Notices on or After November 28, 
1990)

Notice of My Rights

TO: Farm Service Agency

FROM:------------------------------------------------------------------
          (Please print your name and address.)
    I want to: (Check one or more of the following boxes)
    [  ] (1) Request a meeting with the FSA servicing official.
    My telephone number is ____________.
    I must return this form within 15 days.
    I understand I do not lose my right to appeal if I ask for a 
meeting.
    [  ] (2) Voluntarily sign over to FSA all the property used to 
secure my loan and settle my debt.
    [  ] (3) Homestead Protection.
    I understand that if I want to appeal FSA's decision to 
accelerate my loan, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice.
Signed-----------------------------------------------------------------
Date-------------------------------------------------------------------
    20. Exhibit B is revised to read as follows:

Exhibit B--Notification of Offer To Restructure Debt for 
Financially Distressed Borrowers Current on Their Loan Payments

(Borrower's Name and Address)

(Date)

    Dear (Borrower's Name):
    We have determined that the Farm Service Agency (FSA) can 
approve your request for primary loan servicing programs.
    Our calculations indicate that you will be able to make the 
necessary annual payment on your FSA loan if your loan is 
restructured through the use of primary loan servicing programs. The 
attached computer printout indicates the primary loan servicing 
program that will help you overcome your financial difficulty and 
provide the greatest net recovery to the Government. Therefore, We 
are offering to restructure your FSA debt in the following fashion:
----------------------------------------------------------------------
----------------------------------------------------------------------
    * As a condition of this restructuring, you must agree to meet, 
at your own cost, FSA's training requirements which provide 
instruction in production and financial management within 2 years of 
the date your loans are restructured. The cost will be included in 
your farm plan as an operating expense. Upon completion of the 
training, the instructor will assign a score according to the 
following criteria:

[[Page 10144]]

Score

    1  The borrower attended classroom sessions as agreed, 
satisfactorily completed all assignments, and demonstrated an 
understanding of the course material.
    2  The borrower attended classroom sessions as agreed and 
attempted to complete all assignments; however, the borrower does 
not demonstrate an understanding of the course material.
    3  The borrower did not attend classroom sessions as agreed or 
did not attempt to complete assignments. In general, the borrower 
did not make a good faith effort to complete the training.
    Attached is a list of courses you will be required to complete 
to fulfill the training requirement. A list of approved vendors in 
your area for these courses is also attached. Any denial of a 
request for a waiver of the training requirement is not appealable. 
If you fail to complete the training as agreed, you will be 
ineligible for future FSA benefits including future direct and 
guaranteed loans, Primary Loan Servicing, Interest Assistance 
renewals, and restructuring of guaranteed loans.
    * The County Committee has waived the training requirement for 
the restructuring offered in this notice.
    If you want FSA to use the primary servicing program identified 
on the computer printout, you must accept this offer in writing. 
Your acceptance must be received by FSA not later than 45 days from 
your receipt of this letter. You may accept this offer in writing by 
signing and returning the attached form titled ``Acceptance of Offer 
to Restructure my Debt.''
    If you do not accept this offer within 45 days, and your account 
becomes delinquent, FSA will renotify you of all servicing options 
available at that time.
Sincerely,
    * Indicates optional paragraphs to fit the individual 
circumstances.

Attachment 1--Acceptance of Offer to Restructure My Debt

(Date)

TO: Farm Service Agency

FROM: (Please print your name and address)

    I have received your offer to restructure my FSA debt. I would 
like to accept that offer.
    Sincerely,

(Borrower's signature)

----------------------------------------------------------------------
(Date)
    21. Exhibit C is revised to read as follows:

Exhibit C--Net Recovery Buyout Recapture Agreement

    In consideration of the Farm Service Agency (FSA) allowing me to 
purchase the real estate property securing my FSA Farm Loan Programs 
loan obligations at the net recovery value of $ ______ in accordance 
with 7 CFR part 1951, subpart S, I agree to pay to difference 
between the net recovery value of the security of $ ________ and the 
fair market value of the real estate property of $ ________ as of 
the date of this agreement, if I sell or otherwise convey the 
security within 2 years of this agreement for an amount which 
exceeds the net recovery value. This amount is $ ________. I further 
agree to give FSA a mortgage or deed of trust to secure this amount 
for the best lien obtainable which will be subordinate to any 
purchase money security instrument which does not exceed the fair 
market value of the property to enable the borrower to purchase the 
property from FSA at the net recovery value. This mortgage or deed 
of trust will be released 2 years from the date of this agreement if 
I do not sell or convey the property during the two year period.
    I understand that the difference between the net recovery value 
of the real estate securing the FSA loan obligations and the fair 
market value of the real estate security specified above will all be 
due and payable on the day of sale or conveyance if I sell or 
otherwise convey the real estate property within two (2) years from 
the date of this agreement, if I realize a gain in this transaction.
    Loan Balance $ ________.
    Amount of Buyout $ ________.
----------------------------------------------------------------------
Date of Agreement

----------------------------------------------------------------------
Borrower

    22. Exhibit C-1 is revised to read as follows:

Attachment C-1--Net Recovery Buyout Recapture Agreement

Purpose

    This agreement with FSA will allow you to buy out your loan at 
the net recovery value.
    1. I ________________ understand and agree to the following 
conditions.
    2. I will give FSA a lien (mortgage or deed of trust) on the FSA 
real estate security property I own to secure this agreement.
    The lien is to secure the maximum recapture amount listed in 
item 6.c. of this agreement. This lien is secondary to the following 
liens, including any lien used to obtain the net recovery buyout 
amount up to the net recovery value.
----------------------------------------------------------------------
(name, address, and unpaid balance of liens)
    3. I agree that if I do not sell or convey any portion of the 
real estate used as security for 10 years, the agreement and any 
liability you have under it will be satisfied at the end of 10 
years, and then FSA will release its lien.

    Note: Convey includes, but is not limited to, any form of 
transfer in all or any portion of the real estate property, 
including sale, gift, Contract Sale or Purchase Agreement, 
foreclosure, and below-fair-market sale, but does not include a 
mortgage or deed of trust. Transfer of title to property to a spouse 
or child who is actively engaged in farming the property upon the 
death or retirement of a borrower will not be treated as a 
conveyance. In such a transaction, FSA will not release its lien, 
and the transferee will assume liability under the agreement.

    4. I agree that as of the date of this agreement, the net 
recovery value of the real estate is $ ________.
    5. I agree that as of the date of this agreement, the total 
amount of the FSA debt secured by real estate including principal 
and interest before buyout is $ ____________.
    6. If I do sell or convey any part or all of this real estate 
within 10 years of this agreement, I must pay FSA the recapture 
amount for that part sold or conveyed which is the smaller of a., 
b., or c.
    a. The Fair Market Value of the real estate parcel at the time 
of the sale or conveyance, as determined by an FSA appraisal, minus 
that portion of the recovery value of the real estate represented in 
item 4,
    b. The Fair Market Value of the real estate parcel at the time 
of the sale or conveyance, as determined by an FSA appraisal, minus 
the unpaid balance of prior liens at the time of the sale or 
conveyance, minus the net recovery value of the real estate in item 
4 if this amount has not been accounted for as a prior lien, or
    c. The total amount of the FSA debt written off for loans 
secured by real estate.
    I agree that the amount in Item 5 is the outstanding balance of 
principal and interest owed on the FSA Farm Loan Programs loans as 
of the date of this agreement, minus the net recovery value of the 
real estate in item 4. This amount is $ ____________ and is the 
maximum amount that can be recaptured.
    7. When I pay the recapture amount due, FSA will release its 
lien on the property sold or conveyed. The agreement and any 
liability I have under it will be satisfied at the end of 10 years 
if I have made all the required payments under the recapture 
agreement. The agreement and any liability I have under it will be 
satisfied before this time only if I sell or convey all of the real 
estate securing this agreement and make all the required payments 
under the agreement.
    8. This agreement is subject to FSA regulations in 7 CFR part 
1951, subpart S, and any future regulations which are consistent 
with this agreement.
    9. The date of this agreement is the latest date of the dates 
below.
Signed-----------------------------------------------------------------
(borrower or obligor)
Date-------------------------------------------------------------------
Signed-----------------------------------------------------------------
(borrower or obligor)
Date-------------------------------------------------------------------
----------------------------------------------------------------------
(FSA)
Date-------------------------------------------------------------------

    23. Exhibit E is revised to read as follows:

Exhibit E--Notification of Adverse Decision for Primary Loan 
Servicing, Mediation or Meeting of Creditors and Other Options

    (Borrower's Name and Address)
    Dear (Borrower's Name):
    The Farm Service Agency (FSA) has carefully considered your 
request for primary loan servicing programs. Due to your debt with 
lenders other than FSA, you are unable to develop a feasible plan. 
Your Farm and Home Plan must show that you have enough income after 
payment of your essential living and operating expenses and other 
non-FSA debts to make an annual payment to FSA of at least $ 
____________. The attached computer printout shows that in order to 
develop a feasible plan and receive primary

[[Page 10145]]

loan servicing, you would need to increase your cash available to 
pay FSA and your other debts by $ ____________.
    If you did not previously request a Conservation Contract, you 
may request this servicing action by submitting a map or FSA aerial 
photo indicating that portion of the farm and the appropriate acres 
to be considered. You must submit this information to FSA within 30 
days of receiving this notice.
    (To be used when Certified State Mediation is available)

Certified State Mediation

    We are requesting mediation under the (Name) State Certified 
Mediation Program. We will work with you and your creditors to 
determine if your debts can be adjusted sufficiently to permit you 
to develop a feasible plan of operation. If, with the adjustment of 
your debt, you are able to develop a feasible plan of operation 
which shows that you can make an annual payment to FSA of at least 
$______, FSA will reconsider your application for primary loan 
servicing.
    (To be used when Certified State Mediation is not available and 
undersecured creditors have a substantial part of the total 
borrower's debt.)

Meeting of Creditors

    If you request, we will schedule a meeting with you and your 
other creditors in an effort to reach agreements with them to adjust 
your debts sufficiently to permit you to develop a feasible plan of 
operation. The FSA State Executive Director will contract for a 
mediator or appoint an FSA representative not previously involved in 
servicing of your account upon your written request to participate 
in the meeting with creditors. Sign the attached acknowledgement 
within 30 days of the date of this letter. The acknowledgment will 
be your written request and consent to FSA releasing information 
concerning your account to other creditors who participate in the 
meeting.
    (To be used when Certified State Mediation is not available and 
undersecured creditors do not hold a substantial part of the total 
borrower's debt.)
    We will not be scheduling a meeting with you and your other 
creditors in an effort to reach agreements with them to adjust your 
debts. We have determined that your other creditors do not hold a 
sufficient amount of your total debt to permit you to develop a 
feasible plan of operation even if their debts are entirely written 
off. You may object to our determination not to give you a voluntary 
meeting of creditors in any appeal you may have. You will be 
notified of your appeal rights in a later notice.
    (The following paragraphs will be removed if the application was 
submitted before November 28, 1990, or the borrower does not have 
any nonessential assets.)

Nonessential Assets

    FSA has determined that you have nonessential assets that do not 
contribute income to pay essential family living and farm operating 
expenses. The net recovery value (NRV) of the nonessential assets 
has been added to the NRV of the FSA collateral for the calculation 
on the attached printout. The NRV of the nonessential assets is 
$________. Your nonessential assets and their NRVs are as follows:

Nonessential Assets

----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

NRVs

----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
    FSA encourages you to sell the nonessential assets or borrow 
against their value. If you pay the NRV of the nonessential assets 
on your FSA debt, that amount will be subtracted from your debt and 
FSA will reevaluate your servicing request. If you are going to pay 
FSA the NRV of your nonessential assets, you must do so within 45 
days of the date of receiving this letter. You must check the 
appropriate block on the response form and return it to FSA within 
45 days with $________ for payment of the NRV of the nonessential 
assets. If you want to reduce the NRV, you must pay FSA before any 
mediation or meeting of creditors.
    If you wish to dispute FSA's decision that you own nonessential 
assets, you will be given the opportunity to appeal if mediation or 
the meeting of creditors is unsuccessful. If mediation or a meeting 
of creditors is not held, you will be notified of your appeal rights 
in a later notice.

Negotiation of the Appraisal

    If you object to the FSA appraisal of your property, you may ask 
the FSA by returning the ``Response Form'' to negotiate the 
appraisal with you. You must ask to negotiate the FSA appraisal 
within 30 days from the date you receive this notice. To do this you 
must provide FSA with a copy of your current independent appraisal 
or you must now obtain, at your cost, an independent appraisal of 
your property. The appraisal and the appraiser must meet certain 
standards published in FSA regulations.
    If you do not have a current independent appraisal and wish FSA 
to assist you, check option 2 of the ``Response Form'' and FSA will 
provide you with a list of such appraisers.
    You must provide FSA a copy of your independent appraisal within 
30 days of requesting negotiation.
    If your current independent appraisal is within five percent of 
the FSA appraisal, you must select which appraisal of the two you 
want FSA to use in processing your request. The appraisal you select 
will be the final appraisal. It cannot be further negotiated or 
appealed. If the difference is more than five percent and you have 
requested a negotiated appraisal, you and FSA will choose an 
independent appraiser to complete a third appraisal. You must pay 
one-half of the cost of the third appraisal. FSA will pay for the 
other half of the third appraisal. You, the appraiser and the 
servicing official must complete and sign an appraisal agreement. 
Following the completion of the third appraisal, the average of the 
two appraisals that are closest in value, as determined by FSA, 
shall establish the appraised value to be used. This final 
negotiated appraisal is not appealable. Do not select this option of 
the ``Response Form'' if you and FSA have already negotiated your 
appraisal.
    If you choose not to negotiate and wish to dispute FSA's 
appraisal, you will be given the opportunity to appeal in a later 
notice. If you believe there are mathematical or property 
description errors in the appraisals, you should immediately contact 
the servicing official. If you and the servicing official agree, the 
corrections will be made and initialed by both you and the servicing 
official.
    If you want information on the requirements of an FSA appraisal, 
you may request a copy of the FSA appraisal regulations from the 
servicing official.
    Sincerely,

Attachment

Attachment 1--Borrower's Request for Meeting of Creditors and 
Acknowledgment

    I have been given a notice explaining that I am not eligible for 
primary loan service programs. FSA has told me that due to my debt 
with other lenders it does not believe I can develop a feasible 
plan. I request that you schedule a meeting with my undersecured 
creditors to assist me in developing a feasible plan of operation. I 
consent to FSA releasing information concerning my FSA account to 
these creditors to assist me in developing a feasible plan.

(Date)-----------------------------------------------------------------

(Borrower's signature)-------------------------------------------------

Attachment 2--Borrower's Request for Meeting of Creditors or Request to 
Negotiate the FSA Appraisal and Acknowledgment

    I have been given a notice explaining that I am not eligible for 
primary loan service programs.
    I want to:
    [Check the appropriate box or boxes.]
    [  ] (1) Request an independent appraisal of my property 
including any nonessential assets.
    I must return this ``Response Form'' within 30 days to request 
an independent appraisal.
    I understand that I must pay for this appraisal. I understand 
that the FSA servicing official will give me a list of appraisers.
    If the independent appraisal is within five percent of the FSA 
appraisal, I must select which of the two appraisals I want to be 
used for processing my request.
    [  ] (2) Request Negotiation of the Appraisal.
    I must return this ``Response Form'' within 30 days to request a 
negotiation of my appraisal.
    I understand that I must provide FSA with a copy of my 
independent appraisal within 30 days of requesting negotiation. I 
understand that I must pay for this appraisal and one-half of a 
third appraisal, if necessary. I understand that FSA will not 
negotiate the appraisal more than once.
    [  ] (3) I request a copy of the recent FSA appraisal of my 
property.
    [  ] (4) I am paying FSA the net recovery value of any 
nonessential assets that FSA has

[[Page 10146]]

said I own. I will pay this amount within 45 days.
    Please recalculate the restructuring of the FSA debt.
    * [  ] (5) Request that you schedule a meeting with my 
undersecured creditors to assist me in trying to develop a feasible 
plan of operation. I consent to FSA releasing information concerning 
my FSA account to these creditors to assist me in developing a 
feasible plan. I must return this ``Response Form'' within 30 days 
if I want a meeting.
(Date)-----------------------------------------------------------------
(Borrower's signature)-------------------------------------------------
    * Optional paragraph depending on the circumstances.
    24. Exhibit F is revised to read as follows:

Exhibit F--Notification of Offer to Restructure Debt

(Borrower's Name and Address)

Date

    Dear (Borrower's Name):
    We have determined that the Farm Service Agency (FSA) can 
approve your request for primary loan servicing programs.

Offer

    Our calculations indicate that you will be able to develop a 
feasible plan and make the necessary annual payment on your FSA loan 
if your loan is restructured in the following fashion:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
    The attached computer printout indicates the primary loan 
servicing program that will keep you on the farm and provide the 
greatest net recovery to the Government.
    * Our calculations indicate that a feasible plan can be found 
with or without a writedown, as described below. However, with a 
writedown, your cash flow margin would be ______ percent, whereas 
without a writedown, your cash flow margin would only be ______ 
percent. You can choose to accept the restructuring offer with or 
without a writedown on the attached response form. If you choose a 
writedown, you will not be able to receive future loans through FSA, 
except for annual operating loans.
    * As a condition of this restructuring, you must agree to meet, 
at your own cost, FSA's training requirements which provide 
instruction in production and financial management within 2 years of 
the date your loans are restructured. The cost will be included in 
your farm plan as an operating expense. Upon completion of the 
training, the instructor will assign a score according to the 
following criteria:

Score

    1  The borrower attended classroom sessions as agreed, 
satisfactorily completed all assignments, and demonstrated an 
understanding of the course material.
    2  The borrower attended classroom sessions as agreed and 
attempted to complete all assignments; however, the borrower does 
not demonstrate an understanding of the course material.
    3  The borrower did not attend classroom sessions as agreed or 
did not attempt to complete assignments. In general, the borrower 
did not make a good faith effort to complete the training.
    Attached is a list of courses you will be required to complete 
to fulfill the training requirement. A list of approved vendors in 
your area for these courses is also attached. Any denial of a 
request for a waiver of the training requirement is not appealable. 
If you fail to complete the training as agreed, you will be 
ineligible for future FSA benefits including future direct and 
guaranteed loans, Primary Loan Servicing, Interest Assistance 
renewals, and restructuring of guaranteed loans.
    * The County Committee has waived the training requirement for 
the restructuring offered in this notice.
    If you want FSA to use the primary servicing program identified 
on the computer printout to restructure your debt, you must accept 
this offer in writing. Your acceptance must be received by FSA no 
later than 45 days from your receipt of this letter. You may accept 
this offer in writing by signing and returning the attached form 
titled ``Acceptance of Offer to Restructure my Debt.''

* Nonessential Assets

    FSA has determined that you have nonessential assets that do not 
contribute a net income to pay essential family living expenses or 
maintain a sound farming operation. The net recovery value (NRV) of 
the nonessential assets has been added to the NRV of the FSA 
collateral for the calculation on the attached printout. The NRV of 
the nonessential assets is $ ______. Your nonessential assets and 
their NRVs are as follows:

Nonessential Assets

----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NRVs-------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
    FSA encourages you to sell the nonessential assets or borrow 
against their value. If you pay the NRV of the nonessential assets, 
the amount will be subtracted from your debt and FSA will 
recalculate the value of your FSA debt. If you are going to pay FSA 
the NRV of your nonessential assets, you must do so within 45 days 
of the date of receiving this letter. You must check the appropriate 
block on the response form and return it to FSA within 45 days with 
your payment for the NRV of the nonessential assets of 
$____________.
    If you wish to dispute FSA's decision that you own nonessential 
assets or disagree with the offer presented, you may request a 
meeting and/or an appeal.

Negotiation of the Appraisal

    If you object to the FSA appraisal of your property, you may ask 
the FSA to negotiate the appraisal with you by returning the 
``Response Form.'' You must ask to negotiate the FSA appraisal 
within 30 days from the date you receive this notice. To do this, 
you must provide FSA with a copy of your current independent 
appraisal or you must now obtain, at your cost, an independent 
appraisal of your property. The appraisal and the appraiser must 
meet certain standards published in FSA regulations.
    If you do not have a current appraisal and wish FSA to assist 
you, check option 2 of the ``Response Form'' and FSA will provide 
you with a list of such appraisers.
    You must provide FSA a copy of your independent appraisal within 
30 days of requesting negotiation.
    If your current independent appraisal is within five percent of 
the FSA appraisal, you must select which appraisal of the two you 
want FSA to use in processing your request. The appraisal you select 
will be the final appraisal. It cannot be further negotiated or 
appealed. If the difference is more than five percent and you have 
requested a negotiated appraisal, you and FSA will choose an 
independent appraiser to complete a third appraisal. You must pay 
one-half of the cost of the third appraisal. You, the appraiser and 
the servicing official must complete and sign an appraisal agreement 
for this appraisal. FSA will pay for the other half of the third 
appraisal. Following the completion of the third appraisal, the 
average of the two appraisals that are closest in value, as 
determined by FSA, shall establish the appraised value to be used. 
This final negotiated appraisal is not appealable. Do not select 
this option on the ``Response Form'' if you and FSA have already 
negotiated your appraisal.
    If you wish to dispute FSA's appraisal, but do want to reach 
agreement with FSA by negotiating the appraisal, you may also 
request a meeting or appeal of other items of the decision that you 
do not agree with by checking the appropriate box on the attached 
response form. If you believe there are mathematical or property 
description errors in the appraisals, you should immediately contact 
the servicing official. If you and the servicing official agree, the 
corrections will be made and initialed by both you and the servicing 
official.
    If you want information on the requirements of an FSA appraisal, 
you may request a copy of the FSA appraisal regulations from the 
servicing official.

What Happens If You Do Not Accept the Offer

    If you do not accept the restructuring offer on page 1, FSA will 
deny your request for primary loan servicing and send you an 
additional notice stating that FSA intends to liquidate your 
account. You can appeal FSA's offer by sending a letter requesting 
appeal directly to the National Appeals Division, (NAD), <NAD Area 
Director's address>. Your letter must describe FSA's decision and 
why you believe the decision was not correct. In order for this 
decision to be changed, you will have to show why the decision 
should be reversed. A copy of your request should be sent to the FSA 
county office. Your request must be postmarked no later than 30 days 
from the date you received this notice.
    YOU MAY HAVE A FEDERAL INCOME TAX LIABILITY IF FSA RESTRUCTURES 
YOUR FSA INDEBTEDNESS WITH A

[[Page 10147]]

WRITEDOWN. YOU SHOULD CONTACT THE INTERNAL REVENUE SERVICE (IRS) FOR 
INFORMATION.
    Sincerely,
    * Optional paragraphs depending on circumstance.

Attachment 1--Acceptance of Offer To Restructure My Debt

TO: Farm Service Agency

FROM: (Please print your name and address)

    I have received your offer to restructure my FSA debt.
    I would like to accept that offer.
    Sincerely.

(Borrower's signature)

(Date)-----------------------------------------------------------------

Attachment 2--Acceptance of Restructuring Offer, Request To 
Negotiate Appraisal or Pay FSA the NRV of Nonessential Assets

(This Attachment Will Be Used Instead of Attachment 1 for Borrowers Who 
Submitted Applications On or After November 28, 1990)

TO: Farm Service Agency

FROM: (Please print your name and address)

    I have received your offer to restructure my FSA debt.
    (Check the appropriate blocks.)
    * [  ](1) I accept FSA's offer to restructure my debt. I 
understand that I must accept FSA's offer within 45 days of 
receiving Exhibit F.
    * [  ](1) I accept FSA's offer to restructure my debt as 
follows: (Put an ``X'' in Block (a) or (b).) I undestand I must 
accept FSA's offer within 45 days of receiving Exhibit F.
    (a) [  ] With a writedown giving me a higher cash flow margin 
than without a writedown.
    (b) [  ] Without a writedown giving me a lower cash flow margin 
than if I would take the writedown.
    [  ](2) I request an independent appraisal of my property 
including any nonessential assets. If the difference between my 
independent appraisal and the FSA appraisal is not more than five 
percent, I understand that I must select which of the two appraisals 
I want to be used for reconsidering my request. In such a case, 
there will not be an appeal of the appraisal or any further 
negotiation of the appraisal.
    I must return this ``Response Form'' within 30 days to request 
an independent appraisal.
    I understand that I must pay for this appraisal. I understand 
that the FSA servicing official will give me a list of appraisers.
    [  ](3) I request a copy of the FSA recent appraisal of my 
property.
    [  ](4) Request Negotiation of the Appraisal.
    I must return this ``Response Form'' within 30 days to request a 
negotiation of my appraisal.
    I understand that I must provide FSA with a copy of my 
independent appraisal within 30 days of requesting negotiation. I 
understand that I must pay for this appraisal plus one-half of a 
third appraisal, if necessary. I understand that FSA will not 
negotiate the appraisal more than once.
    [  ](5) I intend to pay FSA the net recovery value of any 
nonessential assets that FSA has said I own.
    I understand that I must pay the net recovery value of the 
nonessential assets within 45 days of receiving Exhibit F.
    I understand that if I want to appeal FSA's offer to 
restructure, I must send a letter requesting an appeal to the 
National Appeals Division. My letter must describe FSA's decision 
and why I believe the decision was not correct. I should also send 
the FSA county office a copy of my appeal request. I understand that 
I will be contacted by the National Appeals Division to set up the 
appeal hearing date and give me more information. My request for an 
appeal must be postmarked no later than 30 days from the date I 
received this notice. If possible, I should submit a copy of my 
independent appraisal to the FSA servicing official and the hearing 
officer prior to the appeal hearing if I am appealing the appraisal.

          Sincerely,

(Borrower's signature)
----------------------------------------------------------------------
(Date)

    * Optional paragraphs depending on the circumstance.

    25. Exhibit H is revised to read as follows:

Exhibit H--Conservation Contract Program

I. General

    A Conservation Contract (CC) may be exchanged, when requested by 
a borrower (current or delinquent), for a cancellation of a portion 
of the borrower's FSA indebtedness. The CC may be considered alone, 
or with other Primary Loan Servicing Programs as set forth in 7 CFR 
1951.909. These contracts can be established for conservation, 
recreational, and wildlife purposes on farm property that is 
wetland, wildlife habitat, upland or highly erodible land. Such land 
must be suitable for the purposes involved. All Farm Loan Programs 
loans which are secured by real estate may be considered for a CC. 
Non-program loan debtors are not eligible to receive any benefits 
under this section.

Definitions

    (1) Conservation purposes. These include protecting or 
conserving any of the following environmental resources or land 
uses:
    (a) Wetland, except when such term is part of the term Converted 
wetland, is land that the Natural Resources Conservation Service 
(NRCS) has determined has a predominance of hydric soils and that is 
inundated or saturated by surface or ground water at a frequency and 
duration sufficient to support, and that under normal circumstances 
does support, a prevalence of hydrophytic vegetation typically 
adapted for life in saturated soil conditions, except that this term 
does not include lands in Alaska identified as having a high 
potential for agricultural development and a predominance of 
permafrost soils.
    (i) Hydric soils means soils that, in an undrained condition, 
are saturated, flooded, or ponded long enough during a growing 
season to develop an anaerobic condition that supports the growth 
and regeneration of hydrophytic vegetation;
    (ii) Hydrophytic vegetation means a plant growing in--
    (A) Water; or
    (B) A substrate that is at least periodically deficient in 
oxygen during a growing season as a result of excessive water 
content;
    (b) Highly erodible land is land that NRCS has determined has an 
erodibility index of 8 or more.
    (c) Upland is a term used in the law to refer to land other than 
highly erodible land and wetland. Although upland in its normal use 
implies many types of land, it has been more narrowly defined for 
this purpose to include land or water areas that meet any one of the 
following criteria:
    (i) One-hundred year floodplain,
    (ii) Aquatic life, or wildlife habitat or endangered plant 
habitat of local, regional, State or Federal importance,
    (iii) Aquifer recharge area of local, regional or State 
importance, including lands in the wellhead protection program for 
public water supplies authorized by the Safe Drinking Water Act 
Amendments of 1986,
    (iv) Area of high water quality or scenic value,
    (v) Area containing historic or cultural property, which is 
listed in or eligible for the National Register of Historic Places, 
as provided by the National Historic Preservation Act (NHPA),
    (vi) Area that provides a buffer zone necessary for the adequate 
protection of proposed conservation contract areas,
    (vii) Area within or adjacent to a National Park, U.S. Fish and 
Wildlife Service administered area, State Fish and Wildlife agency 
administered area, a National Forest, a Bureau of Land Management 
administered area, a Wilderness Area, a National Trail, a unit of 
the Coastal Barrier Resource System, abandoned railroad corridors 
contained in local, State or Federal open space, recreation or trail 
plans, Federal or State Wild or Scenic River, U.S. Army Corps of 
Engineers land designated for flood control or recreation purposes, 
State and local recreation, natural or wildlife areas or State 
Conservation Agency administered areas.
    (viii) Area that NRCS determines contains soils that are 
generally not suited for cultivation such as soils in land 
capability classes IV, V, VI, VII or VIII in the NRCS's Land 
Capability Classification System.
    (d) Wildlife habitat is a term used to include the area that 
provides direct support for given wildlife species, species life 
stages, populations, or communities determined appropriate by the 
Conservation Agency within the State as being of State, regional or 
local importance or as determined by the Fish and Wildlife Service 
to be of national importance. This wildlife habitat area includes 
all acceptable environmental features such as air quality, water 
quality, vegetation, and soil characteristics.
    (2) Management authority. Any agency of the United States, a 
State, or a unit of local Government of a State, a person, or an

[[Page 10148]]

individual that is designated in writing by FSA to carry out all or 
a portion of the activities necessary to manage and implement the 
terms and conditions of a contract or its management plan. The 
borrower whose land is subject to the contract may be eligible to be 
designated as a management authority.
    (3) Person. Any agency of the United States, a State, a unit of 
local Government within a State, or a private or public nonprofit 
organization.
    (4) Recreational purposes. These activities include providing 
public use for both consumption (e.g. hunting, fishing) and 
nonconsumption (e.g. camping, hiking) recreational activities, in a 
manner that conserves wildlife and their habitats, ensures public 
safety, complies with applicable laws, regulations, and ordinances 
and permits the operation of the remaining farm enterprise.
    (5) Wildlife. Means any wild animal, whether alive or dead, 
including any wild mammal, bird, reptile, amphibian, fish, mollusk, 
crustacean, arthropod, coelenterate, or other invertebrate, whether 
or not bred, hatched, or born in captivity, and includes any part, 
product, egg, or offspring.
    (6) Wildlife purposes. These program objectives include 
establishing and managing areas that contain fish and wildlife 
habitats of local, regional, State or Federal importance.

II. Eligibility

    The following steps must be taken to determine if the borrower 
is eligible for a conservation contract. If the borrower is found to 
be ineligible, the FSA servicing official will notify the borrower 
of the opportunity to appeal the adverse decision on the eligibility 
for the contract after a final decision is made on whether the 
borrower qualifies for any other servicing options. The servicing 
official must find that:
    (1) All Farm Loan Programs loans which are secured by real 
estate may be considered for a CC. A real estate mortgage or deed of 
trust taken on a borrower's real estate as additional security for a 
Farm Loan Programs loan qualifies as real estate security.
    (2) The proposed contract helps a qualified borrower to repay 
the loan in a timely manner.
    (3) If the land being proposed for the contract is within the 
FSA Conservation Reserve Program, both the requirements of that 
program and this section can be met.

III. Establishing the Contract Review Team

    The servicing official will establish a contract review team by 
notifying the appropriate field offices of the Natural Resources 
Conservation Service (NRCS), U.S. Fish and Wildlife Service (FWS), 
State Fish and Wildlife Agencies, Conservation Districts, National 
Park Service, Forest Service (FS), State Historic Preservation 
Officer, State Conservation Agencies, State Environmental Protection 
Agency, State Natural Resource Agencies, adjacent public landowner, 
and any other entity that may have an interest and qualifies to be a 
management authority for a contract. The notified parties may in 
turn notify other eligible entities. NRCS, for example, may want to 
notify the appropriate Conservation District. As part of the 
notification, the servicing official will provide an approximate 
location and a general description of the potentially affected land. 
All notified parties will be invited to serve on the contract review 
team.

IV. Responsibilities of the Contract Review Team

    NRCS will lead the contract review team which in every case will 
be composed of an NRCS, FSA and FWS representative, plus all other 
parties that accepted the invitation to participate. To the extent 
practicable, a site visit will be conducted within fifteen days from 
the date the review team members are invited to participate. Any 
lien holder and the borrower will be informed of the site visit time 
and invited to attend. Within thirty days after the site visit, a 
report will be developed by the review team and provided to the 
servicing official. The report will cover the items listed in 
paragraphs (A) through (F) of this paragraph and will be prepared by 
the review team. The items to be addressed in the review team report 
are:
    (A) The amount of land, if any, which is wetland, wildlife 
habitat, upland or highly erodible land and the approximate 
boundaries of each type of land. If applicable, contract boundaries 
may be recommended which go beyond the wetland, upland, or highly 
erodible land but are necessary for either the establishment of 
identifiable contract boundaries or are required for the efficient 
management of the contract's terms and conditions.
    (B) A finding of whether the land is suitable for conservation, 
recreation or wildlife habitat purposes and a priority ranking of 
purposes included, if the land can be so classified and ranked.
    First, priority will be given to land contract opportunities to 
benefit wildlife species of Federal Trust responsibility (e.g., 
migratory birds and endangered species) and their habitats (e.g., 
wetlands). Special consideration will be given to opportunities to 
benefit a combination of conservation, recreation and wildlife 
habitat purposes. When there are other land contracts already 
established or under review within the local area and the intent of 
these contracts has been established, the review team will consider 
these actions as purpose rankings are developed.
    (C) If appropriate, any special terms or conditions that would 
need to be placed on the contract plus unique or important features 
of the property which would not be adequately addressed by the 
standard contract terms and conditions.
    (D) A proposed management plan consistent with the purpose or 
purposes for which the contract would be established. The management 
plan will outline the various management alternatives for the 
proposed contract. The selection of the alternatives to be followed 
will be based upon future needs, fund availability, and 
identification within the management plan. The management plan will 
provide guidance as to the conservation practices to be followed and 
the costs which may occur in the establishment and maintenance of 
the contract. This management plan will specifically recommend 
whether or not public recreational use and public hunting should be 
allowed on the contract and provide supporting reasons for the 
recommendation made. Whenever changes are required in the management 
plan, FSA, may update the management plan to reflect the changes.

V. FSA's Review of Contract Team's Report

    Upon receipt, the Servicing Official will review the contract 
team's report. If the report indicates that a contract is not 
feasible given the nature of the land, or other factors, the 
servicing official will inform the borrower of the reasons that the 
contract has been denied and that the borrower may appeal the denial 
of the contract or meet with the servicing official.

VI. Terms of Contracts

    Borrowers participating in the debt cancellation conservation 
contract program will be given the option of selecting a 50, 30 or 
10 year contract term. The amount of debt to be canceled will be 
directly proportional to the length of the contract. The area placed 
under the conservation contract cannot be used for the production of 
agricultural commodities during the term of the contract.

VII. Determining the Amount of Farm Loan Programs (FLP) Debt That 
Can Be Canceled

    (A) Calculate the amount of debt to be canceled for a delinquent 
borrower as follows:
    (1) Step 1. Determine what percent the number of contract acres 
is of the total acres of land that secures the borrower's FLP loans 
by dividing the contract acres that secure the borrower's FLP loans 
by the total acres that secure the borrower's FLP loans.
    Contract acres divided by Total Farm and Ranch Acres = Percent 
of Contract Acres to Total Acres.
    (2) Step 2. Determine the amount of FLP debt that is secured by 
the contract acreage by multiplying the borrower's total unpaid FLP 
loan balance (principal, interest and recoverable costs already paid 
by FSA) by the percentage calculated in step 1. Total FLP Debt  x  
Percent Calculated in step 1 = ________
    (3) Step 3. Determine the current value of the land in the 
contract by multiplying the present market value of the farm that 
secures the borrower's FLP loans by the percent calculated in step 
1. PMV of Total Farm  x  Percent Calculated in step 1 = ________
    (4) Step 4. Subtract the current value of the contract acres in 
step 3 from the FLP debt that is secured by the contract acres in 
step 2. Result from step 2-Result from step 3 = ________
    (5) Step 5. Select the greater of the amounts calculated in step 
3 and step 4.
    (6) Step 6. Select the lessor of the amounts calculated in steps 
2 and 5. This will be the maximum amount of debt that can be 
canceled for a 50-year contract term.
    (7) Step 7. For a 30-year contract term, the borrower will 
receive 60 percent of the amount calculated in step 6. Result from 
Step 6  x  60% = ________
    (8) Step 8. For a 10-year contract term, the borrower will 
receive 20 percent of the

[[Page 10149]]

amount calculated in step 6. Result from Step 6  x  20% = ________
    (B) Calculate the amount of debt to be canceled for a current 
borrower as follows:
    (1) Step 1. Determine what percent the number of contract acres 
is of the total acres of land that secures the borrower's FLP loans 
by dividing the contract acres that secure the borrower's FLP loans 
by the total acres that secure the borrower's FLP loans. Contract 
Acres divided by Total Farm and Ranch Acres = ________%
    (2) Step 2. Determine the amount of FLP debt that is secured by 
the contract acreage by multiplying the borrower's total unpaid FLP 
loan balance (principal, interest and recoverable costs already paid 
by FSA) by the percentage calculated in step 1. Total FLP Debt  x  
Percent Calculated in step 1 = ________
    (3) Step 3. Multiply the borrower's total unpaid FLP loan 
balance (principal, interest and recoverable costs already paid by 
thirty-three (33) percent. Total FLP Debt  x  33% = ________
    (4) Step 4. Select the lessor of the amounts calculated in steps 
2 and 3. This is the maximum amount of debt that can be canceled for 
a current borrower receiving a 50-year contract.
    (5) Step 5. For a 30-year contact term, the borrower will 
receive 60 percent of the amount calculated in step 4. Amount 
calculated in step 4  x  60% = ________
    (6) Step 6. For a 10-year contract term, the borrower will 
receive 20 percent of the amount calculated in step 4. Amount 
calculated in Step 4 X 20% = ________
    (C) Feasibility of debt cancellation. The servicing official 
will determine whether or not the borrower, if provided the amount 
of debt cancellation allowed by paragraph (VII) coupled with other 
servicing options will be able to develop a feasible plan for farm 
operations for the current and coming year. In no instance will the 
total debt cancellation exceed the maximum amount calculated in 
paragraphs (A) or (B) above. If the borrower would not be able to 
develop a feasible plan, the servicing official will notify the 
borrower of the reason that the contract has been denied and that 
the borrower may appeal this adverse decision after the servicing 
official has decided whether the borrower qualifies for the 
additional servicing programs in this subpart.
    (D) The boundaries of the contract area will be determined by 
the most appropriate method including rectangular surveys, and 
aerial photographs. A professional survey of the contract area will 
not be required but can be used where needed.
    (E) Reaching an agreement with the borrower. The borrower will 
be informed of the contract's value, the impact on the remaining 
financial obligation, and the terms and conditions of the contract. 
The borrower also will be provided a copy of the contract review 
team's report. If the borrower decides to enter into the contract, 
approval will be made by the servicing official, and the borrower by 
signing Form FSA 1951-39.
    (F) Recording of noncash credit. The total credit to the 
borrower's account will not exceed the greater of the value of the 
land on which the contract is acquired; or the difference between 
the amount of the outstanding indebtedness secured by the real 
estate, and the value of the real estate taking into consideration 
the term of the contract. In the case of a non-delinquent borrower, 
the amount to be credited will not exceed 33 percent of the amount 
of the loan secured by the real estate on which the contract is 
obtained taking into consideration the term of the contract. In all 
cases, the amount credited will be applied on the FSA loan as an 
extra payment in order of lien priority on the security. The loan 
may be reamortized if needed for both current and delinquent 
borrowers.
    (H) Contract Records. If State law allows, the CC will be 
recorded in the real estate records.

VIII. Violation of Terms and Conditions

    If the borrower violates any of the terms or conditions of the 
contract, the violations will be handled in accordance with the 
provisions outlined in the contract.

IX. Authorization Requests

    When under the circumstances stated in the contract's terms and 
conditions (Form FSA 1951-39), the grantor needs the Government's 
written authorization to proceed with an action, a written request 
for such authorization must be provided by the grantor to the 
servicing official. In order to provide the requested written 
authorization, the servicing official must determine that the 
request does not violate the contract's terms and conditions and 
must receive the written concurrence of the enforcement authority.
    26. Exhibit J-1 is revised to read as follows:

EXHIBIT J-1--The Debt and Loan Restructuring System (DALR$) (For 
applications filed for primary loan servicing on or after November 
28, 1990)

I. INTRODUCTION TO DALR$.

    Farm Service Agency (FSA) primary loan service programs provide 
a large number of alternatives for restructuring an agency loan. 
Additionally, borrowers may request consideration for the Softwood 
Timber (ST) and Conservation Contract (CC) Programs. The number of 
loans a borrower has increases the number of combinations of 
possible servicing alternatives. It is difficult and virtually 
impossible to manually calculate all the potential combinations of 
servicing actions. To assure that all the various possible 
combinations of programs are considered, FSA has developed the Debt 
and Loan Restructuring System (DALR$) for operation on the county 
office computer system.
    DALR$ is a menu driven computerized support tool that assists 
FSA field offices in determining and evaluating the effects of 
primary loan servicing in accordance with 7 CFR part 1951, subpart 
S. DALR$ will complete a series of mathematical calculations based 
on information regarding the borrower's cash flow and loan status 
obtained from the borrower's case file. This information is used in 
attempting to restructure the borrower's debt and maximize their 
repayment ability, while avoiding or minimizing loss to the 
Government. DALR$ will provide a printed summary of the computations 
and outcome of the calculations.
    FSA personnel will not manually perform the calculations in this 
exhibit. This exhibit is provided as a benefit to those who may want 
to perform manual calculations, or understand the procedures DALR$ 
utilizes during the execution of the program.

II. ADVANTAGES OF DALR$

    The DALR$ system provides the following benefits to FSA 
borrowers:
    A. Speed of Calculation--Calculations which would take hours or 
days are reduced to minutes. This not only speeds the processing of 
servicing requests, but provides the flexibility to consider several 
alternative plans of operation within the same time constraints.
    B. Consistency--The use of DALR$ assures that the feasibility of 
all requests for primary loan servicing will be evaluated on using 
the same calculation methods.
    C. Full Consideration--DALR$ considers primary loan service 
programs and combinations of those programs for every borrower 
entered into the system. Thus, borrowers can be assured that they 
will be considered for as many of these actions as necessary to 
develop a feasible plan, if a feasible plan is possible.
    D. Reduction of Errors--Use of DALR$ greatly reduces the 
potential for errors and inadvertent denial of assistance due to 
those errors. DALR$ eliminates errors in the calculations. The only 
potential errors related to the calculations are input errors, which 
are much easier to detect and correct than calculation errors. 
However, DALR$ results are only as reliable as the input data.

IV. OVERVIEW

    When computing debt restructuring, DALR$ will consider all 
primary loan service programs, if necessary in attempting to develop 
a feasible plan. A combination of loan service programs may be 
necessary. DALR$ will consider each combination until a feasible 
plan is developed, or it is determined that a feasible plan is not 
possible with full utilization of primary loan servicing, ST and CC.
    DALR$ will attempt to provide the maximum margin available up to 
ten percent above the total amount needed for payment of farm 
operating, family living expenses and debt repayment after 
restructuring. If a feasible plan cannot be developed, DALR$ will 
determine if the writeoff with market value buyout (less prior 
liens) is less than or equal to the statutory ceiling for writedown 
and writeoff. A DALR$ report can be printed which will detail the 
offer to restructure the borrower's FSA debt, offer to buyout the 
FSA Farm Loan Programs (FLP) loans at the market value, less prior 
liens, or inform the borrower that the borrower is not eligible for 
primary loan servicing or debt forgiveness.
    The DALR$ calculations proceed in the following general order:
    A. DALR$ calculates the net recovery value (NRV) for FSA 
security and nonessential assets.
    B. DALR$ computes new loan and annual operating expense payments 
at regular interest rates.

[[Page 10150]]

    C. DALR$ applies loan payments that will pay loans in full on 
the proposed restructure date.
    D. DALR$ considers conservation contract, if requested, to the 
maximum extent permitted under the regulations. Conservation 
contract (CC) will not be provided unless a feasible plan is 
developed after considering CC and other loan servicing options.
    E. DALR$ reschedules or reamortizes all delinquent loans at the 
maximum term with an interest rate at the lower of the original note 
rate or current loan program rate. Limited resource rate loans will 
be rescheduled or reamortized at the lower of the original note rate 
or the current limited resource loan rate. After rescheduling or 
reamortizing all delinquent loans, DALR$ will determine if a 
feasible plan has been developed with the appropriate debt service 
margin.
    F. DALR$ reschedules or reamortizes non-delinquent loans at the 
maximum term and with an interest rate at the lower of the original 
note rate or the current loan program rate. Limited resource rate 
loans will be rescheduled or reamortized at the lower of the 
original note rate or the current limited resource rate. Non-
delinquent loans are rescheduled or reamortized one loan at a time 
until a feasible plan is developed with the appropriate debt service 
margin, or until all non-delinquent loans have been processed.
    G. DALR$ reschedules or reamortizes limited resource eligible 
loans at the maximum term and with an interest rate at the lower of 
the original note rate or the current limited resource program 
interest rate. Limited resource eligible loans are rescheduled or 
reamortized one at a time until a feasible plan has been developed 
with the appropriate debt service margin, or all limited resource 
eligible loans have been processed.
    H. DALR$ reschedules or reamortizes unequal payment loans at the 
maximum term and with an interest rate at the lower of the original 
note rate or the current loan program rate (limited resource, if 
applicable). Unequal payment loans are rescheduled or reamortized 
one at a time until a feasible plan has been developed with the 
appropriate debt service margin, or all unequal payment loans have 
been processed.
    I. DALR$ determines the cash available to repay the FSA debt for 
the first year and the year after the deferral period by subtracting 
non-FSA payments, farm operating expenses, excluding interest, and 
family living expenses from the adjusted balance available. If the 
first year cash available is negative, DALR$ will proceed with 
paragraph M of this section. If the first year cash available is 
positive and less than the cash available for the year after the 
deferral period, DALR$ will consider loan deferral. Loans will be 
selected for deferral so as to minimize the debt repayment in the 
year after the deferral period. If the full deferral of a loan will 
result in a cash flow for the first year that exceeds the 
appropriate debt service margin, a partial deferral of the loan is 
used to eliminate the excess cash flow margin. A partial deferral 
has the added benefit of reducing the payment amount in the years 
after the deferral period.
    J. DALR$ considers ST loan deferral, when requested by the 
borrower, to the maximum limits permitted. Previously calculated 
regular deferrals will be cancelled prior to DALR$ considering ST 
loan deferral. If the cash available after the deferral period is 
greater than the first year cash available, and ST loan deferral 
fails to produce a feasible plan at the applicable debt service 
margin, non-ST deferred loans will be reconsidered. Regular loan 
deferrals are recalculated after selecting loans for ST to:
    1. Minimize any decrease in present value caused by the 
conversion to ST, and
    2. Minimize the increase in payments in the year after the 
deferral period.
    A ST loan deferral has the same effect on the debt repayment 
ability as a writedown of the same amount. However, a ST loan 
deferral will always have a greater present value. Therefore, after 
a loan is selected for ST loan deferral, it will not be considered 
for writedown since this will always decrease the present value of 
restructured loans.
    K. DALR$ considers writedown of FSA debt for those borrowers who 
have not received their lifetime limit for writedown and writeoff 
(with market value buyout).
    1. If the cash available for the first year is greater than the 
cash available for the year after the deferral period, DALR$ 
considers writedown, in combination with other primary loan service 
programs (except ST deferrals as noted in paragraph K of this 
section). When considering a borrower for writedown, DALR$ will 
attempt to maximize the borrower's repayment ability and minimize 
losses to the Government.
    The amount of writedown cannot exceed the $300,000 limitation. 
In addition, the present value of the restructured loan plus the 
amount of the CC cannot be less than the total NRV of the FSA 
security and non-essential assets.
    2. If the cash available after the deferral period is greater 
than the cash available in the first year, DALR$ will consider a 
combination of deferral and writedown.
    Loans are selected for deferral to achieve a cash flow in the 
first year. If deferral of loans will result in a cash flow in the 
first year that exceeds the applicable debt service margin, DALR$ 
partially defers the loan to reduce the excess cash flow. If there 
is a negative cash flow after the expiration of the deferral period, 
DALR$ provides writedown of one loan to attempt to develop a 
feasible plan in the year after the deferral period. This process is 
repeated until a feasible plan is developed for both the first year 
and the year after the deferral period, or until all loans have been 
processed. The amount of the writedown cannot exceed the $300,000 
limitation and the present value of the restructured loans plus the 
value of the CC cannot be less than the total NRV of the FmHA 
security and non-essential assets.
    L. DALR$ considers market value buyout when a feasible plan 
cannot be developed after considering the borrower for all 
combinations of the above servicing options and the borrower has not 
received the lifetime limitation for writedown and writeoff. The 
amount of FSA debt to be written off must be less than or equal to 
the $300,000 limitation, otherwise the borrower is not eligible for 
primary loan servicing or market value buyout.
    M. DALR$ determines the amount of cash improvement needed in the 
first year Balance Available to cash flow with a zero percent debt 
service margin when a feasible plan cannot be developed.
    N. DALR$ offers to print a servicing report which provides a 
summary of the computations and the outcome of the calculations.

V. Information Entered in DALR$

    The following information will be entered in DALR$ prior to 
beginning the calculations.
    A. Borrower Case Number and Name--The borrower's case number is 
a concatenation of the State Code, County Code, and Borrower ID 
(usually the borrower's social security number or tax identification 
number). Borrowers are entered as either an individual or entity.
    B. Date Servicing Actions Requested--This is the date that the 
borrower submitted a complete application for primary loan 
servicing. The discount rate used in the calculations of the present 
value of restructured loans and the NRV will be the rate in effect 
on this date.
    C. Proposed Restructure Date--This is the projected effective 
date of the restructuring. The interest rate used for restructuring 
loans and the net recovery constants used in the calculation of the 
NRV will be those in effect on this date as of the date DALR$ was 
prepared.
    D. Eligibility for Writedown or Writeoff--This field determines 
if writedown or writeoff (with buyout) should be considered when 
attempting to restructure the borrower's debt. Borrowers that are 
not delinquent, or that have met the lifetime limitation regarding 
writedown and writeoff are not eligible for writedown or writeoff. 
If the borrower is not eligible, DALR$ will consider the borrower 
for all primary loan servicing except writedown and market value 
buyout.
    E. Period of Deferral--DALR$ will default to the maximum 
deferral period of 5 years. The field can be cleared and a lessor 
period entered if applicable.
    F. Adjusted Balance Available--The adjusted balance available 
for the first year is obtained from Form FmHA 431-2, ``Farm and Home 
Plan'' developed for the current production cycle or the typical 
plan, if applicable. Adjusted balance available is the sum of total 
planned family living expenses from Table F, total planned cash farm 
operating expenses, less interest from Table G, and line 16, 
``Balance Available,'' from Table J of the Farm and Home Plan. If 
loan deferral or debt writedown is anticipated or needed, the 
balance available for the year after the deferral period must also 
be calculated and entered.
    G. Non-Agency Debts, Family Living Expenses and Adjusted 
Operating Expenses--This is the sum of total planned family living 
expenses from Table F, total planned cash farm operating expenses, 
less interest, from table G, and total non-Agency debt repayment 
(principal and interest) from Table K of Form FmHA 431-2, ``Farm and

[[Page 10151]]

Home Plan''. If future non-agency loans are planned that will affect 
the first year or the year after the deferral, the annual debt 
repayment for these loans should be included. Debt repayment on FSA 
nonprogram loans should be included when determining this amount. 
FSA nonprogram debts must be entered here to assure that these loans 
are not included in the present value calculations or when 
determining if the $300,000 writedown or writeoff limitation was 
exceeded.
    H. FSA Loan for Annual Operating Expense--The amount of FSA loan 
for annual operating expenses is the amount of annual operating 
expense loan principal which is due in the applicable planning year. 
The estimated average number of months the annual operating loan 
will be outstanding is also entered.
    If some of the principal will be carried over to future years, 
then that amount is either:
    1. Included in the new loan payments computed using the 
amortization factor over the applicable loan term at the regular 
loan program interest rate, or
    2. If the amount to be carried over was entered as an existing 
loan, it is rescheduled with the applicable term and interest rate 
permitted by the program regulation.
    I. New FSA Loans and Scheduled Advances--The amount of the loan, 
loan type, regular program interest rate, and year that the cash 
flow will be affected will be entered. DALR$ will consider a 
reduction from the regular program interest rate to the limited 
resource interest rate (if applicable) during the rescheduling or 
reamortizing process if necessary to develop a feasible plan.
    J. NRV Data--Information pertaining to FSA security and 
nonessential assets owned by the borrower will be entered in 
accordance with Exhibit I of part 1951, subpart S. Prior liens will 
include other creditors debts that hold a prior lien to FSA on the 
security property. Prior liens may also include FSA nonprogram loans 
if the same security is cross-collateralized with the program loans 
and they hold a prior lien to the program loans.
    K. Existing Loan Data--Loan information will be obtained from 
the borrower's case file and Finance Office status inquiry screens. 
The date of status screens must be after the date of the last 
payment or other transaction on the loan. The loan information 
includes the consideration for servicing actions, unpaid principal 
and interest, amount of next payment, maximum term, original and 
existing interest rate, security priority, information regarding any 
portion of the loan not to be rescheduled, and proposed payment in 
full on the restructure date.
    1. If the interest accrual date of the status screen precedes 
the proposed restructure date, DALR$ will calculate the additional 
interest accrual. Interest accrual is calculated in accordance with 
section I of attachment 1 to this exhibit.
    2. Loan selection for many of the calculation processes is based 
partly on the security priority identified for each loan. There are 
three priorities:
    a. Low--These loans are unsecured. If FSA loan security was 
liquidated, the proceeds would not be sufficient to result in a 
payment on this loan.
    b. Medium--These loans are undersecured. If FSA security was 
liquidated, the proceeds would be sufficient to result in a partial 
payment on this loan.
    c. High--These loans are fully secured. If FSA security was 
liquidated, the proceeds would be sufficient to pay this loan in 
full.
    L. Conservation Contract Data--If the borrower requested a 
conservation contract, the total acreage of the farm, acres to be 
included in the conservation contract, unpaid debt secured by the 
farm, and the current market value of the farm must be entered.
    M. Softwood Timber (ST) Loan Data--If ST deferral was requested 
by the borrower, the acreage eligible for ST must be entered.
    N. Interest Rate Tables--Interest rates and the effective date 
provided in Exhibit B of FmHA Instruction 440.1 will be entered.
    O. Discount Rate Tables--The discount rate and the effective 
date provided in Exhibit B of FmHA Instruction 440.1 will be 
entered.
    P. Net Recovery Constants Tables--Net Recovery Constants and the 
effective date determined in accordance with exhibit I of part 1951, 
subpart S will be entered.

VI. CALCULATION PROCESS.

    As described in section IV of this exhibit, the DALR$ 
calculations are a repetitive process. During the first phase of the 
calculations, DALR$ will attempt to restructure the borrower's debt 
utilizing all necessary combinations of loan servicing and provide a 
ten percent debt service margin. Debt service margin is calculated 
in accordance with section II of attachment A of this exhibit. If a 
feasible plan cannot be developed after considering all combinations 
of loan servicing, the debt service margin will be reduced to nine 
percent and all combinations of servicing will again be considered. 
DALR$ will continue to reduce the debt service margin by one percent 
until a feasible plan is developed or the debt service margin falls 
below zero and a feasible plan is not possible with any combination 
of servicing options.
    The calculation process proceeds as follows:

A. Calculation of NRV

    As required by Secs. 1951.909 and 1951.910 of title 7, DALR$ 
computes total NRV of agency loan security and non-essential assets. 
Exhibit I of part 1951, subpart S, ``Guidelines for Determining 
Adjustments for Net Recovery Value'', provides guidance in 
determining the value of specific items utilized in the net recovery 
calculations outlined below.
    NRV is computed for all Farm Loan Programs loan security, other 
non-essential assets owned by the borrower, and assets not in the 
borrower's possession. If the agency's lien position, or the amount 
of prior liens vary from item to item, separate NRV will be computed 
for each item which has a different lien structure.
    Example: FSA has a first lien on a borrower's equipment, except 
for two tractors. One tractor was financed by non-agency credit, and 
FSA has a junior lien subject to the purchase money financing. In 
the case of the second tractor, FSA subordinated its lien to another 
lender to finance repairs, thus, FSA has a junior lien to the amount 
subordinated. In this example, there would be three net recovery 
calculations. One for each tractor, and one for the remaining 
equipment. The same logic applies to real estate security. The total 
of all net recovery calculations will be the total NRV.
    The general formula for calculating NRV is as follows:
    * Current market value of the security
    * Minus prior liens
    * Minus property taxes while in inventory
    * Minus depreciation on buildings and improvements
    * Minus management charges
    * Minus repairs necessary for resale
    * Minus legal and administrative costs
    * Minus sales cost
    * Minus advertising cost
    * Minus miscellaneous expenses
    * Minus interest cost while in inventory
    * Plus or minus the increase or decrease, as applicable, in value 
while in inventory
    * Plus anticipated income while in inventory
    * Equals NRV of the individual property items
    The sum of the NRV of individual property items minus:
    * Real estate property management costs
    * Real estate or real estate and chattel costs, and
    * Chattel only costs as applicable, equals the total NRV of FSA 
security, non-essential assets, and assets not in possession.
    The factors listed above do not apply to the calculation of NRV 
for non-essential assets and assets not in possession.

B. Calculation of Payments for New FSA Loans

    DALR$ calculates debt repayment for new FSA term loans and FSA 
loans for annual operating expenses as follows:
    1. Repayment for new term loans will be calculated based on the 
regular loan program interest rate and the term of the loan. The 
payment will be calculated in accordance with section III A of 
attachment 1 to this exhibit.
    2. Repayment of loans for annual operating expenses will be 
calculated based on the regular interest rate and the projected 
number of months the loan will be outstanding determined in 
accordance with section III B of attachment 1 to this Exhibit. DALR$ 
will calculate interest accrual for the annual operating loan by 
multiplying the amount of principal to be repaid during the period 
of the plan by the monthly decimal equivalent for the regular 
program interest rate. This amount is then multiplied by the average 
number of months that the loan will be outstanding. The amount of 
debt repayment due on annual operating expense will be the total of 
interest accrual plus the principal amount of the loan.

[[Page 10152]]

    DALR$ will initially calculate payments for new FSA loans and 
FSA loans for annual operating expenses at the regular program 
interest rate. If a feasible plan cannot be developed, DALR$ will 
reduce the interest rate to limited resource rates (if applicable) 
during the calculations completed in paragraph F of this section.

C. Application of Payment on the Effective Date of Servicing.

    DALR$ will apply loan payments to be made on the effective date 
of loan servicing. DALR$ can only consider a full payoff of a loan. 
If a payment for less than the full amount of the loan is expected 
or received, the payment must be applied to the loan prior to 
completing the DALR$ calculations.
    If after the application of payments to pay loans in full, there 
is a debt repayment margin of ten percent or more and none of the 
borrowers remaining loans are delinquent, no further servicing 
action in DALR$ is required.

D. Conservation Contract.

    DALR$ will consider Conservation Contract (CC), if requested by 
the borrower, prior any other loan servicing option. CC can be 
requested by both current and delinquent borrowers. Only FLP loans 
secured by real estate are eligible. A borrower will not be offered 
CC unless, the CC or CC in combination with other loan servicing 
options results in a feasible plan. Debt cancellation as a result of 
CC will be applied against the borrowers loans as a noncash credit 
and will not affect the borrowers debt repayment unless the loan is 
fully written down.
    CC eligible loans will be selected in the order of lowest 
security priority first. For loans with equal security priority, the 
secondary selection will be the loan with the largest amortization 
factor determined in accordance with section IV of attachment 1 to 
this Exhibit.
    The calculations completed during this process are as follows:
    1. Determine the maximum amount of CC in accordance with 
attachment 1 of exhibit H of part 1951, subpart S.
    2. Deduct the lessor of the unpaid loan balance or the maximum 
CC from the first loan selected. Repeat this step until the maximum 
CC debt cancellation has been deducted, or all CC eligible loans 
have been written down in full.
    3. If a feasible plan was developed with a debt service margin 
greater than or equal to ten percent, and the borrower does not have 
any remaining delinquent loans, no further servicing is required. 
DALR$ will offer the user the opportunity to print the servicing 
report.
    4. If the borrower has delinquent loans, or the debt service 
margin is less than five percent after consideration of CC, DALR$ 
will proceed with paragraph E of this section.

E. Rescheduling or Reamortization of Delinquent Loans

    DALR$ will reschedule or reamortize existing loans to eliminate 
any delinquency. All delinquent loans will be restructured. Loans 
with regular interest rates will be restructured at the lower of the 
original note rate or the current program rate. Loans that currently 
have a limited resource rate will be restructured at the lower of 
the original note rate or the current limited resource rate.
    Only loans that are delinquent will be restructured during this 
process. Loans will be selected in the order of lowest security 
priority first. For loans with equal security priorities, the 
secondary selection will be based on the loan with the lowest 
amortization factor. For loans with an equal amortization factor, 
the final selection will be based on the loan with the lowest 
present value calculated in accordance with section V of attachment 
1 of this Exhibit.
    The calculations completed during this process are as follows:
    1. Combine recoverable cost items with parent loans.
    2. Reschedule or reamortize the delinquent loan over the maximum 
term entered for the loan.
    3. Calculate debt repayment for the first year for the 
rescheduled or reamortized loan based on the new interest rate and 
term.
    4. Repeat steps 2 and 3 until all delinquent loans have been 
processed.
    5. Determine if a feasible plan was developed with the 
appropriate debt service margin by rescheduling or reamortizing all 
delinquent loans.
    6. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require 
servicing. DALR$ will provide the user with the opportunity to print 
the servicing report.
    7. If a feasible plan was not found, DALR$ will reschedule or 
reamortize non-delinquent loans in accordance with paragraph F of 
this section.

F. Reschedule or Reamortize Non-Delinquent Loans

    DALR$ will reschedule or reamortize non-delinquent loans one at 
a time to attempt to develop a feasible plan. Loans with regular 
interest rates will be restructured at the lower of the original 
note rate, or the current program rate. Loans that currently have a 
limited resource rate will be restructured at the lower of the 
original note rate or current limited resource rate.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary 
selection will be based on the loan with the lowest amortization 
factor. For loans with equal amortization factors, the final 
selection will be based on the loan with the lowest present value.
    After each non-delinquent loan has been rescheduled or 
reamortized, DALR$ will determine if a feasible plan was developed 
with the appropriate debt service margin prior to proceeding to the 
next loan.
    The calculations completed during this process are as follows:
    1. Reschedule or reamortize the non-delinquent loan over the 
maximum term entered for the loan.
    2. Calculate debt repayment for the first year for the 
restructured loan based on the new interest rate and term.
    3. Determine if a feasible plan was developed with the 
appropriate debt repayment margin.
    4. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require 
servicing. DALR$ will provide the user with the opportunity to print 
the servicing report.
    5. If a feasible plan is not found, repeat steps 1 through 3 
until a feasible plan is found with the appropriate debt service 
margin, or all non-delinquent loans have been rescheduled.
    6. If a feasible plan was not found, DALR$ will reschedule or 
reamortize delinquent and non-delinquent loans at limited resource 
rates (if applicable), in accordance with paragraph G of this 
section.

G. Rescheduling or Reamortization of Limited Resource Eligible Loans at 
Limited Resource Rates

    DALR$ will attempt to reschedule or reamortize limited resource 
eligible loans at the limited resource rate to develop a feasible 
plan. Debt repayment for new FSA term loans and for annual operating 
expenses will be recalculated at limited resource rates (if 
applicable). The interest rate for existing loans will be the lessor 
of the original note rate or the current limited resource rate.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary 
selection will be based on the loan with the lowest amortization 
factor. For loans with equal amortization factors, the final 
selection will be based on the loan with the lowest present value.
    After each limited resource eligible loan has been rescheduled 
or reamortized at the limited resource rate, DALR$ will determine if 
a feasible plan was developed with the appropriate debt service 
margin prior to proceeding to the next loan.
    The calculations completed during this process are as follows:
    1. Recalculate repayment for new FSA term loans and annual 
operating loans at the limited resource rate.
    2. Determine if a feasible plan was found with the appropriate 
debt service margin after reducing the interest rate on new loans.
    3. If a feasible plan was developed, no further servicing is 
required. Proceed to step 7.
    4. Reschedule or reamortize an existing limited resource 
eligible loan at the limited resource interest rate.
    5. Calculate debt repayment for the first year for the 
rescheduled or reamortized loan at the maximum term entered for the 
loan with limited resource rates.
    6. Determine if a feasible plan was found with the appropriate 
debt service margin.
    7. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require 
servicing. DALR$ will provide the user with the opportunity to print 
the servicing report.
    8. If a feasible plan was not found, repeat steps 4 through 6 
until a feasible plan is found with the appropriate debt service

[[Page 10153]]

margin, or until all limited resource eligible loans have been 
processed.
    9. If a feasible plan was not found, DALR$ will reschedule or 
reamortize loans with unequal payment schedules in accordance with 
paragraph H of this section.

H. Rescheduling or Reamortizing Loans with Unequal Payment Schedules

    DALR$ will reschedule or reamortize loans with unequal payment 
schedules. These loans were not previously restructured in sections 
F or G as rescheduling or reamortization would have resulted in an 
increase in debt repayment in the first year. However, if the loan 
was delinquent, the loan would have been rescheduled or reamortized 
under section E regardless of the impact on the first year debt 
repayment. Loans will be restructured at the lower of the original 
note rate or the current loan program rate (limited resource if 
applicable).
    Loans selected for rescheduling or reamortization in this 
process will not have been restructured during any of the earlier 
calculations and cannot be a ST loan.
    Loans will be selected in the order of lowest security priority 
first. For loans with equal security priorities, the secondary 
selection will be based on the loan with the lowest amortization 
factor. For loans with equal amortization factors, the final 
selection will be based on the loan with the lowest present value.
    After each loan with an unequal payment schedule has been 
rescheduled or reamortized, DALR$ will determine if a feasible plan 
was developed with the appropriate debt service margin prior to 
proceeding to the next loan.
    The calculations completed during this process are as follows:
    1. Reschedule or reamortize an unequal payment loan over the 
maximum term.
    2. Calculate the debt repayment for the first year for the 
restructured loan based on the new term and interest rate.
    3. Determine if a feasible plan was developed with the 
appropriate debt service margin.
    4. If a feasible plan was developed, no further servicing is 
required. The combination of a recoverable cost item with the parent 
loan will be reversed if the combined loans did not require 
servicing. DALR$ will offer the user the opportunity to print the 
servicing report.
    5. If a feasible plan is not developed, repeat steps 1 through 3 
until a feasible plan is developed with the appropriate debt service 
margin, or until all unequal payment schedule loans have been 
processed.
    6. If a feasible plan is not developed, calculate the necessary 
cash improvement required to cash flow in the first year using the 
rescheduling or reamortization process. Retain this amount for later 
use in the cash improvement process.
    7. If a feasible plan was not developed, DALR$ will consider 
deferrals in accordance with paragraph I of this section.

Rescheduling or Reamortization with Deferral

    If a feasible plan cannot be developed by utilization of 
rescheduling or reamortizing delinquent and non-delinquent loans 
with the maximum terms and lowest interest rates available under the 
regulations with a ten percent margin, deferral data must be entered 
in DALR$. DALR$ will not consider the borrower for writedown 
(discussed in paragraph J of this section) unless deferral data has 
been entered.
    DALR$ will attempt to develop a feasible plan for the first year 
by deferring payments on FSA loans until the end of the deferral 
period (1-5 years). A deferral will decrease the payment during the 
period of the deferral, and increase the payment for the remaining 
term after the deferral period. Deferrals will only be beneficial if 
the debt repayment margin increases in the year after the deferral 
period. This improvement must be no later than six years after the 
current planning year, since the maximum deferral period is five 
years.
    To determine the appropriate deferral period, the servicing 
official and borrower will review the farm operation over the next 
five years. Loans should be deferred to the year when the 
improvement from the first planning year is the greatest and the 
improvement in the following years are at least as good.
    Loans will be deferred at the lower of the original note rate, 
or current program interest rate (limited resource, if applicable). 
ST will not be considered for regular deferral.
    To select loans for deferral, DALR$ will calculate the payment 
after the deferral period for each loan as if the loan had been 
fully deferred. (This is only a side calculation to determine the 
best order of selection.) The ratio of the difference between the 
post deferral year payment and first year payment will be calculated 
as follows:

(Post Deferral Payment--First Year Payment)

First Year Payment

    The loan with the smallest ratio will be deferred first and so 
forth.
    The calculations completed during this process are as follows:
    1. Defer the selected loan and calculate debt repayment in the 
first year and the year after the deferral period.
    2. Determine if a feasible plan was developed for the first year 
with the appropriate debt service margin. If a feasible plan was 
developed proceed with step three, otherwise, repeat step one until 
a feasible plan for the first year is developed or all loans have 
been deferred.
    3. If the applicable debt service margin for the first year was 
exceeded (this indicates that the last loan deferred did not require 
a full deferral), the following will occur:
    a. DALR$ will determine the amount of the partial deferral 
needed on the last loan selected to maintain the feasible plan 
developed for the first year. See section VI of attachment 1 of this 
Exhibit for formulas used in calculating partial deferral.
    b. DALR$ will calculate the debt repayment for this loan for the 
first year and the year after the deferral period.
    4. Calculate total debt repayment for the year after the 
deferral period.
    5. If a feasible plan exists for the year after the deferral 
period, then no further servicing actions are required. DALR$ will 
offer the user the opportunity to print the servicing report.
    6. If the deferral of loans will not permit the borrower to cash 
flow in the first year, DALR$ will calculate the cash improvement 
required to cash flow in the first year using deferral. This amount 
will be retained for later use in the cash improvement process.
    7. If a feasible plan does not exist for the year after the 
deferral period, DALR$ will consider the borrower for ST, if 
requested in accordance with paragraph J of this section. Otherwise, 
DALR$ will consider the borrower for debt writedown in accordance 
with paragraph K of this section.

J. Softwood Timber (ST)

    DALR$ will consider ST, if requested by the borrower, to the 
maximum limit permitted under the regulations. Deferral of payment 
on ST until the end of the ST deferral period must improve the 
borrowers debt repayment ability during the first year and the year 
after the deferral period. All previously calculated regular 
deferrals will be cancelled. Only loans eligible for ST will be 
considered. If the entire unpaid balance of a loan is not converted 
to a ST loan, the loan will be split into two loans. The interest 
rate for the ST portion will be the lessor of the original note rate 
or the current ST loan program interest rate. The non ST portion of 
the loan will retain the interest rate and term determined prior to 
ST consideration.
    Loans will be selected to maximize the present value of the loan 
after ST deferral. This will minimize or eliminate loss to the 
Government. DALR$ will calculate the present value for each eligible 
loan before and after ST and compute the decrease in present value 
using the following formula:

(Present Value w/ Full ST Deferral--Present Value if not Deferred)

Nondeferred First Year Payment

    Note: For loans in which the present value increases, this will 
be a negative number.
    The ratio of the decrease in present value to the first year 
payment will be calculated. The loan with the smallest (or most 
negative) ratio will be selected first. For loans with equal ratios, 
the secondary selection will be based on the loan with the lowest 
security priority.
    The calculations completed during this process are as follows:
    1. Starting with the first loan selected for ST, defer the loan. 
The amount of ST deferral cannot exceed the maximum limit permitted 
under the regulations.
    2. Determine if a feasible plan was developed for the first year 
with the appropriate debt service margin. If a feasible plan was 
found, proceed with step three, otherwise, repeat step one until a 
feasible plan is found or the maximum for ST deferral has been 
reached.
    3. If the full deferral of a loan results in the applicable debt 
service margin being exceeded, DALR$ will determine the amount of 
partial deferral required for a feasible plan. If a loan is only 
partially deferred, DALR$ will create a new loan identity for the 
partially deferred portion of the loan. The portion not deferred 
will maintain the interest rate and term prior to the deferral.
    4. If full utilization of the ST program does not result in a 
positive cash flow in the first

[[Page 10154]]

year, repeat the regular deferral process (see paragraph J of this 
section. Loans selected for ST will not be deferred when repeating 
the regular deferral calculations.
    5. If the deferral of loans under the ST program results in a 
positive cash flow with the applicable debt service margin for the 
first year, no further servicing is required. DALR$ will provide the 
user with the opportunity to print the servicing report.
    6. If the deferral of loans under the ST program will not permit 
the borrower to cash flow in the first year, DALR$ will calculate 
the cash improvement required to cash flow in the first year using 
the ST program. This amount will be retained for later use in the 
cash improvement process.
    7. If a feasible plan is not found, DALR$ will consider the 
borrower for writedown in accordance with paragraph K of this 
section.

K. Writedown

    If a feasible plan could not be developed utilizing CC, 
rescheduling or reamortization, limited resource rates, regular 
deferral and ST deferral, and the borrower is eligible for writedown 
or writeoff, DALR$ will attempt to develop a feasible plan by 
writing down the borrower's FSA debt. Borrowers who have met the 
lifetime limitation for writedown or writeoff will not be considered 
for writedown. The amount of the writedown necessary to develop a 
feasible plan must be less than or equal to $300,000 in accordance 
with section 1951.909 of part 1951, subpart S.
    DALR$ will prioritize the loans for writedown and attempt to 
develop a feasible plan (pass one). If a feasible plan is not found, 
DALR$ will re-order the loans based on different criteria and again 
attempt to develop a feasible plan with writedown (pass two). Loans 
deferred under the ST program will not be considered for writedown.
    For the first attempt to writedown (pass one), loan selection 
will be based on an attempt to maximize the amount of writedown. The 
loan with the lowest security priority will be selected first. For 
loans with an equal security priority, the secondary selection will 
be based on the loan with the largest amortization factor.
    If a feasible plan was not developed, DALR$ will re-order the 
loans based on new criteria, and will again attempt writedown (pass 
two). Loan selection will be based on lowest security priority. For 
loans with equal security priority, the secondary selection will be 
based on the loan with the smallest present value factor. For loans 
with an equal present value factor, the final selection will be 
based on the loan with the highest amortization factor.
    The calculations completed during this process are as follows:
    1. From the list of loans for the first method of loan 
prioritization (pass one), select the first from the list ordered 
and apply writedown. This step will be repeated until the borrower 
cash flows in the first year, or until all selected loans have been 
written down. The writedown amount for each loan will be retained 
and added to the total writedown amount.
    2. If a cash flow for the first year was achieved and the full 
writedown of the last loan selected results in the applicable debt 
service margin being exceeded, this implies that a full writedown 
was not required. DALR$ will compute the amount of partial writedown 
on the last loan selected necessary to achieve a cash flow in the 
first year at the appropriate debt service margin and reschedule or 
reamortize the remaining unpaid balance.
    3. If the present value of all FSA remaining debt plus the total 
CC equals or exceeds the NRV, and the total writedown amount is less 
than or equal to $300,000, no further serving is required. DALR$ 
will offer the user the opportunity to print the servicing report.
    If this step fails, the process will be repeated from step one 
using the second method for ordering loans for writedown.
    4. If step three fails after repeating the writedown 
calculations based on the second method of prioritizing loans for 
writedown, DALR$ will consider the borrower for a combination of 
deferral and writedown in accordance with paragraph L of this 
section.

L. Writedown with Deferral

    This process will defer payment on FSA loans in combination with 
debt writedown in an effort to develop a feasible plan for the first 
year and the year after the deferral period. Regular and ST 
deferrals did not result in a feasible plan for the first year and 
the year after the deferral period.
    The deferral period will be 1-5 years as entered by the user.
    To select loans for deferral, DALR$ will calculate the payment 
for each loan as if it had been fully deferred. (This is a side 
calculation used only to prioritize the loans.) The ratio between 
the post deferral year payment and the first year payment will be 
calculated as follows:

(Post Deferral Payment--First Year Payment)

First Year Payment

    The loan with the smallest ratio is deferred first and so on 
until the borrower cash flows in the first year with the appropriate 
debt service margin or all loans have been deferred.
    Loans will be selected for writedown based on the selection 
criteria established in paragraph J of this section. The deferred 
portion of the loan is considered a separate loan in this process 
and must be prioritized for selection with the remaining loans.
    The calculations completed during this process are as follows:
    1. Loans are deferred to obtain a positive cash flow in the 
first year as described in paragraph J of this section.
    2. DALR$ will create a new loan identity for the partially 
deferred portion of any loan.
    3. If the borrower cash flows with the appropriate debt service 
margin in both the first year and the year after the deferral 
period, no further servicing is required. DALR$ will offer the user 
the opportunity to print the servicing report.
    Otherwise, using the first method of loan selection (pass one) 
described in paragraph L of this section, DALR$ will select one loan 
at a time and attempt to develop a feasible plan by utilization of 
full or partial writedown.
    4. If the borrower does not cash flow in the year after the 
deferral period, or the cash flow in the first year exceeds the 
appropriate debt service margin, DALR$ retains the writedown amount, 
all loans not completely written down are converted to non-deferred 
status, and the process will begin again at step one.
    5. If the present value of all FSA remaining debt plus the total 
CC equals or exceeds the NRV, and if the writedown amount is less 
than or equal to $300,000, a feasible plan has been found and no 
further servicing is required. Otherwise, repeat this process 
beginning from step one using the second method of prioritizing 
loans for writedown described in paragraph L of this section.
    6. If step three fails after repeating the writedown 
calculations based on the second method of prioritizing loans for 
writedown, DALR$ will determine if the borrower will be offered 
buyout at the current market value. If the writeoff amount (total 
principal and interest minus the total market value) is less than or 
equal to $300,000, DALR$ will compute an offer to the borrower for 
buyout at the current maket value. Otherwise, the borrower is not 
eligible for debt forgiveness. DALR$ will offer the user the 
opportunity to print the servicing report.

M. Cash Improvement

    If a feasible plan could not be developed after considering all 
available primary loan servicing, DALR$ will provide the user with 
the opportunity to determine the amount of cash improvement in the 
first year balance available to produce a feasible plan.
    The calculations completed during this process are as follows:
    1. Collect cash improvement solutions from the reschedule or 
reamortize debt process, the regular deferral process, and the 
softwood timber deferral process.
    2. Determine the cash improvement required in the first year to 
cash flow using conservation contract, if applicable.
    3. Determine the cash improvement required in the first year to 
cash flow using writedown, if applicable.
    4. Determine the cash improvement required in the first year to 
cash flow using writedown with deferrals, if applicable.
    5. Select the lowest of all the cash improvements and display it 
to the screen. DALR$ will offer the user the opportunity to print 
the servicing report.

O. SUMMARY

    At this point, DALR$ has finished its calculations. A feasible 
plan has been developed, or all possible combinations of servicing 
actions has been considered. DALR$ will provide a report of the 
results of the calculations performed.
    If DALR$ does not find a solution that will provide a feasible 
plan, FSA will proceed with the other actions authorized in this 
subpart, including mediation, offer the opportunity to purchase 
collateral for market value, and consideration for Homestead 
Protection.

Attachment 1--Formulas Used in DALR$ Calculations

I. INTEREST ACCRUAL ON EXISTING LOANS

    If the interest accrual date for an existing loan precedes the 
proposed restructure date,

[[Page 10155]]

DALR$ will determine the amount of additional interest which will 
accrue between these dates. This amount will be added to the unpaid 
interest that was outstanding as of the accrual date. The 
calculations used are as follows:

A. Interest Accrual After the Loan Status Date Equals

[(Principal  x  Interest Rate)/365]  x  (Effective Date-Accrual Date)

B. Total Accrued Interest Equals

Interest Accrual After the Loan Status Date + Accrued Interest as of 
the Loan Status Date

II. DEBT SERVICE MARGIN

    DALR$ will attempt to develop a feasible plan that provides the 
borrower with a ten percent margin above the amount needed for 
family living expenses, farm operating expenses and debt service 
obligations. If a feasible plan cannot be found with a ten percent 
debt service margin, DALR$ will reduce the margin in increments of 
one percent until a feasible plan is found, or the debt service 
margin falls below zero. DALR$ will consider all loan servicing 
options prior to reducing the debt service margin.
    The debt service margin is applicable in both the first year and 
the post deferral year calculations if deferral is being considered. 
The debt service margin is used to calculate the cash available 
restructure FSA debt and is calculated as follows:
    Cash Available = ((balance available + family living expenses + 
farm operating expenses-interest expense) / applicable debt service 
margin)---family living expenses-farm operating expenses (excluding 
interest)-non-agency debt repayment
    The debt service margin used in the above calculations is set 
initially at 1.10. If a feasible plan is not found after 
consideration of all loan servicing options, the margin is reduced 
incrementally by .01. After the reduction is completed, DALR$ will 
reconsider the borrower for all loan servicing requested. DALR$ will 
continue to reduce the debt service margin until a feasible plan is 
developed, or until it has been determined that a feasible plan is 
not possible with a debt service margin of 1.00.

III. LOAN PAYMENT CALCULATIONS

    Loan payments are calculated using amortization factors rounded 
to the nearest five places. All payments are rounded up to the next 
dollar. The equations used to calculate loan payments are as 
follows:

A. Payments on New FSA Loans

Payment = Principal Amount  x  Amortization Factor

B. Payments on FSA Loans for Annual Operating Expenses

    1. Determine the average number of months that the loan for 
annual operating expenses will be outstanding. It may be estimated 
or calculated from the projected advance and payment schedule for 
the loan.
    For example, the loan for annual operating expenses is estimated 
to be $15,000 and the projected advance and repayment schedule is 
planned as follows:

------------------------------------------------------------------------
                                                              Number of 
               Principal balance outstanding                    months  
                                                             outstanding
------------------------------------------------------------------------
$15,000....................................................           3 
$8,000.....................................................           2 
$6,000.....................................................           4 
------------------------------------------------------------------------

Average Months = (3  x  15,000) + (2  x  8,000) + (4  x  6000) 
15,000
Average Months = 45,000 + 16,000 + 24,000 15,000
Average Months = 85,000 15,000
Average Months = 5.7

    2. Determine interest accrual on annual operating expense loan.

Interest Accrual = [(Principal Amount  x  Interest Rate)/12]  x  
Number of Months Outstanding

    3. Determine total payment.

Total Payment = Principal Amount + Interest Accrual

C. Payments for Rescheduled or Reamortized Loans

    1. Determine interest accrual if loan status date precedes the 
proposed restructure date in accordance with section I of this 
attachment.
    2. Determine unpaid loan balance.

Unpaid Loan Balance = Principal Amount + Unpaid Interest (as of the 
loan status date) + Interest Accrual

    3. Determine payment amount.
Payment = Unpaid Balance  x  Amortization Factor

D. Payments for Deferred Loans

    1. Determine term of loan entered in DALR$.
    2. Determine remaining term after deferral period.
    Remaining Term = Term--Deferral Period

Remaining Term = Term-Deferral Period

3. Determine payment during deferral period.

Payment = Nondeferred Principal x Amortization Factor

    Note: Amortization factor is based on the full term of the loan.

    4. Determine payment after deferral.
    a. Determine interest accrual on deferred principal.

Interest Accrual = Deferred Principal x Interest Rate x Deferral 
Period

    b. Determine payment on interest accrual.

Payment = Interest Accrual / Remaining Term

    c. Determine payment on deferred principal.

Payment = Deferred Principal x Amortization Factor

    Note: Amortization factor is based on the remaining term after 
the expiration of the deferral period.

    d. Determine total payment after deferral.

Payment = Payment of Nondeferred Principal + Payment on Interest 
Accrual + Payment on Deferred Principal

IV. LOAN AMORTIZATION FACTORS

    Loan amortization factors are calculated using the following 
equations:
A. Non-deferred loan
    A = [(i(l + i)n)/((l + i)n-l)]
    A--amortization factor
    i--interest rate
    n--term
B. Deferred loan
    A = [((i(l + i)n-t)/((l + i)n-t-l)) + ((i x t)/(n-t))]
    A--amortization factor
    i--interest rate
    n--term
    t--deferral period
C. Deferred interest
    A = l/(n-t)
    A--amortization factor
    n--term
    t--deferral period

V. Present value calculations

    A. The net present value factors for each loan are calculated 
using the following equations:
1. Non-deferred loan
    P = [((l+ i)n-l/(i(l+ i)n)]
    P--net present value factor
    i--discount rate
    n--term
2. Deferred loan
    P = [[((l+ i)n-t-l/(i(l+ i)n-t)]/(l+ i)t]
    P--net present value factor
    i--discount rate
    n--term
    t--deferral period
B. The loan net present is calculated using the following equation:
    NPV = (P)(p)
    NPV--loan net present value
    P--loan net present value factor
    p--loan payment

VI. Partial deferral calculations

    Whenever full deferral of a loan results in excess cash flow 
(above the applicable debt service margin) in the first year, a 
partial deferral of that loan will decrease future payments on that 
loan and eliminate the excess cash flow in the first year. A partial 
loan is created by apportioning the loan balance into two distinct 
parts (nondeferred and deferred).
    Partial deferrals are calculated as follows:

A. Determine the amount of deferral necessary to achieve cash flow 
in the first year.
    d = l-(r/R)
    d = The fraction of the loan which must be deferred.
    r = The amount of excess cash flow in the first year with full 
deferral.
    R = The debt repayment on the loan in the first year with out 
deferral.
B. Determine the deferred and nondeferred portion of the loan.
    1. P1 = (1-d) x P
    P1 = (r/R) x P
    P1--Nondeferred Portion
    d--Fraction of the Loan which must be deferred

[[Page 10156]]

    P--Principal Balance
2. P2 = P--P1
    P2--Deferred Portion
    P--Principal Balance
    P1--Nondeferred Portion

VII. $300,000 Debt writedown and buyout limitation

    DALR$ will attempt to develop a feasible plan with a ten percent 
margin. All loan servicing, including writedown will be considered 
prior to reducing the debt service margin. However, DALR$ will only 
consider writedown for those borrowers that have not received the 
lifetime limitations for writedown or writeoff (with buyout). If a 
feasible plan is found with writedown, DALR$ will:

A. Writedown

    1. Determine the amount of writedown that was necessary for the 
borrower to have a positive cash flow.
    2. If the amount of the writedown is less than or equal to 
$300,000, a feasible plan has been found.
    3. If the amount of the writedown is greater than $300,000, and 
the debt service margin exceeds 1.00, reduce the debt service margin 
by .01 and repeat from step 1.
    4. If the amount of writedown is greater than $300,000, and the 
debt service margin equals 1.00, or a feasible plan cannot be 
developed, determine the amount of writeoff (with buyout at the 
current market value).
    5. If the amount of writeoff (with buyout at the current market 
value) is less than or equal to $300,000, the borrower will be 
offered buyout.
    6. If the amount of writeoff (with buyout at the current market 
value) is greater than $300,000, the borrower is not eligible for 
loan servicing or buyout.
    27. Exhibit K is revised to read as follows:

Exhibit K--Notification of Consideration for Homestead Protection

    Purpose: To notify borrowers of preacquisition homestead 
protection consideration when there is a dwelling on the security 
property and a complete application was submitted for primary and 
preservation loan servicing or requested from the notice of intent 
to accelerate notice.

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

    Dear (Borrower's Name)
    This notice is to inform you that, per your request, you are 
being considered for Homestead Protection.
    We will need the following additional information to complete 
our processing of your request:
    1.
    2.
    3.
    Please provide the above information within 30 days from the 
date of this letter. If we do not receive the above requested 
information within 30 days, we will deny your request for Homestead 
Protection.
    If you wish to withdraw your request for Homestead Protection, 
please complete and return the enclosed Attachment 1, ``Response to 
Notification of Consideration for Homestead Protection,'' within 15 
days of the date of this letter.

[FOR INDIVIDUAL BORROWERS ONLY--INSERT EQUAL CREDIT OPPORTUNITY 
PARAGRAPH]

          Sincerely,

Attachment 1--Response to Notification of Consideration for 
Homestead Protection

TO: Farm Service Agency
FROM: (Please Print your Name and Address)

    I have read the Notification of Consideration for Homestead 
Protection which I received with this response form.
    I want to withdraw my request for Homestead Protection.

----------------------------------------------------------------------
Borrower's Signature

----------------------------------------------------------------------
(Date)

28. Exhibit L is revised to read as follows:

Exhibit L--Homestead Protection Program Agreement

    This agreement is entered into this ________ day of ________, 19 
____, by and between the Farm Service Agency (FSA) of the United 
States Department of Agriculture and ________________ 
(''Borrower'').
    Concurrently, with the execution of the pre-acquisition 
Homestead Protection Program Agreement, the borrower will deliver a 
completed Form FmHA 1955-1 to FSA. The Homestead Protection Program 
Agreement is subject to the provisions of 7 CFR part 1955, subpart 
A.
    A. Borrower has received a loan or loans from FSA secured by 
real property which includes the Borrower's dwelling, and adjoining 
land that is used to maintain the Borrower and the Borrower's family 
(the Homestead Protection property). In some cases the FSA loans may 
also have been included one or more outbuildings that are useful to 
the Borrower and the Borrower's family and in such cases these 
outbuildings are included in the definition of Homestead Protection 
property.
    B. Borrower's FSA loan is in default which could result in the 
loss of the borrower's Homestead Protection property.
    C. Borrower wants to continue to occupy the Homestead Protection 
property after FSA acquires title to it.
    D. FSA has already determined that Borrower has satisfied the 
requirements for its Homestead Protection Program.
    E. FSA agrees to permit Borrower to retain occupancy of the 
Homestead Protection property on the following terms and conditions:
    1. Subject to the terms and conditions set forth below FSA 
agrees to lease the Homestead Protection property, as more 
particularly described in attachment 1 hereto, to Borrower on the 
terms and conditions set forth in the lease as attachment 2 (the 
``lease''). Borrower agrees to enter into the lease of the Homestead 
Protection property.
    2. FSA's obligation to enter into the lease of the Homestead 
Protection property is subject to the occurrence of the following 
conditions:
    a. FSA acquires fee title to the Homestead Protection property 
in connection with the liquidation of the farm property of which the 
Homestead Protection property is a portion.
    b. All State and local governmental laws, ordinances and 
regulations concerning the creation of the Homestead Protection 
property as a separate legal parcel which can be leased and sold 
have been satisfied.
    3. The term of the lease will begin on the date the later of the 
conditions set forth in paragraph 2 is satisfied and such date will 
be inserted into the lease.
    4. The term of the lease will be ____ years. This term will be 
inserted in the lease.
    5. The rent to be charged during the term of the lease will be 
determined by FSA as of the commencement date of the lease and will 
be in an amount substantially equivalent to rents charged for 
similar residential properties in the area. The borrower will be 
notified by letter of the amount of the rent and the amount of the 
rent will be inserted in the lease form, Form FmHA 1955-20.
    6. Borrower agrees to cooperate with FSA in applying for and 
securing whatever local governmental approvals are necessary in 
order for the Homestead Protection property to be a separate legal 
parcel. FSA will bear the cost and expense of obtaining such 
approvals.
    7. If the term of the lease has not begun on or before 2 years 
from the date of this agreement, the agreement shall end and be of 
no further force or effect.

Farm Service Agency
By:--------------------------------------------------------------------

Borrower:

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

    Attachment 1, Legal Description of the Property.
    Attachment 2, Lease Form, Form FmHA 1955-20.

    29. Exhibit M is revised to read as follows:

Exhibit M--Notice of the Availability of Homestead Protection

(Insert Borrower's Name and Address)

(Date)

    On [acquisition date], FSA acquired the property which was 
security for your FSA loan. FSA has a program called the Homestead 
Protection Program under which you may be allowed to lease (with an 
option to purchase) the house which you owned and used as your 
principal residence, a reasonable number of farm buildings located 
near the house that are useful to the occupants of the house, and 
not more than 10 acres of land adjoining the house. If you would 
like to be considered for the Homestead Protection Program, you must 
notify this office, in writing, by [date 30 days from acquisition 
date] of the buildings and land you wish to retain.
    If you would like more information about the Homestead 
Protection Program, you should contact the FSA servicing official at 
[insert county office telephone number].
    Failure to respond by the above date will terminate any rights 
that you have to lease

[[Page 10157]]

and purchase the property under the Homestead Protection Program.

    Sincerely,


Exhibits N, O, P and Q   [Removed]

    30. Exhibits N, O, P and Q are removed.

Subpart T--Disaster Set-Aside Program


Sec. 1951.958   [Amended]

    31. Section 1951.958 is amended in paragraph (a)(2) by revising the 
words ``net recovery buyout in accordance with subpart S of part 1951, 
or operating loan assistance in accordance with Sec. 1941.14 of subpart 
A of 7 CFR part 1941'' to read ``buyout in accordance with subpart S of 
this part.''

PART 1956--DEBT SETTLEMENT

    32. The authority citation for part 1956 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42 
U.S.C. 1480.

Subpart B--Debt Settlement--Farm Loan Programs and Multi-Family 
Housing

    33. Subpart B is amended by revising the heading of the subpart to 
read as set forth above.
    34. Section 1956.54 is amended in the definition of ``Farmer 
programs loans'' by revising the words ``Farmer programs loans'' to 
read ``Farm Loan Programs (FLP) loans;'' and by adding a definition of 
``Debt Forgiveness'' as follows:


Sec. 1956.54   Definitions.

* * * * *
    Debt forgiveness. For the purposes of servicing Farm Loan Programs 
loans, debt forgiveness is defined as a reduction or termination of a 
direct FLP loan in a manner that results in a loss to the Government. 
Included, but not limited to, are losses from a writedown or writeoff 
under subpart S of part 1951 of this chapter, debt settlement, after 
discharge under the provisions of the bankruptcy code, and associated 
with release of liability. Debt cancellation through conservation 
easements or contracts is not considered debt forgiveness for loan 
servicing purposes.
* * * * *
    35. Section 1956.57 is amended in paragraph (b) by revising the 
words ``Agricultural Stabilization and Conservation Service'' to read 
``Farm Service Agency'' in the second sentence and by revising the term 
``FP'' to read ``FLP'' in the third sentence and by revising paragraph 
(k) and adding a paragraph (l) to read as follows:


Sec. 1956.57   General provisions.

* * * * *
    (k) Settlement where debtor owes more than one type of Agency loan. 
It is not the policy to settle any loan indebtedness of a debtor who is 
also indebted on another agency loan and who will continue as an active 
borrower. In such case, the facts will be fully documented in part VIII 
of Form RD 1956-1.
    (l) No previous debt forgiveness. Debt settlement may not be 
approved for any direct Farm Loan Programs loan if the borrower has 
received debt forgiveness on any other direct loan as defined in 
Sec. 1956.54 of this subpart.


Sec. 1956.66  [Amended]

    36. Section 1956.66 is amended in the introductory text by revising 
the words ``FmHA or its successor agency under Public Law 103-354'' to 
read ``RD'' in the second sentence and by revising the words ``FmHA or 
its successor agency under Public Law 103-354'' to read ``the Agency'' 
in the fourth sentence and in paragraph (a), introductory text, by 
revising the term ``FP'' to read ``FLP'' each time it appears.

PART 1962--PERSONAL PROPERTY

    37. The authority citation for part 1962 continues to read as 
follows:

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

Subpart A--Servicing and Liquidation of Chattel Security


Sec. 1962.13   [Amended]

    38. Section 1962.13 is amended in paragraph (a)(1) by removing the 
words ``, with signature.''
    39. Section 1962.34 is amended in paragraph (b)(3) by revising the 
words ``exhibit B of Agency Instruction 440.1 (available in any Agency 
office) to read ``a National Office issuance'' and by adding a new 
paragraph (b)(6) and a new second sentence in paragraph (d) to read as 
follows:


Sec. 1962.34   Transfer of chattel security and EO property and 
assumption of debts.

* * * * *
    (b) * * *
    (6) The transferee has never been liable for a previous Farm Loan 
Programs (FLP) loan or loan guarantee which was reduced or terminated 
in a manner that resulted in a loss to the Government.
* * * * *
    (d) * * * However, no such release will be granted to any borrower 
who was liable for any direct FLP loan which was reduced or terminated 
in a manner that resulted in a loss to the Government. * * *
* * * * *


Sec. 1962.40   [Amended]

    40. Section 1962.40 is amended by revising the words ``FmHA or its 
successor agency under Public Law 103-354'' to read ``the agency'' 
every time it is mentioned in paragraph (a) and paragraph (b)(1) and by 
revising the words ``Farmer Program'' to read ``Farm Loan Programs'' in 
the heading and first sentence of the introductory text of paragraph 
(b)(2) and by revising the words ``180 days delinquent'' to read ``90 
days past due (60 days delinquent) on their payments'' in the first 
sentence of the introductory text of paragraph (b)(2).
    41. Section 1962.41 is amended by revising in paragraph (a) the 
words ``FmHA or its successor agency under Public Law 103-354'' to read 
``RD'' in the second sentence and by revising the words ``FmHA or its 
successor agency under Public Law 103-354'' to read ``Agency'' in the 
third and fourth sentence and by revising the words ``FmHA or its 
successor agency under Public Law 103-354'' to read ``the Agency'' in 
the fifth sentence; and by revising paragraphs (c), (d), (e), and (f) 
to read as follows:


Sec. 1962.41   Sale of chattel security or EO property by borrowers.

* * * * *
    (c) Government takes possession. The borrower may also turn over 
possession of the chattels to the agency by signing Form RD 455-4, 
``Agreement for Voluntary Liquidation of Chattel Security.'' This form 
authorizes the agency to sell the security at either public or private 
sale. If the agency hires a caretaker, services should be obtained by 
use of Form AD-838, ``Purchase Order.''
    (d) Record of Sale. The sale will be recorded on Form FmHA 1962-1.
    (e) Unpaid debt. If the sale results in less than full payment of 
the debt, the servicing official will have the County Committee review 
the case to determine if the borrower can be released of personal 
liability in accordance with paragraph (f) of this section. The 
borrower will be notified of the County Committee's recommendation for 
or against a release of personal liability.
    (f) Release of liability. The borrower and any co-signer may be 
released from personal liability to the agency when all the chattel 
security or EO property is sold at the present market value and the 
proceeds are applied on the loan accounts. If the County Committee 
recommends a release of liability based on the following comment, the 
comment will be typed on the County Committee Certification and 
executed by the committee, and be further processed

[[Page 10158]]

and approved in accordance with Sec. 1962.34(h) of this subpart:

    In our opinion (name of borrower and any co-signer) does not 
have reasonable ability to pay all or a substantial part of the 
balance of the debt owed after the cash sale, taking into 
consideration his or her assets and income at the time of the 
conveyance. The borrower has cooperated in good faith, used due 
diligence to maintain property against loss, and has otherwise 
fulfilled the convenants incident to the loan to the best of his or 
her ability. (Name of borrower and any cosigner) has not been liable 
for a previous Farm Loan Programs (FLP) loan which was reduced or 
terminated in a manner that resulted in a loss to the Government. 
Therefore, we recommend that the borrower and any cosigner be 
released from personal liability for any balance due on the 
indebtedness upon completion of the transaction.

    Form RD 1965-8, ``Release From Personal Liability'' will be given 
to the borrower to release him/her from liability. If a release from 
liability cannot be granted, the borrower will be sent a letter similar 
to exhibit F of subpart A of part 1955 of this chapter (available in 
any agency office). The account will then be considered for debt 
settlement.
    42. Section 1962.42 is amended by revising in the introductory text 
of paragraph (a) the words ``FmHA or its sucessor agency under Public 
Law 103-354'' to read ``agency'' in the first sentence; by revising in 
paragraphs (a)(1)(i) and (a)(1)(iii) the words ``FmHA or its successor 
agency under Public Law 103-354'' to read ``RD;'' by revising in 
paragraph (a)(1)(iv) the words ``FmHA or its successor agency under 
Public Law 103-354'' to read ``the agency;'' and by revising paragraphs 
(a)(1)(v) and (a)(2) and the first sentence in paragraph (b)(1) to read 
as follows:


Sec. 1962.42  Repossession, care, and sale of chattel security or EO 
property by the County Supervisor.

    (a) * * *
    (1) * * *
    (v) When Form RD 455-5, ``Agreement of Secured Parties to Sale of 
SecurityProperty,'' is executed by all prior lienholders. If prior 
lienholders will not agree to liquidate the property, their liens may 
be paid if their notes and liens are assigned to the agency on forms 
prepared or approved by OGC. When prior liens are paid, the payment 
will be made in accordance with RD Instruction 2024-A (available in any 
agency office) and charged to the borrower's account.
* * * * *
    (2) Recording. A list, dated and signed by the servicing official, 
of all security or EO property repossessed except for those items on 
Form RD 455-4, will be maintained in the borrower's case file. Whenever 
the servicing official is transferred to another position or leaves the 
agency or there is a change in jurisdiction, the District Director will 
give the succeeding servicing official in writing, the names of such 
borrowers and a list of the property repossessed in the custody of the 
servicing official and caretakers, its location, and the names and 
addresses of the caretakers.
    (b) * * *
    (1) * * * Care and feeding of livestock will be obtained by 
contract pursuant to subpart B of part 1955 of this chapter. * * *
* * * * *
    43. Section 1962.46 is amended by adding a new paragraph (g)(2)(iv) 
to read as follows:


Sec. 1962.46  Deceased borrowers.

* * * * *
    (g) * * *
    (2) * * *
    (iv) The transferee has never been liable for a previous Farm Loan 
Programs direct farm loan or loan guarantee which was reduced or 
terminated in a manner that resulted in a loss to the Government.
* * * * *

Exhibit D-1 of Subpart A [Removed]

    44. Exhibit D-1 of subpart A is removed and reserved.

PART 1965--REAL PROPERTY

    45. The authority citation for part 1965 continues to read as 
follows:

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

Subpart A--Servicing of Real Estate Security for Farm Loan Programs 
Loans and Certain Note-Only Cases

    46. Subpart A is amended to revise the heading of the subpart to 
read as set forth above.
    47. Section 1965.26 is amended by revising paragraph (a)(1)(iv), by 
revising paragraph (a)(2), by revising paragraph (b), by revising 
paragraphs (c)(1) and (c)(3), by revising paragraphs (f)(4), 
(f)(5)(ii), adding a new paragraph (f)(5)(iii) and revising paragraph 
(f)(6) to read as follows:


Sec. 1965.26  Liquidation action.

* * * * *
    (a) * * *
    (1) * * *
    (iv) Refinancing the Farm Loan Programs debt with another lender. 
The servicing official will explain the provisions of these regulations 
to the borrower.
    (2) Sale or transfer for less than secured debt. If the property is 
to be sold or transferred for less than the total secured debts against 
it, the property will be appraised immediately to determine its present 
market value. The appraisal will be completed by an authorized agency 
employee in accordance with subpart E of part 1922 of this chapter and 
placed in the borrower's case file. If a qualified agency appraiser is 
not available, the State Executive Director may contract for an 
appraisal in accordance with RD Instruction 2024-A (available in any 
agency office).
    (b) Involuntary liquidation--(1) General. When the servicing 
official, with the advice of the District Director, determines that 
continued servicing of the loan will not accomplish the objectives of 
the loan, or that further servicing cannot be justified under the 
policy stated in Sec. 1965.2 of this subpart, liquidation of the 
account will be accomplished as quickly as possible under this section 
and subpart A of part 1955 of this chapter.
    (2) Farm Loan Programs loan cases. In Farm Loan Programs loan 
cases, borrowers who are 90 days past due (60 days delinquent) on their 
payments, must receive Exhibit A with attachments 1 and 2, or 
attachments 1, 3, and 4 of exhibit A of subpart S of part 1951 of this 
chapter in cases involving nonmonetary default. The servicing official 
will send these forms to the borrower as soon as a decision is made to 
liquidate. The procedures set out in subpart S of part 1951 of this 
chapter shall be followed and any appeal must be concluded before any 
liquidation action, including termination of releases of sales 
proceeds, is taken. If the borrower fails to return attachment 2 of 
exhibit A of subpart S of part 1951 of this chapter and a complete 
application within 60 days, the servicing official will send 
attachments 9 and 10 or 9-A and 10-A of exhibit A of subpart S of part 
1951 of this chapter. If the borrower fails to return attachment 4, 6, 
6-A, 10, or 10-A of exhibit A of subpart S of part 1951 of this chapter 
within 60 days, the servicing official will submit the case to the 
District Director in accordance with the provisions of Sec. 1955.15 of 
subpart A of part 1955 of this chapter.
    (3) Reserved.
    (4) Acceleration of account. When foreclosure is approved, 
acceleration of the account and demand for payment will be accomplished 
according to the applicable paragraphs of Sec. 1955.15 of subpart A of 
part 1955 of this chapter.
    (c) * * *
    (1) When a borrower is indebted to the agency for more than one 
type of FLP loan, a thorough study should be made of each loan and the 
effect

[[Page 10159]]

liquidation of one or more of the loans would have on any and all other 
loans. When liquidation of one or more FLP loans secured by real estate 
and chattels is necessary, and it will jeopardize the repayment of or 
the accomplishment of the purpose of the other loans, liquidation of 
all real estate and all chattel security for all loans will be started 
at the same time. Chattel security will be liquidated under subpart A 
of part 1962 of this chapter, except when real estate is transferred in 
accordance with Sec. 1965.27 of this subpart.
* * * * *
    (3) RHS SFH loans on farm tracts must be considered for payment 
assistance and/or moratorium at the time servicing options are being 
considered for the FLP loan(s) prior to acceleration. The RHS county 
office file will be documented to show that payment assistance and 
moratorium were considered. When the Notice of Intent notices, set 
forth in subpart S of part 1951 of this chapter are sent to a borrower 
who also has an RHS loan, and the dwelling is security for the farm 
loan(s) and is located on the farm tract, it will not be necessary for 
RHS to meet the additional requirements of subpart G of part 1951 of 
this chapter prior to accelerating the RHS loan accounts. The RHS 
accounts will be accelerated at the same time the Notice of Intent 
notices, set forth in subpart S of part 1951 of this chapter are sent 
to the borrower. If it is later determined that the FLP loan(s) is to 
receive additional servicing in lieu of liquidation, the RHS loan will 
be reinstated simultaneously with the FLP servicing actions and may be 
reamortized in accordance with Sec. 1951.315 of subpart G of part 1951 
of this chapter.
* * * * *
    (f) * * *
    (4) The agency's liens against the security property are not 
released until the appropriate sale proceeds for application on the 
Government's claim are received. The release will be made on forms 
approved or prepared by OGC.
    (5) * * *
    (ii) When the Agency debt less the market value and prior liens is 
$1 million or more (including principal, interest, and other charges), 
release of liability must be approved by the Administrator or designee; 
otherwise, the State Executive Director must approve the release of 
liability. All cases requiring a release of liability will be submitted 
in accordance with exhibit A of subpart B of part 1956 of this chapter 
(available in any agency office).
    (iii) The borrower has never been liable for any direct FLP loan or 
loan guarantee which was reduced or terminated in a manner resulting in 
a loss to the Government.
    (6) If a release from liability cannot be granted, the borrowers 
will be sent a letter similar to exhibit F of subpart A of part 1955 of 
this chapter (available in any agency office). The servicing official 
will meet with the borrower within 30 days to assist the borrower in 
the development of a debt settlement offer in accordance with subpart B 
of part 1956 of this chapter. (available in any agency office).
* * * * *


Sec. 1956.27  [Amended]

    48. Section 1965.27 is amended by:
    a. In the introductory paragraph by revising the words ``FmHA or 
its successor agency under Public Law 103-354'' to read ``Agency'' in 
the first sentence; revising the words ``Farmer program'' to read 
``Farm Loan Programs (FLP)'' in the second sentence; revising the words 
``FmHA or its successor agency under Public Law 103-354'' to read 
``FLP'' in the third and fourth sentence; by revising the words ``FmHA 
or its successor agency under Public Law 103-354'' to read ``the 
Agency's'' in the sixth sentence; by revising the words ``FmHA or its 
successor agency under Public Law 103-354'' to read ``agency'' in the 
seventh sentence; by removing the words ``FmHA or its successor agency 
under Public Law 103-354'' in the eighth sentence in both places they 
appear;
    b. In paragraph (c)(2) by revising the words ``FmHA or its 
successor agency under Public Law 103-354'' to read ``the agency'' in 
the first sentence; by revising the third sentence to read ``Interest 
rates are specified in agency National Office issuances (available in 
any agency office) for the type of loan involved.''; by revising the 
words ``FmHA or its successor agency under Public Law 103-354'' to read 
``RD'' in the fourth sentence; by revising the fifth sentence to read 
``The field office will process the assumption via the field office 
terminal system in accordance with Form 1965-13.'';
    c. In paragraph (d) by adding a sentence to the end of the 
paragraph to read ``No assumption can be approved if the transferee has 
been liable for any Farm Loan Program (FLP) loan or loan guarantee 
which was reduced or terminated in a manner resulting in a loss to the 
Government.'';
    d. In paragraph (e) by revising the words ``FmHA or its successor 
agency under Public Law 103-354'' to read ``agency'';
    e. In paragraph (f) by adding a new sentence after the first 
sentence to read ``Release shall not be granted to any borrower or 
cosigner who was liable for any FLP direct loan which was reduced or 
terminated in a manner resulting in a loss to the Government''; by 
revising the word ``FP'' to read ``FLP'' in the third and fifth 
sentence; by revising the words ``FmHA or its successor agency under 
Public Law 103-354'' to read ``agency'' in the third sentence; by 
removing the fourth sentence that read ``SFH borrowers will be released 
from liability in accordance with Sec. 1965.127 of subpart C of part 
1965 of this chapter.''; and by removing the words ``FmHA or its 
successor agency under Public Law 103-354'' in the seventh sentence.''

    Dated: February 13, 1997.
James W. Schroeder,
Acting Under Secretary for Farm and Foreign Agricultural Services.

    Dated: February 14, 1997.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-5115 Filed 3-4-97; 8:45 am]
BILLING CODE 3410-05-P