35916 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

Concurred in this 1st day of July 1996.

Stephen D. Potts,

Director, Office of Government Ethics.

[FR Doc. 96–17304 Filed 7–8–96; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1910, 1924, 1941, 1943,

1945, 1951, 1955, 1962, 1965, and 1980

RIN 0575–AB45

Loan Assessment, Market Placement,

and Graduation of Direct Loan

Borrowers

AGENCIES: Rural Housing Service, Rural

Business-Cooperative Service, Rural

Utilities Service, and Farm Service

Agency, USDA.

ACTION: Interim rule with request for

comments.

SUMMARY: The issuing USDA agencies

are amending the direct and guaranteed

farm loan regulations to implement

changes to the Consolidated Farm and

Rural Development Act (CONACT) as a

result of the Food, Agriculture,

Conservation, and Trade Act of 1990

(1990 Act) and the Agricultural Credit

Improvement Act of 1992 (1992 Act).

These amendments implement and

coordinate ‘‘loan assessment,’’ ‘‘market

placement,’’ and the ‘‘graduation of

seasoned direct loan borrowers to the

loan guarantee program.’’ The intended

outcome is to improve the success rate

of borrowers receiving Farm Service

Agency (FSA) assistance and to

facilitate their transitions to commercial

credit.

DATES: Effective July 9, 1996. Comments

must be submitted by October 7, 1996.

ADDRESSES: Submit written comments

to Steven R. Bazzell, Senior Loan

Officer, Farm Credit Programs Loan

Making Division, Farm Service Agency

(FSA) United States Department of

Agriculture (USDA), Ag Box Code 0522,

Room 5438 South Building, 14th Street

and Independence Avenue, SW.,

Washington, DC. 20250–0522. Written

comments made pursuant to this rule

will be available for public inspection at

the above address between 8:15 am and

4:45 pm, Monday through Friday,

except holidays.

FOR FURTHER INFORMATION CONTACT: Mr.

Bazzell of the Farm Credit Programs

Loan Making Division at telephone

(202) 720–3889, fax (202) 690–1117, or

e-mail sbazzell@wdc.fsa.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined ‘‘not

significant’’ for the purpose of

complying with Executive Order 12866,

and therefore, it has not been reviewed

by the Office of Management and

Budget (OMB).

Executive Order 12372

1. For the reasons set forth in the

Notice related to 7 CFR part 3015,

subpart V (48 FR 29115, June 24, 1983),

Farm Ownership Loans, Farm Operating

Loans, and Emergency Loans are

excluded from the scope of Executive

Order 12372, which requires

intergovernmental consultation with

State and local officials.

2. The Soil and Water Loan Program

is subject to and has complied with the

provisions of Executive Order 12372

and FmHA Instruction 1940–J.

Federal Assistance Programs

These changes affect the following

FSA Farm Credit programs as listed in

the Catalog of Federal Domestic

Assistance:

10.404—Emergency Loans

10.406—Farm Operating Loans

10.407—Farm Ownership Loans

10.416—Soil and Water Loans

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 the human

environment, and in accordance with

the National Environmental Policy Act

of 1969, Public Law 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; and (3) administrative proceedings

in accordance with the National

Appeals Division appeal regulations at 7

CFR part 11 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.

Paperwork Reduction Act

The information collection or

recordkeeping requirements contained

in these regulations have been approved

by the Office of Management and

Budget (OMB) under the provisions of

44 U.S.C. Chapter 35 and have been

assigned OMB control numbers 0575–

0134, 0575–0061, 0575–0141, 0575–

0085, 0575–0083, 0575–0090, 0575–

0093, 0575–0079 and 0575–0111 in

accordance with the Paperwork

Reduction Act of 1995. This interim rule

does not revise or impose any new

information collection or recordkeeping

requirement from those approved by

OMB.

This regulatory action is being taken

as part of the National Performance

Review program to eliminate

unnecessary regulations and improve

those that remain in force.

Discussion of the Interim Rule

On December 30, 1993, the Farmers

Home Administration (FmHA)

published a proposed rule in the

Federal Register (58 FR 69274–69298)

with a comment period that ended

February 28, 1994. The purpose of this

interim rule is to implement statutory

provisions on loan assessment, market

placement, and graduation of seasoned

direct loan borrowers to the guaranteed

loan program. These provisions were

contained in the 1990 Act and the 1992

Act and affect former FmHA Farmer

Programs. Due to the reorganization of

USDA, responsibility for administering

FmHA Farmer Programs has been

transferred to FSA. Other loan programs

formerly administered by FmHA will

only be affected by general, conforming

administrative revisions made to the

regulations on receiving and processing

applications and analyzing credit needs

and graduation of borrowers. These

programs include: Rural Housing loans

now administered by the Rural Housing

Service (RHS), Water and Waste Facility

loans now administered by the Rural

Utilities Service (RUS), and Business

and Industrial loans and Intermediary

Relending Program loans now

administered by the Rural BusinessCooperative Service (RBS). FSA, RHS,

RUS, and RBS are jointly issuing this

interim rule since substantial

administrative revisions have been

made to regulations affecting their

programs in an effort to reduce Agency

regulations.

The issuing agencies are publishing

these regulations as an interim rule and

providing a 90-day comment period.

The comment period will provide the

public, including Agency field staff, the

opportunity to use and evaluate the new
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35917

processes from a practical standpoint.

We expect this will provide the Agency

with many more valuable suggestions to

consider prior to issuance of the final

rule.

Discussion of Comments

In response to the proposed rule, 14

respondents provided 25 specific

comments. Since few of the comments

addressed the same issue, they have

been grouped by the general regulatory

areas to which they pertain, as follows:

Borrower supervision and planning,

chattel loan security, graduation to

commercial credit, and guaranteed

loans.

Borrower Supervision and Planning

One respondent stated that each

borrower should submit the year’s

actual production and financial

information, in addition to the projected

budget, when the projected budget is

being submitted for review and

reclassification purposes only. The

Agency has revised the regulations to

require that actual production and

financial performance information be

submitted along with the borrower’s

projections. FSA agrees with the

rationale that actual performance should

be obtained whenever financial

information is obtained from borrowers

in order to monitor their financial

progress. This is in line with the

practices of commercial lenders and the

goals of FSA’s borrower training.

One respondent stated that the yearend analysis should ideally be done

prior to the beginning of the next

production cycle, but not later than 60

days after the end of the previous

production cycle. FSA has revised the

regulations to state that, whenever

possible, the year-end analysis should

be scheduled and completed not later

than 60 days after the end of the

borrower’s business year or farm budget

planning period. This change was made

in recognition of the uncertainties of

Agency staffing and the fluctuating

nature of the demand for FSA Farm

Credit assistance. It is impracticable to

mandate that the year-end analysis be

completed within the 60-day timeframe,

without exception.

One respondent stated that a year-end

analysis should be required on all

recently serviced loans under subpart S

of part 1951. The proposed regulations

require that a year-end analysis be

completed for all first-time, annual

operating, delinquent, and limited

resource interest rate borrowers. All

other FSA Farm Credit borrowers were

to receive a year-end analysis at the

discretion of the Agency based upon the

‘‘assessment’’ of the needs and risks

associated with each individual farming

operation. In response to this comment,

the Agency has revised the regulation to

broaden coverage to require a year-end

analysis the first year after the borrower:

(1) Receives a new loan, chattel

subordination or restructuring; (2) is

determined delinquent or financially

distressed; (3) has a loan deferred; or (4)

receives limited resources interest rates.

This change expands year-end analysis

coverage to chattel subordinations and

restructurings while mandating that it

be performed only the first year when

most problems arise. Chattel

subordinations and restructurings will

trigger a year-end analysis in the first

year because of the increased risk to the

Government. Thereafter, the Agency has

the flexibility to perform the year-end

analysis on a case-by-case basis based

on the individual needs of each

borrower.

One respondent stated that Exhibit A,

Attachment 1, of subpart B of part 1924

of this chapter should be modified to

inform the farm borrower that budget

plans other than the Form FmHA 432–

1, ‘‘Farm and Home Plan,’’ may be used.

This Exhibit A letter is, however, used

exclusively to inform borrowers of their

rights and responsibilities in regard to

the disposition of security. Since

Exhibit A does not pertain to farm

budgeting, no changes will be made in

response to this comment. The Agency

plans to remove this exhibit from the

regulations in the final rule.

Three respondents made a general

statement that there are inadequate staff

resources at the county office level to

carry out the provisions of these

regulations in a timely manner. The

Agency has eliminated several

regulatory requirements to provide

expanded discretion to county office

personnel, such as the elimination of

mandatory accounting updates and field

visits. Such administrative procedures

have been removed from the

regulations, but will be addressed in

internal agency instructions. Additional

administrative reductions may be

considered for future regulatory

revisions, after the Agency has

empirical evidence to determine the

effectiveness of the current regulatory

changes. Therefore, no changes will be

made by the Agency at this time.

One respondent stated that FSA

should accept an applicant’s selfcertification with regard to

environmental compliance. Currently,

Agency personnel, or lenders in the case

of guaranteed loans, are required to

make a visual inspection of the farming

operation as part of the environmental

compliance process. Generally,

environmental statutes place the burden

on the Federal Government for

compliance. This responsibility cannot

be delegated to individual applicants

without statutory authority. No change

will be made.

One respondent stated that

‘‘production cycle,’’ as the term is used

in conducting the year-end analysis

under § 1924.55(d)(1) should be defined

as the completion of the farm budget

planning period. The Agency agrees that

this could be potentially confusing and

has revised § 1924.55(d)(1) to clarify

‘‘production cycle’’ to mean ‘‘farm

budget planning period.’’

Chattel Loan Security

One respondent stated that

§ 1924.56(b)(5) should be clarified to

state that during an appeal, FSA will

release normal income security to allow

the borrower to pay essential family

living and farm operating expenses,

except for the expenses which are the

subject of the appeal. The Agency agrees

that this could be misunderstood and

has referenced this paragraph back to

subpart A of part 1962.

Three respondents stated that the FSA

regulations require that notices be filed

(for lien perfection) under both the

Uniform Commercial Code (UCC) and

Central Filing System (CFS), where

implemented, which in their opinion

has no significant benefit. The

respondents stated that filing under

both systems should be used on a

discretionary basis for problem accounts

only. The most common practice among

commercial lenders is to file notices

under both the UCC and CFS. FSA will

follow this same conventional practice,

and no changes will be made in Agency

procedure. Section 1962.5, describes

which filing procedures for financing

statements and other internal

procedures for handling security

instruments, has been removed but will

be covered by internal Agency

instructions.

One respondent stated that § 1924.57

should be revised to state that Agency

personnel may provide credit

counseling rather than will provide

credit counseling. This suggestion is not

being adopted in internal agency

instructions since it is the Agency’s

responsibility to provide credit

counseling as needed by individual

farm borrowers. This administrative

section has been removed from the

regulations.

One respondent stated that the

regulations should allow more Agency

discretion on conducting field visits,

year-end analyses, credit counseling,

etc. The Agency has already eliminated

required numbers of field visits,

collateral inspections (when justified
35918 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

and documented in the case file),

accounting updates, etc., and has

directed that these activities be derived

directly from the farm assessment. No

further changes in this regard will be

made until empirical evidence can be

examined by the Agency with regard to

the effectiveness of the current

revisions.

One respondent stated that borrowers

who are not required to undergo a yearend analysis should only be required to

submit an annual balance sheet and that

it is unreasonable to require these

borrowers to submit a projected cash

flow for the upcoming year for borrower

classification purposes. FSA is required

by the 1992 Act to reclassify ‘‘seasoned

direct borrowers’’ for the purpose of

graduation, and the projected cash flow

is needed to classify borrowers;

therefore, FSA will make no changes

with respect to the financial information

needed. However, FSA has revised the

regulations to require these

‘‘classification only’’ borrowers to

submit their full set of financial

statements only every 2 years. In

intervening years when financial

statements are not obtained, the Agency

will make a desk review of the

borrower’s case file and determine

whether graduation efforts should be

pursued according to internal Agency

instructions. Full financial information

will be required automatically only

every 2 years because based on past

experience a borrower’s ability to

graduate generally does not change

significantly from 1 year to the next.

This will meet the requirements of the

statute, while reducing the burden on

field staff resources and borrowers. The

Agency expects this approach to

actually enable the county offices to

graduate more direct borrowers to

commercial credit because there will be

more time available to perform a more

thorough graduation review and to more

vigorously pursue graduation through

Market Placement.

Two respondents commented that

§ 1924.56 needs clarification, especially

with regard to the derivation and use of

production yields. FSA agrees and has

revised this regulation to clarify that 5

years of actual production history will

be used as a guide when preparing and

evaluating a farm business plan. This

clarification has been made to stress

that, while historical information is

extremely useful, the analysis of an

agricultural operation’s production

trends and current capabilities must be

considered.

One respondent suggested that the

existing Form FmHA 431–2, ‘‘Farm and

Home Plan,’’ be revised to incorporate

Form FmHA 1962–1, ‘‘Agreement for

Use of Proceeds/Release of Chattel

Security.’’ FSA will give this suggestion

consideration for future improvements,

but no changes will be made at this

time. Form FmHA 1962–1 has been

removed as an exhibit to part 1962,

subpart A, but will be available in any

Agency office.

Graduation to Commercial Credit

One respondent stated that only

borrowers classified as commercial

should be considered candidates for

graduation to commercial credit. No

change will be made since the

Consolidated Farm and Rural

Development Act section 333A(f) (7

U.S.C. 1983a(f)) specifies that both

commercial and standard classified

borrowers be considered for graduation.

One respondent stated that the

proposed regulations require all

commercial and standard classified

borrowers to have an assessment

completed or updated. The respondent

recommended that an assessment not

automatically be required. The

respondent suggested that a current

balance sheet, actual performance for

the most recent year, and a projected

farm budget should instead be used to

determine graduation potential and for

preparation of the prospectus to lenders.

FSA agrees with the logic of this

recommendation and has revised

§ 1951.262 and the definition of

‘‘prospectus.’’ Many graduation

candidates will not need a complete or

updated assessment, as described under

subpart B of part 1924, when the sole

purpose is pursuing graduation to

commercial credit.

One respondent stated that the

language ‘‘reasonable rates and terms’’

should not be changed to ‘‘prevailing

rates and terms’’ in subpart F of part

1951 because the former language is

defined by regulation and it is contained

in various loan documents, particularly

in the Community and Business

Programs. FSA agrees and will not

delete ‘‘reasonable rates and terms’’

from this regulation.

One respondent stated that farm

borrowers should be charged

commercial interest rates when it

appears that they are able to graduate to

commercial credit. Otherwise, the

respondent stated, there is no incentive

for borrowers to graduate. Subpart A of

part 1951 presently requires that direct

borrowers be charged FSA’s ‘‘regular’’

interest rate when they attain a 10-

percent repayment margin. This interest

rate is comparable to commercial

lending rates, therefore, no change will

be made.

Guaranteed Loans

The last respondent stated that under

§ 1980.113, the term ‘‘current balance

sheet’’ should be defined as one that is

less than 90 days old on the date the

Agency receives a complete application.

FSA agrees that this should be clarified

and has revised the regulation

accordingly.

Miscellaneous Changes

In addition to the changes made as a

result of public comments, FSA has

made several changes to further

streamline or, in some cases, clarify the

intent of the regulations as discussed

below.

The 5-year budget project projection

also is being eliminated as a general

requirement for all FCP borrowers and

applicants. The 5-year budget will

instead be used as a counseling tool by

the Agency, as appropriate, under

internal Agency instructions. This

change is in keeping with the Agency’s

movement toward fewer regulatory

requirements and more discretion for

Agency personnel.

Section 1924.55 is being clarified to

state that many components of the

assessment will be inapplicable to the

Youth Loan program since these

applicants and borrowers are not

conducting farming or ranching

operations. Year-end analyses for Youth

loans are also being made a

discretionary activity for Agency

personnel since these loans are used to

make small purchases for mainly

educational purposes, e.g., raising and

selling one pig or cow for a 4–H project.

‘‘Flagged Accounts’’ are being

eliminated as needing mandatory yearend analyses under § 1924.55. Flagged

accounts include such accounts as

bankruptcies and foreclosure actions

pending. In such cases, contact with the

borrower may be constrained by a court,

or the farming operation may be in some

stage of liquidation and, therefore, no

longer an ongoing business concern.

Therefore, flagged accounts will have a

year-end analysis performed only at the

discretion of the Agency.

Section 1924.55 also has been revised

to state that in the case of existing

borrowers, an assessment should be

made at the time of the year-end

analyses if no assessment has yet been

done. An earlier assessment would have

been done if the borrower had been

found eligible for another loan, for

example. The mandatory assessment

provision was removed for existing

borrowers in order to permit an

administrative phase-in of the

assessment process over a three year

period for most existing borrowers.
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35919

Borrowers with flagged accounts would

receive assessments only when and if

year-end analyses were performed in

accordance with this revised section.

(The reason for the flagged account

exception is discussed above.) This

policy is permissible under CONACT

section 360 which only requires initial

assessments of eligible applicants and

follow-up reviews of the new borrowers.

The phase-in will promote high quality

assessments by field offices and allow

them to focus on new borrowers. The

Agency is unable because of fiscal

constraints to take advantage of its

statutory authority to contract out loan

assessments.

A minor revision was made with

regard to the market placement

regulations in the guaranteed loan

program. The requirement for the

submission of the applicant’s or

borrower’s assessment to the lender was

deleted since the Agency will prepare

the guaranteed application on the

lender’s behalf. The Market Placement

Application described under § 1980.113

also was revised to make it more

concise. Upon further Agency review, it

was determined that the individual line

items describing the application were

unnecessary. This now states Form

FmHA 1980–25, which is the

guaranteed loan application, along with

all other items listed in this section with

the exception of the loan or line of

credit agreement, are required. The loan

assessment is prepared by the Agency as

part of the items required in the

narrative summary under

§ 1980.113(a)(12).

Section 1910.4 has been revised to

implement a requirement of the Federal

Debt Collection Act of 1990. Under this

statute, an applicant is ineligible for a

loan if the applicant has an outstanding

recorded judgment against them by the

United States in a Federal Court other

than the United States Tax Court.

Section 1910.5 has been revised to

clarify how bankruptcy is used in

determining the acceptability of an

applicant’s credit history. The key is not

the bankruptcy itself, but rather the

circumstances behind it. If they were

beyond the borrower’s control, then

they are not considered an indication of

unacceptable credit history.

References to the FmHA County

Committee and its certification of a

borrower or applicant’s farm loan

eligibility for five years have been

removed. FmHA County Committees

and the mandate to make 5 year

certifications of eligibility were

abolished by section 227(b) of the

Department of Agriculture

Reorganization Act of 1994. The

functions performed by the FmHA

County Committee in relation to Farmer

Programs loans now will be performed

by the Agency. ‘‘Agency’’ has been

defined in the regulations to include

FSA county or area committees

established in accordance with section

8(b) of the Soil Conservation and

Domestic Allotment Act (16 U.S.C.

590h(b)). Loan eligibility will be

determined for each loan application.

Regulations being changed to

implement loan assessment, market

placement, and graduation policies also

were substantially revised to remove

administrative procedures. These

procedures instead will be covered

solely by the Agency’s internal

instructions.

The Agency intends to remove

exhibits being revised by this interim

rule in the final rule. Any substantive

policy will be covered in the regulation

text. Forms will remain available in any

Agency office.

List of Subjects

7 CFR Part 1910

Agriculture, Applications, Credit,

Loan programs—Housing and

community development, Low and

moderate income housing, Marital

status discrimination, Sex

discrimination.

7 CFR Part 1924

Agriculture, Construction

management, Construction and repair,

Energy conservation, Housing, Housing

and community development, Loan

programs—Low and moderate income

housing.

7 CFR Part 1941

Agriculture, Crops, Livestock, Loan

programs—Rural areas, Youth.

7 CFR Part 1943

Agriculture, Credit Loan Programs—

Recreation and recreation areas, Water

resources.

7 CFR Part 1945

Agriculture, Disaster assistance, Loan

programs.

7 CFR Part 1951

Account servicing, Agriculture,

Credit, Debt restructuring, Loan

programs—Housing and community

development, Low and moderate

income housing loans—Servicing.

7 CFR Part 1955

Government acquired property,

Government property management.

7 CFR Part 1962

Agriculture, Crops, Government

property, Livestock, Loan programs—

Rural areas.

7 CFR Part 1965

Agriculture, Foreclosure, Loan

programs—Rural areas.

7 CFR Part 1980

Agriculture, Loan programs.

Accordingly, Chapter XVIII, Title 7,

Code of Federal Regulations is amended

as follows:

PART 1910—GENERAL

1. The authority citation for part 1910

is revised to read as follows:

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

42 U.S.C. 1480.

Subpart A—Receiving and Processing

Applications

2. Section 1910.1 introductory

paragraph is amended:

a. by removing the phrase ‘‘Farmers

Home Administration or its successor

agency under Public Law 103–354

(FmHA or its successor agency under

Public Law 103–354)’’ and adding the

words ‘‘Farm Service Agency (FSA) and

Rural Housing Service (RHS)’’ in its

place;

b. by removing the words ‘‘Farmer

Programs’’ and adding the words ‘‘Farm

Credit Programs’’ in its place;

c. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354’’ in paragraph (a) and adding

the words ‘‘FSA and RHS’’ in its place;

and revising paragraph (c) and adding

paragraph (e) to read as follows:

§ 1910.1 General.

* * * * *

(c) FmHA forms are available in any

Rural Development (RD) or FSA office.

* * * * *

(e) As used in this subpart in relation

to Farm Credit Programs loans, Agency

means the Farm Service Agency, its

county and State committees and their

personnel, and any successor agency.

3. In § 1910.3:

a. the introductory text and paragraph

(a), introductory text, are amended by

removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ and adding the words ‘‘FSA

or RHS’’ in their place;

b. all references to ‘‘or its successor

agency under Public Law 103–354’’ in

paragraphs (a)(1), (a)(2), and (a)(4)(i) are

removed; and references to ‘‘FmHA or

its successor agency under Public Law

103–354’’ are removed and ‘‘RD’’ is

added in their place, the first time it
35920 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

appears in paragraph (a)(4)(i) and in

paragraph (a)(4)(ii).

4. Section 1910.4 is amended by:

a. removing paragraph (h);

b. redesignating paragraphs (c)

through (g) as (d) through (h),

respectively;

c. removing the words ‘‘Farmer

Programs’’ in redesignated paragraphs

(d), (k) introductory text and (k)(3) and

adding the words ‘‘Farm Credit

Programs;’’ in its place;

d. removing the words ‘‘FmHA or its

successor agency under Public Law in

paragraph (k)(4) and adding the words

‘‘the Agency’’ in its place; and

e. removing the language appearing in

the parentheticals in redesignated

paragraphs (d)(3)(i), introductory text,

(d)(3)(iii), introductory text, (d)(3)(v)

and (k)(4).

5. Section 1910.4 paragraphs (k)(1),

(k)(4) and redesignated (d)(1), (d)(3)(i),

(d)(3)(iii), introductory text, and

(d)(3)(v) are amended by removing the

phrase ‘‘or its successor agency under

Public Law 103–354.’’

6. In § 1910.4 paragraph (k)(3) the

reference ‘‘paragraph (c)’’ is removed

and the reference ‘‘paragraph (d)’’ is

added in its place; removing and

reserving paragraph (j); revising

redesignated paragraphs (e), (f), (g), and

(h), and paragraphs (b), (i)(1), (i)(1)(i),

(i)(1)(ii)(B), (i)(5) and adding new

paragraph (c) to read as follows:

§ 1910.4 Processing applications.

* * * * *

(b) Completed Farm Credit Programs

applications and additional FSA

responsibilities. All persons requesting

an application will be provided Exhibit

A (available in any office). The County

Supervisor will provide assistance as

necessary to help applicants complete

their applications. Complete

applications will be processed in the

order of date received, except as

outlined in Section 1910.10 of this

subpart. If the application is complete

when it is first received, a County Office

official will stamp the filing date on the

front of Form FmHA 410–1 and enter

the date in the ‘‘Application Received’’

and ‘‘Application Completed’’ fields in

the Application Processing Module of

the Management Records Systems

(MRS.) On the date all information

necessary to process an application is

received, a County Office official will

send the applicant FmHA Guide Letter

1910–A–3 (available in any office)

notifying the applicant that the

application is considered complete. The

date entered in the ‘‘Application

Completed’’ field in the Application

Processing Module of MRS will

establish the 30-day and 60-day

timeframes for determining eligibility

and loan approval/disapproval,

respectively. The County Supervisor

will verify the information furnished by

the applicant, and record and assemble

additional information needed to

properly evaluate the applicant’s

qualifications and credit needs.

Additional information may be obtained

and verified by County Office records,

personal contacts, and visits to the

applicant’s operation. A complete Farm

Credit Programs application requires

fulfillment of both the applicant and

FSA responsibilities. Once this

information is received and the

application is considered complete, FSA

has additional responsibilities before

loan approval is determined. The

various responsibilities are as follows:

Applicant’s Responsibilities for a

Complete Application

(1) Completed Form FmHA 410–1,

‘‘Application for FmHA Services,’’

including a signed Form FmHA 410–9,

‘‘Statement Required by the Privacy

Act.’’

(2) If the applicant is a cooperative,

corporation, partnership, or joint

operation:

(i) A complete list of members,

stockholders, partners or joint operators

showing the address, citizenship,

principal occupation, and the number of

shares and percentage of ownership or

of stock held in the cooperative or

corporation, by each, or the percentage

of interest held in the partnership or

joint operation, by each.

(ii) A current personal financial

statement from each of the members of

a cooperative, stockholders of a

corporation, partners of a partnership,

or joint operators of a joint operation.

(iii) A current financial statement

from the cooperative, corporation,

partnership, or joint operation itself.

(iv) A copy of the cooperative’s or

corporation’s charter, or any partnership

or joint operation agreement, any

articles of incorporation and bylaws,

any certificate or evidence of current

registration (good standing), and a

resolution(s) adopted by the Board of

Directors or members or stockholders

authorizing specified officers of the

cooperative, corporation, partnership, or

joint operation to apply for and obtain

the desired loan and execute required

debt, security, and other instruments

and agreements.

(3) A brief written description as to

the farm training and/or experience of

the applicant and the individual

members of an entity applicant (new

applicants only). If a waiver from the

training required in Section 1924.74 of

subpart B of part 1924 of this chapter is

requested, provide verification of any

courses taken which covered production

and/or financial management concepts,

and/or a statement explaining how the

applicant’s proven performance based

on 5-year production records

demonstrates production ability.

(4) Supporting and documented

verification that the applicant (and all

members of an entity applicant) cannot

obtain credit elsewhere, including a

guaranteed loan.

(5) Financial records for the past five

years. Income tax records may be

provided by the applicant when other

financial records are not available.

(6) Five years of production history

immediately preceding the year of

application, unless the applicant has

been farming less than 5 years.

(7) A brief written description of the

proposed operation and the proposed

size of the operation (required for new

applicants and existing borrowers with

significant changes in their operations).

(8) Verification of off-farm

employment, if any. This will be used

only when the applicant is relying on

off-farm income to pay part of the

applicant’s expenses.

(9) Projected production, income and

expenses, and loan repayment plan,

which may be submitted on Form

FmHA 431–2, ‘‘Farm and Home Plan,’’

or other similar plans of operation

acceptable to FSA.

(10) Applicable items required in

Exhibit M of subpart G of part 1940 of

this chapter including SCS Form CPA–

026, ‘‘Highly Erodible Land and

Wetland Conservation Determination,’’

Form AD–1026, ‘‘Highly Erodible Land

Conservation (HELC) and Wetland

Conservation (WC) Certification,’’ and

Form FmHA 1940–20, as required by

subpart G of part 1940 of this chapter.

(11) A legal description of farm, real

estate property and/or (if applicable) a

copy of any lease, contract, option or

agreement entered into by the applicant

which may be pertinent to consideration

of the application, or when a written

lease is not obtainable, a statement

setting forth the terms and conditions of

the agreement.

(12) Form FmHA 440–32, ‘‘Request

for Statement of Debts and Collateral,’’

when applicable.

(13) Forms FmHA 1945–22,

‘‘Certification of Disaster Losses,’’ and

FmHA 1940–38, ‘‘Request for Lender’s

Verification of Loan Application,’’ (EM

loans only).

FSA’s Responsibilities for a Complete

Application

(14) Send Form FmHA 410–7,

‘‘Notification to Applicant on Use of

Financial Information from Financial
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35921

Institution,’’ to the applicant when

applicable.

(15) Form FmHA 1945–26,

‘‘Calculation of Actual Losses’’ (EM

loans only).

(16) Credit reports as provided in

subparts B and C of this part.

(17) Form FmHA 1945–29, ‘‘ASCS

Verification of Farm Acreages,

Production and Benefits,’’ (EM loans

only).

(18) The Current/Past Debt Inquiry

and Borrower Cross-Reference Systems.

The Current/Past Debt Inquiry System

must be reviewed for each application

and copies of the screens must be

attached to the applicant’s file.

(19) For special beginning farmer or

rancher operating (OL) loan assistance,

a plan of operation will be developed

for each of the first 5 years for which

such assistance is requested. A

projection of the financial status of the

operation showing financial viability

within the commitment period will also

be developed. The 5-year plan and

projection will be developed as

described in § 1941.15. This information

will be presented on reports generated

on the automated Farm and Home Plan

system, or in other plans or documents

consistent and acceptable to the Agency.

Additional FSA Farm Credit

Responsibilities

(20) Form FmHA 1924–1,

‘‘Development Plan,’’ if necessary.

(21) Form FmHA 1940–22,

‘‘Environmental Checklist for

Categorical Exclusions,’’ or Class I and

Class II assessment, whichever is

applicable.

(22) Real estate and chattel appraisal,

when applicable.

(23) Completion of the assessment in

accordance with § 1924.55.

(c) Notifying applicants that direct

loan eligibility is subject to the

unavailability of guaranteed financing.

If the assessment, completed in

accordance with § 1924.55 concludes

that guaranteed assistance may be

available, with or without interest

assistance, a prospectus will be sent to

area lenders in accordance with

§ 1951.262 (f) as appropriate. If a lender

indicates interest in providing financing

with a Farm Credit Programs loan

guarantee, refer to § 1980.113 (c) for

handling as a market placement

application. No direct loan to a current

borrower will be approved until the

process outlined in this paragraph has

been concluded.

* * * * *

(e) Notifying applicants (including

presently indebted borrowers) about

Limited Resource loans. Immediately

after an application for OL, FO, SW, or

EM assistance is received, the County

Supervisor will send a letter similar to

Guide Letter 1924–B–1 to the applicant

telling the applicant about Limited

Resource loans.

(f) Notifying socially disadvantaged

applicants regarding the availability of

Direct Farm Ownership (FO) loans and

the acquisition/leasing of Agency

acquired farmland. Immediately after an

application for FO assistance is

received, the County Supervisor will

send Exhibit B of this subpart, ‘‘Letter

to Notify Socially Disadvantaged

Applicants/Borrowers Regarding the

Availability of Acquired Farmland,’’ to

the applicants. Exhibit B will also be

presented to all socially disadvantaged

individuals at the time they make their

initial contact regarding Agency credit

services. Socially disadvantaged

applicants are defined in Section 1943.4

of subpart A of part 1943 of this chapter.

(g) Notifying Borrowers about Farm

Credit Programs (FCP) Borrower

Responsibilities. When an application

for OL, FO, SW or EM assistance is

approved, the County Supervisor will

provide to the borrower Exhibit C of this

subpart, ‘‘Letter to Notify Applicant(s)/

Borrower(s) of Their Responsibilities in

Connection with FmHA Farmer

Programs Loans.’’

(h) Determining eligibility. The

Agency will determine eligibility of all

Farm Credit Programs applicants

including those who are already

indebted for a Farm Credit Programs

loan. The Farm Credit Programs

application does not need to be

complete before it is reviewed; however,

all information relative to the eligibility

decision must be received. The Rural

Housing Service will determine

eligibility for all RH loan applicants.

(1) The Agency will certify whether or

not the applicant meets the eligibility

requirements and whether or not the

applicant is a beginning farmer or

rancher, as defined in the applicable

Farm Credit Programs loan making

regulation. An eligible Operating Loan

(OL) or Farm Ownership (FO) Loan

applicant, who is considered a

beginning farmer or rancher, will have

access to targeted funds. An eligible FO

applicant requesting to purchase

suitable farmland, who is considered a

beginning farmer or rancher, will be

given priority in accordance with

§ 1955.107 (f). In addition, it is the

responsibility of the Agency to

determine whether or not the FO

applicant is an operator of not larger

than a family size farm, as of the time

immediately after the contract of sale or

lease is entered into, even though the

applicant is not in need of Agency

credit assistance on eligible rates and

terms to purchase suitable farmland.

The loan approval official will

determine the applicant’s projected

repayment ability, the adequacy of

collateral equity to secure the requested

loan, and the feasibility of the proposed

operation.

(2) An outstanding judgment obtained

by the United States in a Federal Court

(other than the United States Tax Court),

which has been recorded, shall cause

the applicant to be ineligible for any

loan or grant until the judgment is paid

in full or otherwise satisfied. Agency

loan or grant funds may not be used to

satisfy the judgment.

(i) * * *

(1) Farm Credit Programs (FCP)

applications. Each application must be

approved or disapproved and the

applicant notified in writing of the

action taken, not later than 60 days after

receipt of a complete application. The

District Director will monitor the

processing of all applications to ensure

that each is processed in a timely

manner and receives a final disposition

(i.e., approval, rejection, or withdrawal)

within the timeframes outlined in this

section.

(i) Receipt by the applicant of a signed

copy of Form FmHA 1940–1, ‘‘Request

for Obligation of Funds,’’ will be

considered written notice of loan

approval.

(ii) * * *

(A) * * *

(B) Every week the District Director

will generate a report, using the FOCUS

Ad-Hoc Reporting System, based on the

weekly upload of information from each

county office MRS data base. The

District Director will note each complete

application pending more than 45

calendar days, and immediately take

steps to ensure that final disposition on

the application is taken no later than 60

calendar days after receipt of the

complete application.

* * * * *

(5) Adverse decisions. If an applicant

is given an adverse decision, the

applicant will be given appeal rights as

provided in Subpart B of Part 1900 or

7 CFR part 780, as appropriate. The

letter will contain the ECOA statement

set forth in Section 1910.6(b)(1) of this

subpart.

* * * * *

7. Section 1910.5 is amended:

a. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354’’ in paragraph (c)(1) and adding

the word ‘‘Agency,’’ in its place;

b. removing the word ‘‘bankruptcy’’ in

paragraph (c)(4) introductory text, and

c. revising paragraph (c)(5) to read as

follows:
35922 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

§ 1910.5 Evaluating applications.

* * * * *

(c) * * *

(5) Non-payment of a debt due to

circumstances beyond the applicant’s or

borrower’s control. However, nonpayment of a debt due to circumstances

within an applicant’s or borrower’s

control may be used as an indication of

unacceptable credit history, in

accordance with paragraph (c)(1) of this

section. The mere fact that an applicant

or borrower filed bankruptcy will not be

used as an indication of unacceptable

credit history. The circumstances

causing the nonpayment of debt, i.e.,

whether nonpayment was beyond the

applicant’s or borrower’s control,

however, are proper considerations.

* * * * *

§§ 1910.6 through 1910.9 [Removed and

Reserved]

8. In part 1910 §§ 1910.6 through

1910.9 are removed and reserved.

§ 1910.10 [Amended]

9. Section 1910.10(b) is amended by

removing the words ‘‘Farmer Program’’

and adding the words ‘‘Farm Credit

Programs (FCP)’’ in its place.

10. Section 1910.11 is revised to read

as follows:

§ 1910.11 Special requirements.

(a) Servicemen’s Readjustment Act of

1944. Section 512(a)(D) of the

Servicemen’s Readjustment Act of 1944,

as amended, provides that an applicant

for a direct housing loan from the

Department of Veterans Affairs (VA)

must be ‘‘unable to obtain a loan for

such purposes from the Secretary of

Agriculture under the Consolidated

Farm and Rural Development Act, as

amended, or the Housing Act of 1949,

as amended.’’ Department of Veterans

Affairs Loan Guaranty Officers may,

therefore, require VA loan applicants to

apply to the agency for loan assistance.

(b) Veterans determined ineligible by

the Agency. If the veteran is unable to

obtain a loan, the County Supervisor

will, upon request, furnish the applicant

with a rejection letter to be presented to

the Loan Guaranty Officer. The Loan

Guaranty Officer may consult with the

County Supervisor regarding the

investigation made by the Agency of the

veteran’s application and the specific

reasons for rejection.

PART 1924—CONSTRUCTION AND

REPAIR

11. The authority citation for part

1924 is revised to read as follows:

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

42 U.S.C. 1480.

Subpart B—Management Advice to

Individual Borrowers and Applicants

12. Section 1924.51 is revised and

§§ 1924.54 and 55 are added to read as

follows:

§ 1924.51 General.

This subpart contains policies for

providing management advice to all

Farm Credit Programs direct loan

applicants and borrowers. Forms and

Farm Assessment and Supervision

Reference handbooks are available in

any Agency county office.

§ 1924.54 Definitions.

As used in this subpart, the following

definitions apply:

Agency. This term refers to the Farm

Service Agency, its county and State

committees and their personnel, and

any successor agency.

Commercial classified. The Agency’s

highest quality Farm Credit programs

accounts. The financial condition of the

borrowers is strong enough to enable

them to absorb the normal adversities of

agricultural production and marketing.

There is ample security for all loans,

there is sufficient cash flow to meet the

expenses of the agricultural enterprise

and the financial needs of the family,

and to service debts. The account is of

such quality that commercial lenders

would likely view the loans as a

profitable investment.

Farm Assessment and Supervision

Reference. This reference provides

guidance to field staff on conducting

assessments, year-end analyses, and

general borrower supervision.

Farm business plan. The automated or

manual Farm and Home Plan system

which contains a projection that

accurately reflects the borrower’s plan

of operation for the production or

marketing cycle. The annual plan may

cover a period of more or less than 12

months. A normal year’s plan, as

defined in this section, will be used

when the annual plan does not reflect

typical income, expenses, and debt

payments. The Agency will accept farm

business plans other than the Farm and

Home Plan if they provide sufficient

information to enable Agency officials

to render a sound credit decision in

accordance with Agency regulations.

Farm Credit Programs loan. Includes

Farm Ownership (FO), Soil and Water

(SW), Operating (OL), Emergency (EM),

Economic Emergency (EE), Recreation

(RL), Special Livestock (SL), Economic

Opportunity (EO) and Softwood Timber

(ST) loans. Also included are Rural

Housing loans for farm service buildings

(RHF), and Rural Housing (RH) loans

where the borrower is also indebted for

an Agency direct farm loan that is not

a collection only or judgment account.

Non-Program loans, which are defined

in § 1951.451(a), are excluded.

Financially viable operation. A

financially viable operation projects that

it can generate sufficient income to meet

annual operating expenses and debt

payments as they become due, meet

basic family living expenses to the

extent they are not met by dependable

non-farm income, provide for the

replacement of capital items, and

provide for long-term financial progress

to enable the operator to obtain

commercial credit.

Individual. The term ‘‘individual’’ is

used throughout this subpart to refer to

the person receiving Agency

supervision and management advice. If

an applicant or borrower applies as an

individual applicant, the term

‘‘individual’’ means the operator. In the

case of an eligible corporation,

cooperative, partnership, or joint

operation, the term ‘‘individual’’ means

the entity members with the primary

responsibility for making management

decisions and carrying out the day-today physical tasks.

Normal year plan. A projected farm

business plan most representative, or

typical, of an operation’s normal

income, expenses (including family

living expenses), and capital debt

payments.

Prospectus. Consists of a transmittal

letter similar to FmHA Guide Letter

1951–F–3 with a current balance sheet

and projected year’s budget attached.

The applicant or borrower name and

address need not be withheld from the

lender. The prospectus is used to

determine lender interest in financing or

refinancing specific direct loan

applicants and borrowers. The

prospectus will provide information

regarding the availability of Agency loan

guarantee and interest assistance.

Standard classified. These loan

accounts are fully acceptable by Agency

standards. Loan risk and potential loan

servicing costs are higher than would be

acceptable to other lenders, but all loans

are adequately secured. Repayment

ability is adequate, and there is a high

probability that all loans will be repaid

as scheduled and in full.

§ 1924.55 Assessment of the agricultural

operation.

Assessments will be completed for

direct Farm Credit Programs loan

applicants. An assessment is a

comprehensive evaluation of the

components of an operation, the

identification and prioritization of

training and supervisory needs, and the

resulting plan of supervision to assist
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35923

the borrower in achieving financial

viability. The assessment is the central

foundation upon which to build

strategies for planning, credit and

management counseling, loan controls,

analysis, borrower training, and all

other needed supervision. An

assessment will include thorough

inspections of the operation and face-toface meetings and discussions with all

key individuals. At least semi-annual

reviews of progress will be performed in

accordance with paragraph (e) of this

section.

(a) Agency evaluation. The Agency

will assess each of the areas described

in paragraph (b) of this section in close

cooperation with the applicant or

borrower. As part of that assessment, the

Agency will determine whether the

proposed budget is feasible on a direct

or guaranteed loan basis, the type and

nature of any material financial or

production management weaknesses in

the operation, and the specific strategy

needed, including timeframes, to effect

improvements and control risks.

Material weaknesses are those that have

a significant impact on the net income

of the operation and need to be

corrected to enable the borrower to

progress financially and eventually

graduate from FSA farm credit

programs. Examples of material

weaknesses include, but are not limited

to: lack of a farm recordkeeping system,

obsolete or inadequate facilities, and use

of outdated production practices. In the

case of Youth loans, it is recognized that

most of the component areas will be

‘‘Not Applicable’’ since there is no fullscale farming operation to consider.

(b) The assessment is an evaluation,

conducted with an applicant or

borrower, of the following components:

(1) Type of operation.

(2) Goals.

(3) Real estate, including facilities.

(i) Location and size.

(ii) Proposed and existing

improvements.

(iii) Presence of environmental

hazards.

(iv) Conservation practices and

measures.

(v) Adequacy and continued

availability of real estate.

(vi) External factors, such as urban

encroachment and zoning changes.

(4) Chattel property used in the

operation.

(5) Farm business organization and

key personnel.

(6) Historical financial data.

(7) Projected budget.

(8) Planned changes.

(9) Ability to obtain guaranteed credit.

(c) Supervision and training.

Appropriate supervisory oversight and

training recommendations will be

developed based on the Agency’s

evaluation of the strengths and

weaknesses of the operation in

accordance with paragraphs (a) and (b)

of this section and § 1924.59.

(d) Performing the year-end analysis.

A year-end analysis is required for

borrowers (except for Youth loans and

loans flagged as having bankruptcy,

foreclosure, or other action pending) the

first year after an initial or subsequent

loan, chattel subordination, or

restructuring is received, borrowers who

are financially distressed or delinquent,

borrowers who have loans deferred, and

borrowers who are receiving limited

resource interest rates. All other

borrowers (including flagged accounts)

will receive a year-end analysis at the

discretion and judgment of the Agency.

However, at least every two years, the

borrower will provide upon Agency

request, a year-end balance sheet, actual

financial performance, and a projected

farm budget so that the borrower can be

classified for graduation purposes in

accordance with subpart F of part 1951.

The year-end analysis should coincide

with the borrower’s farm budget

planning period. The borrower will

work with the Agency to:

(1) Complete the year-end analysis,

whenever possible, within the 60-day

period after completion of the

borrower’s business year or farm budget

planning period.

(2) Complete and review the ‘‘actual’’

columns on the farm business plan and

Form FmHA 1962–1, ‘‘Agreement for

the Use of Proceeds/Release of Chattel

Security,’’ if applicable.

(3) Develop a farm business plan for

the next production cycle in accordance

with § 1924.56.

(4) Reach agreement on key

management issues. Any such

agreements will be documented for the

borrower case file and signed by the

borrower.

(e) For all borrowers, the assessment

described under this section will be

reviewed on at least a semi-annual basis

to monitor progress. The borrower will

consult with the Agency official in

person, or if that is not possible, by

telephone, or in writing. A meeting

must be scheduled as soon as

practicable to determine corrective

options if: the borrower is, or expects to

be, delinquent; the borrower is

experiencing difficulties; or other

significant changes have occurred. The

year-end analysis under this section

may be treated as one of the required

assessment reviews.

13. Sections 1924.56 through 1924.60

are revised to read as follows:

§ 1924.56 Farm business planning.

The automated Farm and Home Plan

system is the primary tool used by the

Agency to evaluate loan feasibility and

prospects for achieving financial

viability. Other manual or automated

business planning systems may be used

with the consent of the Agency.

(a) [Reserved].

(b) Documentation and revision of

plans. Individuals must submit a farm

business plan to the Agency, upon

request, for loan approval and servicing

purposes. An individual may request

the assistance of the Agency official, as

needed, in completing the plan. Farm

business plans will be based only on

accurate, verifiable information. If the

Agency official and the individual

cannot reach agreement, on the farm

business plan, then the Agency will

make loan approval and servicing

determinations based on the Agency’s

separate, revised farm business plan.

The individual will have the right to

appeal any resulting adverse decision.

(1) Historical information will be used

as a guide to evaluate the feasibility of

projected farm business plans.

Individuals must provide the Agency

with their previous 5-year production

history, if available. Positive and

negative trends, mutually agreed upon

changes and improvements, and current

input prices, will be taken into

consideration when arriving at

reasonable projections.

(i) For individuals with less than a 5-

year history, actual production records

from an operation to be taken over by

the individual will be considered,

whenever available.

(ii) In the absence of the information

listed in paragraph (b)(1)(i) of this

section, other reliable data sources that

may be used include: FSA Farm

Programs (formerly Agriculture

Stabilization and Conservation Service)

actual yield records and county or State

averages.

(iii) This paragraph applies when an

accurate projection cannot be made

because the individual’s production

history in any or all of the previous 5

years has been substantially affected by

a disaster that has been declared by the

President or designated by the Secretary

of Agriculture. This paragraph also

applies to those individuals who would

have had a qualifying physical or

production loss, as defined in

§ 1945.154(a), from such a disaster, but

who were not located in a designated or

declared disaster area.

(A) If the individual’s disaster years

yields are less than the county average

yields, county average yields will be

used for those years. If county average
35924 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

yields are not available, State average

yields will be used.

(B) In calculating a baseline average

yield, the individual may exclude the

production year with the lowest actual

or county average yield, providing the

individual’s yields were affected by

disasters during at least 2 of the 5 years.

(2) Unit prices for agricultural

commodities as published in the State

supplement will generally be used.

However, regional or county unit prices

may be used when there are

transportation costs or other significant

factors that cause a difference in

commodity prices within the State.

Individuals who can provide reliable

evidence that they will receive a

premium price for a commodity will be

allowed to use the higher price for farm

planning. The determination of disaster

years will be based on the 5-year history

of disaster declarations or designations

for all counties contained in the State

supplement.

(3) When the Agency official and

individual revise the farm business

plan, the plan will be signed and

initialed by both parties. Form FmHA

1962–1 (available in any Agency office)

will be revised whenever significant

changes occur during the year that will

affect repayment ability. It is the

individual’s responsibility to notify the

Agency of any necessary changes. If the

changes would result in a major change

in the operation, a completely new farm

business plan must be developed. The

individual and Agency official will

initial and date revisions to the Form

FmHA 1962–1.

(4) If the borrower and Agency cannot

reach an agreement on revisions to the

farm plan and an adverse decision

results, the borrower may appeal.

During an appeal, the Agency will make

releases of normal income security for

essential family living and farm

operating expenses in accordance with

§ 1962.17. If the borrower refuses to

execute Form FmHA 1962–1 as finally

determined by the Agency after an

appeal, the account will be serviced

under § 1962.18. If the borrower does

not appeal, the planned releases

documented on Form FmHA 1962–1 are

binding.

§ 1924.57 [Reserved].

§ 1924.58 Recordkeeping.

(a) All borrowers must have a

recordkeeping system, which must be

documented as part of the assessment

under § 1924.55.

(b) The selected recordkeeping system

must provide information similar to that

contained in Forms FmHA 431–2,

FmHA 432–1, ‘‘Farm Family Record

Book,’’ and FmHA 432–2, ‘‘Five Year

Inventory Record.’’ The recordkeeping

system must enable borrowers to make

informed management decisions and

allow the Agency to render loan making

and servicing decisions in accordance

with Agency program regulations.

(c) Borrowers must maintain accurate

records and submit financial

information to the Agency when

required. Failure to do so will result in

the borrower’s ineligibility for future

Agency financing and loan servicing

and may result in acceleration and

collection action.

§ 1924.59 Supervision.

The Agency’s supervision is based on

the information and evaluation resulting

from the assessment of the operation.

The borrower is required to:

(a) Cooperate with the Agency and

comply with all supervisory agreements,

farm plans, and all other loan-related

requirements.

(b) Promptly notify the Agency of any

significant change in the business or

family expenses or the development of

problem situations.

(c) Maintain and protect the collateral

for Agency loans and promptly report to

the Agency any losses or other

significant changes in the collateral.

(d) Complete any training required by

§ 1924.74.

§ 1924.60 Nonfarm enterprises.

A nonfarm enterprise is any business

enterprise which supplements farm

income by providing goods or services

for which there is a need and a

reasonably reliable market. The same

general policies covered in this subpart

for giving management assistance to an

applicant or borrower on farm loans will

be followed in dealing with an applicant

or borrower on nonfarm enterprise

loans. The appropriate plans and record

book will be used for the nonfarm

enterprise. The borrower

responsibilities in § 1924.59 (a) also

apply to nonfarm enterprises.

§§ 1924.61 through 1924.73 [Removed and

Reserved.]

14. In part 1924 §§ 1924.61 through

1924.73 are removed and reserved.

§ 1924.74 [Amended]

15. Section 1924.74 is amended by:

a. Removing all references to ‘‘FmHA

or its successor agency under Public

Law 103–354’’ and adding the word

‘‘Agency,’’ it its place;

b. Removing the words ‘‘Farmer

Programs’’ and adding the words ‘‘Farm

Credit Programs’’ in its place; and

c. Removing the phrase ‘‘Form FmHA

or its successor agency under Public

Law 103–354’’ wherever it appears and

adding the words ‘‘Form FmHA’’ in its

place.

16. Section 1924.74 is amended by:

a. removing the ninth and twelfth

sentences of introductory paragraph

(b)(1) and the second sentence of

paragraph (b)(1)(i);

b. removing in the eighth sentence of

paragraph (b)(1) the phrase ‘‘Form

FmHA or its successor agency under

Public Law 103–354 1924–23, ‘‘

c. removing the words ‘‘County

Committee,’’ ‘‘Committee,’’ in

paragraphs (b)(1), (b)(1)(i), (b)(1)(ii) and

(b)(2) and adding the word ‘‘Agency’’ in

their place; and

d. removing the words ‘‘County

Committee’s’’ in paragraph (b)(3),

introductory text, and paragraph (b)(4)

and adding the words ‘‘the Agency’s’’ in

their place.

17. Section 1924.100 is revised to read

as follows:

§ 1924.100 OMB control number.

The reporting and recordkeeping

requirements contained in this

regulation have been approved by the

Office of Management and Budget

(OMB) and have been assigned OMB

control number 0560–0154.

18. Exhibit A is amended by

redesignating all text following the

closure ‘‘County Supervisor’’ as

attachment 1 to exhibit A; removing all

references to ‘‘FmHA or its successor

agency under Public Law 103–354’’ and

adding the word ‘‘Agency’’ in its place;

by removing the references ‘‘Form

1962–1’’ and adding ‘‘Form FmHA

1962–1’’ in its place; and revising the

first paragraph of redesignated

attachment 1 to read as follows:

Exhibit A—Letter to Borrower

Regarding Releases of Farm Income To

Pay Family Living and Farm Operating

Expenses

* * * * *

Attachment 1 to Exhibit A

Periodically, you will be asked to

complete Form FmHA 1962–1,

‘‘Agreement for the Use of Proceeds/

Release of Chattel Security,’’ which will

document the agreement between you

and the Agency as to how proceeds from

the sale of chattel property which serves

as security for your Agency loans will

be released. You will also need to list

those buyers to whom you plan to sell

your farm products. This plan will give

you and the Agency a clear idea of what

income you expect from your operation

and how those proceeds will be used.

The plan will set forth the amount of

money required for paying essential

family living, farm operating expenses,

and debt service payments. You and the
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35925

Agency must agree on how much money

will be released from your crop

proceeds. Such releases must be in

accordance with Agency regulations.

* * * * *

PART 1941—OPERATING LOANS

19. The authority citation for part

1941 is revised to read as follows:

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

Subpart A—Operating Loan Policies,

Procedures, and Authorizations

§ 1941.1 [Amended]

20. Section 1941.1 is amended by

removing the words ‘‘Farmers Home

Administration (FmHA)’’ and adding

the words ‘‘Farm Service Agency (FSA)’’

in its place in the fourth sentence and

removing ‘‘FmHA’’ and adding the word

‘‘Agency’’ in its place.

§ 1941.4 [Amended]

21. Section 1941.4 is amended by

adding the definition for ‘‘Agency’’ after

the definition for ‘‘Additional security.’’

* * * * *

Agency. The Farm Service Agency, its

county and State committees and their

personnel, and any successor agency.

* * * * *

§ 1941.15 [Amended]

22. Section 1941.15 paragraph (e) is

amended by:

a. removing the reference to

‘‘§ 1924.57’’ and adding ‘‘§ 1924.56’’ in

its place;

b. removing the phrase ‘‘for County

Committee review’’;

c. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraphs (c), (e)(2), (f)(3),

(j), and the heading of paragraph (i) and

adding the word ‘‘Agency’’ in its place;

d. by removing the words ‘‘FmHA or

its successor agency under Public Law

103–354’s’’ in paragraphs (e)(3) and (j)

and adding the words ‘‘the Agency’s’’ in

its place.

23. Section 1941.15 is amended by:

a. removing the second sentence in

paragraph (a);

b. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354-assisted’’ in the first sentence

of paragraph (a) and paragraph (h)(2)

introductory text;

c. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354 regulations setting forth’’ in the

last sentence of paragraph (f)(2);

d. removing the words ‘‘County

Committee’’ and adding the word

‘‘Agency’’ in its place in paragraph

(h)(1); and

e. removing the phrase ‘‘subpart B of

part 1900 of this chapter’’ and adding ‘‘7

CFR part 780’’ in its place in paragraph

(h)(3); and

f. revising paragraph (k) to read as

follows:

§ 1941.15 Special beginning farmer or

rancher OL loan assistance.

* * * * *

(k) Agency certification. A special

beginning farmer OL application will

only be considered after the applicant

submits a complete 5-year plan of

operation and a projection of the

financial status of the operation as set

forth in paragraph (e) of this section. In

addition to the requirements of

§ 1941.30, the following conditions

apply:

(1) Agency certifications of eligibility

under paragraph (b) of this section are

effective throughout the commitment

period.

(2) For subsequent loan requests

during the commitment period, the

Agency will certify as to the applicant

meeting the eligibility requirements for

the regular direct or guaranteed OL loan

programs, as appropriate. Such

certification is unnecessary if a 5-year

eligibility certification has not yet

expired unless the County Supervisor

has determined that the applicant’s

situation has changed such that the

eligibility determination would

potentially be affected. If recertification

is rejected, no subsequent loan will be

made under the commitment and the

commitment will be revoked in

accordance with paragraph (h) of this

section.

§ 1941.16 [Amended]

24. Section 1941.16 paragraph (k) is

amended by removing the words

‘‘Agricultural Stabilization and

Conservation Service (ASCS)’’ and

adding the words ‘‘FSA Farm Programs

(formerly Agricultural Stabilization and

Conservation Service)’’ in its place.

§ 1941.18 [Amended]

25. Section 1941.18 is amended:

a. In paragraph (a), introductory text,

by removing ‘‘FmHA’’ and adding the

words ‘‘the Agency’’ in its place and

b. In paragraph (a)(2), by removing the

reference to ‘‘§ 1924.60’’ and adding

‘‘§ 1924.55’’ in its place.

§ 1941.19 [Amended]

26. Section 1941.19 paragraph (f)(1) is

amended:

a. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354 for any other farmer programs’’

and adding the phrase ‘‘the Agency for

any other farm credit programs’’ in its

place and

b. by removing paragraphs (g) through

(j).

§ 1941.30 [Removed and Reserved]

27. In part 1941 § 1941.30 is removed

and reserved.

§ 1941.33 [Amended]

28. Section 1941.33 is amended:

a. by removing the words ‘‘County

Committee’’ in paragraph (b)(1)(i) and

adding the word ‘‘Agency’’ in its place,

b. by removing paragraph (b)(1)(ii),

c. by redesignating paragraphs (b)(1)

(iii) through (vii) as (b)(1) (ii) through

(vi), respectively;

d. by removing the second reference

to ‘‘FmHA’’ in paragraph (b)(2)(i), and

e. by removing the words ‘‘(see

subpart B of part 1900 of this chapter)’’

from paragraph (c)(2).

PART 1943—FARM OWNERSHIP, SOIL

AND WATER AND RECREATION

29. The authority citation for part

1943 is revised to read as follows:

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

Subpart A—Direct Farm Ownership

Loan Policies, Procedures and

Authorizations

§ 1943.1 [Amended]

30. Section 1943.1 is amended by

removing the words ‘‘Farmers Home

Administration (FmHA)’’ and adding

the words ‘‘Farm Service Agency (FSA)’’

in its place and § 1943.2 is amended by

removing ‘‘FmHA’’ and adding the word

‘‘Agency’’ in its place.

§ 1943.4 [Amended]

31. Section 1943.4 is amended in the

definition of primary security by

removing ‘‘and/or’’ and adding ‘‘and’’ in

its place, and also by adding the

following definition after the definition

of additional security.

* * * * *

Agency. The Farm Service Agency, its

county and State committees and their

personnel, and any successor agency.

* * * * *

§ 1943.18 [Amended]

32. Section 1943.18(b)(3) is amended

by removing the reference to

‘‘§ 1924.60’’ and adding ‘‘§ 1924.55’’ in

its place.

§ 1943.29 [Amended]

33. Section 1943.29 (c) is amended by

removing the references to ‘‘FmHA’’ and

adding the words ‘‘the Agency’’ in its

place.

§§ 1943.30 and 1943.32 [Removed and

Reserved]

34. In part 1943 §§ 1943.30 and

1943.32 are removed and reserved.

§ 1943.33 [Amended]

35. Section 1943.33 is amended by:
35926 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

a. removing and reserving paragraph

(b)(2);

b. removing paragraph (c);

c. removing the words ‘‘County

Committee’’ in paragraph (b)(1)(i) and

adding the word ‘‘Agency’’ in its place;

and

d. removing paragraph (b)(1)(ii); and

redesignating paragraphs (b)(1) (iii)

through (vii) as (b)(1) (ii) through (vi)

respectively.

Subpart B—Direct Soil and Water Loan

Policies, Procedures and

Authorizations

§§ 1943.80 and 1943.82 [Removed and

Reserved]

36. In part 1943 §§ 1943.80 and

1943.82 are removed and reserved.

§ 1943.83 [Amended]

37. Section 1943.83 is amended by:

a. removing the words ‘‘County

Committee’’ in paragraph (b)(1)(i) and

adding the word ‘‘Agency’’ in its place;

b. removing paragraph (b)(1)(ii); and

redesignating paragraphs (b)(1) (iii)

through (vii) as paragraphs (b)(1)(ii)

through (vi) respectively; and

c. removing and reserving paragraph

(b)(2); and removing paragraph (c).

PART 1945—EMERGENCY

38. The authority citation for part

1945 is revised to read as follows:

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

42 U.S.C. 1980.

Subpart D—Emergency Loan Policies,

Procedures and Authorizations

§§ 1945.151 and 1945.152 [Amended]

39. Sections 1945.151 and 1945.152

are amended by removing the words

‘‘Farmers Home Administration

(FmHA)’’ and adding the words ‘‘Farm

Service Agency (FSA)’’ in its place and

by removing ‘‘FmHA’’ and adding the

word ‘‘Agency’’ in its place.

§ 1945.154 [Amended]

40. Section 1945.154 (a) is amended

in the definition of Feasible Plan by

removing words ‘‘§ 1924.57(c)(5) of’’

and also by adding the following

definition after the definition of

Additional security.

* * * * *

Agency. The Farm Service Agency, its

county and State committees and their

personnel, and any successor agency.

* * * * *

41. Section 1945.163 is amended by:

a. removing all references to ‘‘Form

FmHA or its successor agency under

Public Law 103–354 and adding the

words ‘‘Form FmHA’’ in their place;

b. removing the reference to ‘‘FmHA’’

in the last sentence of introductory text;

and adding the words ‘‘the Agency’’ in

its place; and

c. by removing and reserving

paragraph (a)(2)(ii) and revising

paragraph (a)(1) to read as follows:

§ 1945.163 Determining qualifying losses,

eligibility for EM loan(s) and the maximum

amount of each.

* * * * *

(a) * * *

(1) The normal year’s production will

be established by eliminating the

poorest year of the 5-year production

history immediately preceding the

disaster year and averaging the

remaining 4 years’ production. The

applicant must select the year to be

eliminated. The year selected to be

eliminated must be the same year for all

farm enterprises (i.e., all crops,

livestock, and livestock products),

which constituted a part of the

applicant’s farming operation during

that year. Applicants will identify the

production for each commodity that was

produced on all farms operated by the

applicant in the disaster year.

Applicants must use the production

record sources for each crop in the order

of priority as follows:

(i) The applicant’s actual reliable

farm records. If actual yields are not

available for all of the 5 crop years, the

applicant will use a combination of

actual records and other data as

specified in paragraphs (a)(1) (ii) and

(iii) of this section.

(ii) FSA Farm Programs (formerly

ASCS) ‘‘actual yields.’’ When this

production record source is used, the

applicant must obtain the information

and submit it with the application. The

disaster year actual yield will be used as

the yield for those years for which the

applicant has no production records to

determine the normal year’s yields.

(iii) The county or State average

yields. These average yields are located

in the State supplement. However, these

production figures can be substituted

only when an applicant has insufficient

records for certain commodities and

years.

(iv) State Director determination.

When an applicant’s production loss is

on new land being developed, or to

young perennial crops such as fruits and

nuts, which have not reached their

mature production potential, the

Agency will establish the normal yields

to be used.

* * * * *

§ 1945.166 [Amended]

42. Section 1945.166 is amended by

removing ‘‘FmHA’’ in the last sentence

of paragraph (c)(4) and adding the word

‘‘Agency’’ in its place.

§ 1945.167 [Amended]

43. Section 1945.167 is amended by

removing paragraph (g); removing

paragraph (h); redesignating paragraphs

(i) through (k) as (h) through (j), and

removing ‘‘FmHA’’ wherever it appears

in redesignated paragraph (h) and

adding the word ‘‘Agency’’ in its place.

44. Section 1945.167 is amended by:

a. removing the words ‘‘crop(s)’’ and

‘‘disaster(s)’’ in paragraph (a) and

adding the words ‘‘crop’’ and ‘‘disaster’’

in their place respectively;

b. removing the words ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the heading of paragraph

(b) and adding the word ‘‘Agency’’ in its

place; and removing the words ‘‘FmHA

or its successor agency under Public

Law 103–354 farmer programs’’ in

paragraph (b) and adding the words

‘‘Farm Credit Programs’’ in its place;

c. removing the word ‘‘purpose(s)’’ in

the heading of paragraph (c) and adding

the word ‘‘purposes’’ in its place;

removing the word ‘‘operation(s)’’ in

paragraph (c) and adding the word

‘‘operation’’ in its place.

§ 1945.168 [Amended]

45. Section 1945.168 is amended:

a. by removing ‘‘FmHA’’ in the first

sentence of paragraph (a) and adding the

words ‘‘the Agency’’ in its place; and

b. by removing the words ‘‘loan(s)’’,

‘‘reason(s)’’ and ‘‘lien(s) in paragraphs

(b)(1)(i) and (ii) and adding the words

‘‘loans’’, ‘‘reasons’’ and ‘‘lien’’ in their

place, respectively.

§ 1945.169 [Amended]

46. Section 1945.169 is amended by

removing and reserving paragraphs (n),

(o), and removing (p)(3), and (p)(4).

§ 1945.173 [Amended]

47. Section 1945.173 is amended by

removing ‘‘FmHA’’ in paragraph

(b)(2)(ii) and adding the word ‘‘Agency’’

in its place.

§§ 1945.180 and 1945.182 [Removed and

Reserved]

48. In part 1945 §§ 1945.180 and

1945.182 are removed and reserved.

§ 1945.183 [Amended]

49. Section 1945.183 is amended by

removing and reserving paragraphs

(a)(1) through (3), (a)(4)(i) and (ii); and

removing (c) through (e).

50. Section 1945.183 is amended:

a. by removing the words ‘‘County

Committee’’ in paragraph (b)

introductory text, and paragraph (b)(1)

and adding the word ‘‘Agency’’ in its

place;

b. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354’’ in paragraphs (a)(4)(iii), (b)(7)
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35927

and (b)(8) and adding the word

‘‘Agency’’ in its place;

c. by removing the word ‘‘loan(s)’’ in

paragraphs (b)(4) and (b)(8) and adding

the word ‘‘loan’’ in its place;

d. by removing the word

‘‘certification(s)’’ in paragraph (b)(6) and

adding the word ‘‘certifications’’ in its

place; and

e. by removing the words ‘‘Form

FmHA or its successor agency under

Public Law 103–354’’ wherever it

appears and adding the words ‘‘Form

FmHA’’ in its place.

PART 1951—SERVICING AND

COLLECTIONS

51. The authority citation for part

1951 is revised to read as follows:

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

Subpart F—Analyzing Credit Needs

and Graduation of Borrowers

52. Sections 1951.251 through

1951.300 are revised to read as follows:

§ 1951.251 Purpose.

This subpart prescribes the policies to

be followed when analyzing a direct

borrower’s needs for continued Agency

supervision, further credit, and

graduation. All loan accounts will be

reviewed for graduation in accordance

with this subpart, with the exception of

Guaranteed, Watershed, Resource

Conservation and Development, Rural

Development Loan Funds, and Rural

Rental Housing loans made to build or

acquire new units pursuant to contracts

entered into on or after December 15,

1989, and Intermediary Relending

Program loans. The term ‘‘Agency’’ used

in this subpart refers to the Farm

Service Agency (FSA) including its

county and state committees and their

personnel), Rural Utilities Service

(RUS), Rural Housing Service (RHS), or

Rural Business-Cooperative Service

(RBS), depending upon the loan

program discussed herein.

§ 1951.252 Definitions.

Commercial classified. The Agency’s

highest quality Farm Credit Programs

(FCP) accounts. The financial condition

of the borrowers is strong enough to

enable them to absorb the normal

adversities of agricultural production

and marketing. There is ample security

for all loans, there is sufficient cash flow

to meet the expenses of the agricultural

enterprise and the financial needs of the

family, and to service debts. The

account is of such quality that

commercial lenders would likely view

the loans as a profitable investment.

Farm Credit Programs (FCP) loans.

FSA Farm Ownership (FO), Operating

(OL), Soil and Water (SW), Recreation

(RL), Emergency (EM), Economic

Emergency (EE), Economic Opportunity

(EO), Special Livestock (SL), Softwood

Timber (ST) loans, and Rural Housing

loans for farm service buildings (RHF).

Graduation, FCP. The payment in full

of all FCP loans or all FCP loans of one

type (i.e., all loans made for chattel

purposes or all loans made for real

estate purposes) by refinancing with

other credit sources either with or

without an Agency loan guarantee. A

loan made for both chattel and real

estate purposes, for example an EM

loan, will be classified according to how

the majority of the loan’s funds were

expended. Borrowers must continue

with their farming operations to be

considered as graduated.

Graduation, other programs. The

payment in full of any direct loan for

Community and Business Programs, and

all direct loans for housing programs,

before maturity by refinancing with

other credit sources. Graduated housing

borrowers must continue to hold title to

the property. Graduation, for other than

FCP, does not include credit which is

guaranteed by the United States.

Prospectus, FCP. Consists of a

transmittal letter with a current balance

sheet and projected year’s budget

attached. The applicant’s or borrower’s

name and address need not be withheld

from the lender. The prospectus is used

to determine lender interest in financing

or refinancing specific Agency direct

loan applicants and borrowers. The

prospectus will provide information

regarding the availability of an Agency

loan guarantee and interest assistance.

Reasonable rates and terms. Those

commercial rates and terms which

borrowers are expected to meet when

borrowing for similar purposes and

similar periods of time. The ‘‘similar

periods of time’’ of available

commercial loans will be measured

against, but need not be the same as, the

remaining or original term of the loan.

In the case of Multi-Family Housing

(MFH) loans, ‘‘reasonable rates and

terms’’ would be considered to mean

financing that would allow the units to

be offered to eligible tenants at rates

consistent with other multi-family

housing.

Servicing official. The district or

county office official responsible for the

immediate servicing functions of the

borrower.

Standard classified. These loan

accounts are fully acceptable by Agency

standards. Loan risk and potential loan

servicing costs are higher than would be

acceptable to other lenders, but all loans

are adequately secured. Repayment

ability is adequate, and there is a high

probability that all loans will be repaid

as scheduled and in full.

§ 1951.253 Objectives.

(a) [Reserved]

(b) Borrowers must graduate to other

credit at reasonable rates and terms

when they are able to do so.

(c) If a borrower refuses to graduate,

the account will be liquidated under the

following conditions:

(1) The borrower has the legal

capacity and financial ability to obtain

other credit.

(2) Other credit is available from a

commercial lender at reasonable rates

and terms. In the case of Labor Housing

(LH), Rural Rental Housing (RRH), and

Rural Cooperative Housing (RCH)

Programs, reasonable rates and terms

must also permit the borrowers to

continue providing housing for low and

moderate income persons at rental rates

tenants can afford considering the loss

of any subsidy which will be canceled

when the loan is paid in full.

(d) The Agency will enforce borrower

graduation.

§ 1951.254 [Reserved]

§ 1951.255 Nondiscrimination.

All loan servicing actions described in

this subpart will be conducted without

regard to race, color, religion, sex,

familial status, national origin, age, or

physical or mental handicap.

§§ 1951.256—1951.261 [Reserved]

§ 1951.262 Farm Credit Programs—

graduation of borrowers.

(a) [Reserved].

(b) [Reserved].

(c) [Reserved].

(d) [Reserved].

(e) Graduation candidates. Borrowers

who are classified ‘‘commercial’’ or

‘‘standard’’ are graduation candidates.

At least every 2 years, all borrowers who

have a current classification of

commercial or standard must submit a

year-end balance sheet, actual financial

performance information for the most

recent year, and a projected budget for

the current year to enable the Agency to

reclassify their status and determine

their ability to graduate.

(f) Sending prospectus information to

lenders. (1) The Agency will distribute

a borrower’s prospectus to local lenders

for possible refinancing only with the

borrower’s written permission. If more

than one lender indicates an interest in

providing credit, the borrower has the

right to select a lender.

(2) If any borrower does not consent

to the Agency contacting lenders

directly on their behalf, the borrower

must make formal application to at least
35928 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

two local lenders who typically finance

operations similar to that of the

borrower. The borrower is responsible

for any application fees. Letters of

denial or rejection from lenders without

formal application being made will not

be accepted by the Agency. The

borrower has 60 days from the date the

borrower receives the prospectus

information to make application and

receive a response from lenders. For

good cause, the borrower may be

granted a reasonable amount of

additional time by the Agency.

§ 1951.263 Graduation of non-Farm Credit

programs borrowers.

(a) [Reserved].

(b) [Reserved].

(c) The thorough review. Borrowers

are required to supply such financial

information as the Agency deems

necessary to determine whether they are

able to graduate to other credit. At a

minimum, the financial statements

requested from the borrower must

include a balance sheet and a statement

of income and expenses. Ordinarily, the

financial statements will be those

normally required at the end of the

particular borrower’s fiscal year. For

borrowers who are not requested to

furnish audited financial statements, the

balance sheet and statement of income

and expenses may be of the borrower’s

own format if the borrower’s financial

situation is accurately reflected. The

borrower has 60 days for group type

loans and 30 days for individual type

loans to supply the financial

information requested.

(d) [Reserved].

(e) Requesting the borrower to

graduate. (1) The Agency will send

written notice to borrowers found able

to graduate requesting them to graduate.

The borrower must seek a loan only in

the amount necessary to repay the

unpaid balance.

(2) Borrowers must provide evidence

of their ability or inability to graduate

within 30 days for RH borrowers, and 90

days for group type borrowers, after the

date of the request. The Agency may

allow additional time for good cause, for

example when a borrower expects to

receive income in the near future for the

payment of accounts which would

substantially reduce the amount

required for refinancing, or when a

borrower is a public body and must

issue bonds to accomplish graduation.

(3) If a borrower is unable to graduate

the full amount of the loan, the

borrower must furnish evidence to the

Agency, showing:

(i) The names of other lenders

contacted;

(ii) The amount of loan requested by

the borrower and the amount, if any,

offered by the lenders;

(iii) The rates and terms offered by the

lenders or the specific reasons why

other credit is not available; and

(iv) The purpose of the loan request.

(4) The difference in interest rates

between the Agency and other lenders

will not be sufficient reason for failure

to graduate if the other credit is

available at rates and terms which the

borrower can reasonably be expected to

pay. An exception is made where there

is an interest rate ceiling imposed by

Federal law or contained in the note or

mortgage.

(5) The Agency will notify the

borrower in writing if it determines that

the borrower can graduate. The

borrower must take positive steps to

graduate within 15 days for individual

loans and 60 days for group loans from

such notice to avoid legal action. The

servicing official may grant a longer

period where warranted.

§ 1951.264 Action when borrower fails to

cooperate, respond or graduate.

(a) When borrowers with other than

FCP loans fail to:

(1) Provide information following

receipt of both FmHA Guide Letters

1951–1 and 1951–2 (available in any

Agency office), or letters of similar

format, they are in default of the terms

of their security instruments. The

approval official may, when

appropriate, accelerate the account

based on the borrower’s failure to

perform as required by this subpart and

the loan and security instruments.

(2) Apply for or accept other credit

following receipt of both FmHA Guide

Letters 1951–F–5 and 1951–6 (available

in any Agency office), or letters of

similar format, they are in default under

the graduation requirement of their

security instruments. If the Agency

determines the borrower is able to

graduate, foreclosure action will be

initiated in accordance with

§ 1955.15(d)(2)(ii). If the borrower’s

account is accelerated, the borrower

may appeal the decision.

(b) If an FCP borrower fails to

cooperate after a lender expresses a

willingness to consider refinancing the

Agency loan, the account will be

referred for legal action.

§ 1951.265 Application for subsequent

loan, subordination, or consent to

additional indebtedness from a borrower

who has been requested to graduate.

(a) Any borrower who appears to meet

the local commercial lending standards,

taking into consideration the Agency’s

loan guarantee program, will not be

considered for a subsequent loan,

subordination, or consent to additional

indebtedness until the borrower’s ability

or inability to graduate has been

confirmed. An exception may be made

where the proposed action is needed to

alleviate an emergency situation, such

as meeting applicable health or sanitary

standards which require immediate

attention.

(b) If the borrower has been requested

to graduate and has also been denied a

request for a subsequent loan,

subordination, or consent to additional

indebtedness, the borrower may appeal

both issues.

§ 1951.266 Special requirements for MFH

borrowers.

All requirements of subpart E of part

1965 must be met prior to graduation

and acceptance of the full payment from

an MFH borrower.

§§ 1951.267–1951.299 [Reserved]

§ 1951.300 OMB control number.

The reporting requirements contained

in this regulation have been approved

by the Office of Management and

Budget (OMB) and have been assigned

OMB control number 0575–0093.

Exhibit A of Subpart F—[Removed and

Reserved]

53. Exhibit A of subpart F is removed

and reserved.

Subpart S—Farmer Program Account

Servicing Policies

54. Section 1951.906 is amended by

revising the definitions of ‘‘Feasible

plan,’’ ‘‘Financially distressed,’’ and

‘‘Good faith’’ to read as follows:

§ 1951.906 Definitions.

* * * * *

Feasible plan. A feasible plan is a

plan based upon the applicant’s or

borrower’s actual records that show the

farming operation’s actual income,

production and expenses. Income tax

returns and supporting documents

(hereafter called income tax records)

must be submitted to verify the actual

records. The records, including income

tax records, must be for the most recent

5-year period or if the borrower has

been farming less than 5 years, the

records for the period which the

borrower has farmed. For borrowers

who have been farming for less than 5

years, the borrower’s actual records will

be used along with other available

records in the order listed in § 1924.56

to complete a 5-year history. Future

production yields will be based on a 5-

year average of the most recent past 5

years’ actual production yields.
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35929

Borrowers that have yields affected by

disasters in at least 2 of the 5 most

recent years’ actual production may

exclude the crop year with the lowest

actual yield. In accordance with

§ 1924.56, if the applicant’s remaining

disaster year’s 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

that year. 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 farm program

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 all

taxes which are due during the

projected farm business accounting

period.

* * * * *

(3) Meet up to 105 percent, but not

less than 100 percent, of the scheduled

payments on all debts, except as

provided in § 1941.14 for annual

production loans or subordinations

made to a delinquent borrower

submitting a ‘‘NEW APPLICATION.’’

The Agency will assume that a borrower

needs up to 105 percent of the

scheduled payments on all the debts for

the business accounting period in order

to meet the obligations and continue

farming. However, this will not prohibit

a borrower from receiving debt

restructuring because the projected

income is less than 105 percent of the

scheduled payments. In no case will a

borrower receive restructuring if

projected income is less than 100

percent of scheduled payments.

* * * * *

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 financially distressed if the

borrower will not be able to project a

feasible plan of operation for the next

business accounting period.

* * * * *

Good faith. An eligibility requirement

for Primary Loan Servicing including

Net Recovery Buyout, and Leaseback/

Buyback. A borrower is considered to

have acted in ‘‘good faith’’ if the

borrower has demonstrated honesty and

sincerity in carrying out the agreements

on Form FmHA 1962–1 (available in

any Agency office) and any other

written agreements with the Agency.

Findings of a lack of good faith will be

based on violations within the

borrower’s control. These actions will

demonstrate the borrower’s intent to

violate written agreements with the

Agency. The Agency must substantiate

any allegations of fraud, waste, or

conversion with a written legal opinion

by 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 determination

was the disposition of normal income

security, as defined in § 1962.4, 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 the Agency

could have approved according to

§ 1962.17.

* * * * *

§ 1951.909 [Amended]

55. Section 1951.909 is amended:

a. by removing the reference to

‘‘§ 1924.60 of subpart B of part 1924 of

this chapter’’ in paragraph (e)(3)(vii) and

adding the reference ‘‘§ 1924.55,’’ in its

place and;

b. by removing the reference ‘‘as set

forth in subpart B of part 1900 of this

chapter’’ in paragraph (e)(3)(vii).

56. Section 1951.909 is amended:

a. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354’’ in the heading of paragraph

(e)(4) and in paragraph (e)(4)(xi) and

adding the word ‘‘Agency’’ in its place;

and

b. by removing and reserving

paragraphs (e)(3)(vi)(B) and (C).

PART 1955—PROPERTY

MANAGEMENT

57. The authority citation for part

1955 is revised to read as follows:

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

U.S.C. 1480.

Subpart B—Management of Property

§ 1955.66 [Amended]

58. Section 1955.66 is amended:

a. by removing the words ‘‘Farmer

Program loans’’ in paragraphs

(a)(2)(iii)(A) and adding the words

‘‘Farm Credit Programs loans’’ in their

place;

b. by removing the reference

‘‘§ 1924.27 of’’ in paragraph (a)(2)(iii)(B);

c. by removing the phrase ‘‘FmHA or

its successor agency under Public Law

103–354’’ in the third sentence of the

introductory text and paragraphs (a)(1)

and (a)(2)(iii)(C) and adding the words

‘‘the Agency’’ in its place; and

d. by removing the words

‘‘Agricultural Stabilization and

Conservation Service (ASCS)’’ in

paragraph (a)(2)(iii)(D) and adding the

words ‘‘the local FSA Farm Programs

(formerly ASCS)’’ in its place.

PART 1962—PERSONAL PROPERTY

59. The authority citation for part

1962 is revised 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

§ 1962.5 [Removed and Reserved]

60. In part 1962 § 1962.5 is removed

and reserved.

61. Section 1962.6 is revised to read

as follows:

§ 1962.6 Liens and assignments on chattel

property.

(a) Chattel property not covered by

Agency lien. (1) When additional chattel

property not presently covered by an

Agency lien is available and needed to

protect the Government’s interest, the

County Supervisor will obtain one or

more of the following:

(i) A lien on such property.

(ii) An assignment of the proceeds

from the sale of agricultural products

when such products are not covered by

the lien instruments.

(iii) An assignment of other income,

including FSA Farm Programs (formerly

ASCS) payments.

(2) When a current loan is not being

made to a borrower, a crop lien will be

taken as additional security when the

County Supervisor determines in

individual cases that it is needed to

protect the Government’s interests.

However, a crop lien will not be taken

as additional security for Farm

Ownership (FO), Rural Housing (RH),

Labor Housing (LH), and Soil and Water

(SW) loans. When a new security

agreement or chattel mortgage is taken,

all existing security items will be

described on it.

(b) [Reserved]

(c) Assignments of upland cotton,

rice, wheat and feed grain payments.

Borrowers may assign FSA Farm

Programs (formerly ASCS) payments

under upland cotton, rice, wheat and

feed grain programs.

(1) Obtaining assignments.

Assignments will be obtained as

follows:

(i) Only when it appears necessary to

collect operating-type loans.

(ii) Only for the crop year for which

operating-type loans are made, and

(iii) For only the amount anticipated

for payments as indicated on Form

FmHA 1962–1, ‘‘Agreement for the Use

of Proceeds/Release of Chattel
35930 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

Security,’’ of the applicable upland

cotton, rice, wheat and feed grain

programs.

(2) Selecting counties. The County

Supervisor then will:

(i) Determine, at the time of loan

processing for indebted borrowers and

new applicants, who must give

assignments and obtain them no later

than loan closing. Special efforts will be

made to obtain the bulk of assignments

before the sign-up period for enrolling

in the annual Feed Grain and Wheat set

aside programs.

(ii) Obtain assignments from selected

borrowers on Form ASCS–36,

‘‘Assignments of Payment,’’ which will

be obtained from FSA Farm Programs.

(3) Releasing assignments and

handling checks. (i) The County

Supervisor will inform FSA Farm

Programs that releasing its assignment

whenever a borrower pays the amount

due for the year on the operating-type

loan debt or pays the debt in full.

(ii) Checks obtained as a result of an

assignment will be made only to the

Agency, and the proceeds used as

indicated on Form FmHA 1962–1.

§ 1962.8 [Amended]

62. Section 1962.8 is amended by

removing and reserving paragraphs (a)

and (b).

§ 1962.9 and 1962.12 [Removed and

Reserved]

63. In part 1962 §§ 1962.9 and

1962.12 are removed and reserved.

64. Section 1962.13 is revised to read

as follows:

§ 1962.13 Notification to potential

purchasers.

(a) In States without a Central Filing

System (CFS), all Farm Credit Programs

borrowers prior to loan closing or prior

to any servicing actions which require

taking a lien on farm products, such as

crops or livestock, must provide the

names and addresses of potential

purchasers. A written notice will be sent

by the Agency, certified mail, return

receipt requested, to these potential

purchasers to protect the Government’s

security interest.

(1) The name and address of the

debtor, with signature.

(2) The name and address of any

secured party.

(3) The Social Security number or tax

ID number of the debtor.

(4) A description of the farm products

given as security by the debtor,

including the amount of such products

where applicable, the crop year, the

county in which the products are

located, and a reasonable description of

the farm products.

(5) Any payment obligation imposed

on the potential purchaser by the

secured party as a condition for waiver

or release of lien. The original or a copy

of the written notice also must be sent

to the purchaser within 1 year before the

sale of the farm products. The written

notice will lapse on either the

expiration period of the Financing

Statement or the transmission of a letter

signed by the County Supervisor and

showing that the statement has lapsed

or the borrower has performed all

obligations to the Agency.

(b) Lists of borrowers whose chattels

or crops are subject to an Agency lien

may be made available, upon request, to

business firms in a trade area, such as

sale barns and warehouses, that buy

chattels or crops or sell them for a

commission. These lists will exclude

those borrowers whose only crops for

sale require FSA Farm Programs

(formerly ASCS) marketing cards. The

list is furnished only as a convenience

and may be incomplete or inaccurate as

of any particular date.

(1) [Reserved]

(2) [Reserved]

65. In § 1962.14 all references to

‘‘FmHA or its successor agency under

Public Law 103–354’’ are removed and

the words ‘‘the Agency’’ are added in

their place.

66. Section 1962.16, introductory text

is added and paragraph (a) is revised to

read as follows:

§ 1962.16 Accounting by the borrower.

The Agency will maintain a current

record of each borrower’s security.

Whenever an inspection is performed,

the borrower must advise the Agency of

any changes in the security and will

complete and sign Form FmHA 1962–1

in accordance with § 1924.56 if it has

not been previously completed for the

year.

(a) Agency responsibilities. Chattel

security will be inspected annually

except in cases where the Agency

official has justified in assessment or

analysis review that no undue risk

exists. An FO borrower who has been

current with the Agency and who has

provided chattels as additional security

is an example of a case where an

inspection may not be needed. All

inspections will be recorded in the

running record of the borrower’s file.

More frequent inspections should be

made for delinquent borrowers or

borrowers that have been indebted for

less then 1 full crop year. The Agency

official will discuss the provisions of

§§ 1962.17 and 1962.18 and assist the

borrower in completing the form. If a

borrower does not plan to dispose of

any chattel security, the form should be

completed to show this and should be

signed. When the Agency official has

other contacts with the borrower, the

official should also check for

dispositions and acquisitions of

security. Changes will be recorded on

the form, dated and initialed by the

borrower and the agency official. The

purpose of all inspections is to:

(1) Verify that the borrower possesses

all the security,

(2) Determine security is properly

maintained, and

(3) Supplement security instruments.

* * * * *

67. Section 1962.17, paragraph (a), is

revised to read as follows:

§ 1962.17 Disposal of chattel security, use

of proceeds and release of lien.

(a) General. (1) The borrower must

account for all security. When the

borrower sells security, the property and

proceeds remain subject to the Agency’s

lien until the lien is released. All

checks, drafts, or money orders which

the borrower receives for the sale of

collateral listed on Form FmHA 1962–

1 (available in any Agency office) must

be payable to both the borrower and the

Agency unless all Agency loan

installments for the period of the form

have been paid including any past-due

installments. If the borrower disposes of

collateral or uses the proceeds in a way

not listed on Form FmHA 1962–1, the

borrower will have violated the loan

agreement, and the Government will not

release its security interest in the

collateral. Releases of sales proceeds

will be terminated when the borrower’s

accounts are accelerated.

(2) Section 1924.56 requires that there

must always be a current Form FmHA

1962–1 in the file of a borrower with a

loan secured by chattels. If a borrower

asks the Agency to release proceeds

from the sale of chattels and there is a

current Form FmHA 1962–1 in the file,

the request will be approved or

disapproved in accordance with

paragraph (b) of this section. If the

borrower’s request for release is denied,

the borrower must be given attachment

1 of exhibit A of subpart S of part 1951

of this chapter, a written explanation of

the reasons for the denial, and the

opportunity for an appeal in accordance

with 7 CFR part 780. Immediately upon

determining that the borrower does not

have a current Form FmHA 1962–1 in

the file, the County Supervisor will

immediately contact the borrower to

develop one.

(3) If the borrower requests a

change(s) to Form FmHA 1962–1, and

the County Supervisor can approve the

change(s), the borrower and the County

Supervisor will initial and date each
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35931

change in accordance with item (6) in

the Forms Manual Insert (FMI) for Form

FmHA 1962–1. The form will be marked

‘‘Revised’’ and the borrower will be

notified in writing confirming that the

change(s) has been approved.

* * * * *

68. Section 1962.17 is amended by:

a. removing the phrase ‘‘or its

successor agency under Public Law

103–354’’ wherever it appears;

b. removing the word ‘‘FmHA,’’

except when it refers to ‘‘Form FmHA,’’

the second time it appears in paragraph

(a)(1), in paragraphs (a)(2), (b)(2),

(b)(2)(v), the second time it appears in

paragraph (b)(2)(vii), in paragraphs

(b)(2)(viii)(B), (b)(3), (b)(5), (c)(2)(i), in

the first and last sentences of paragraph

(d)(2)(ii), and in paragraphs (e)(1)(i)

through (e)(1)(iii) and adding the words

‘‘the Agency’’ in its place;

c. removing the word ‘‘FmHA,’’

except when it refers to ‘‘Form FmHA,’’

in the first and second sentences of

paragraphs (b)(1) and in paragraphs

(b)(2)(iv), (b)(2)(vi), (b)(2)(vii), (c)(2),

(c)(2)(ii), (c)(4), (c)(5), (d), (f) and (g) and

adding the word ‘‘Agency’’ in its place;

d. removing the reference to

‘‘1924.57(d)’’ in the last sentence of

paragraph (b)(5) and adding the

reference ‘‘1924.56’’ in its place;

e. removing the words ‘‘Farmer

Programs’’ in paragraph (c)(5) and

adding the words ‘‘Farm Credit

Programs’’ in its place; and

f. removing the words ‘‘Farmers Home

Administration’’ in paragraph (d)(2)(ii).

* * * * *

§ 1962.34 [Amended]

69. Section 1962.34 is amended by:

a. removing paragraphs (f) through

(h);

b. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’s’’ in paragraph (b)(1) and

adding the words ‘‘the Agency’s’’ in its

place;

c. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraphs (b)(2), (b)(4),

and (d), and the first word at the

beginning of the first sentence and the

second, fourth, and fifth sentences of

paragraph (b)(3) and adding the word

‘‘Agency’’ in its place;

d. removing the phrase ‘‘Form FmHA

or its successor agency under Public

Law 103–354 1964–13’’ in paragraph

(b)(3) and adding the words ‘‘Form

FmHA 1965–13’’ in its place;

e. removing the words ‘‘Farmer

Programs’’ in paragraphs (b)(3) and (d)

and adding the words ‘‘Farm Credit

Programs’’ in its place; and

f. by revising paragraph (e) to read as

follows:

§ 1962.34 Transfer of chattel security and

EO property and assumption of debts.

* * * * *

(e) Agency actions.

(1) Transfer to eligible applicant. The

Agency will determine the transferee’s

eligibility for the type of loan to be

assumed.

(2) Release from liability. If the total

outstanding debt is not assumed, the

Agency must make the following

determinations before it releases the

transferor from personal liability:

(i) The transferor and any cosigner do

not have reasonable ability to pay all or

a substantial part of the balance of the

debt not assumed after considering their

assets and income at the time of

transfer,

(ii) The transferor and any cosigner

have cooperated in good faith, used due

diligence to maintain the security

against loss, and have otherwise

fulfilled the covenants incident to the

loan to the best of their ability, and

(iii) The transferee will assume a

portion of the indebtedness at least

equal to the present market value of the

security.

* * * * *

§ 1962.40 [Amended]

70. Section 1962.40 is amended by:

a. adding the words ‘‘subpart A of’’

immediately preceding the reference

‘‘part 1965’’ in paragraph (c);

b. removing the word ‘‘insured’’ in the

heading of paragraph (d) and adding the

word ‘‘direct’’ in its place; removing the

words ‘‘an insured’’ in the first sentence

of paragraph (d) and adding the words

‘‘a direct’’ in its place; and by removing

the phrase ‘‘to FmHA or its successor

agency under Public Law 103–354’’ in

the first sentence of paragraph (d);

c. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’s’’ in the second sentence of

paragraph (d) and in paragraph (e)(1)

and adding the word ‘‘Government’s’’ in

its place;

d. removing all references to ‘‘FmHA

or its successor agency under Public

Law 103–354’’ in paragraphs (e)(1)(i)

and (e)(2) and adding the words ‘‘the

Agency’’ in their place; and

e. removing and reserving paragraph

(e)(4).

§ 1962.43 [Removed and Reserved]

71. In part 1962 § 1962.43 is removed

and reserved.

§ 1962.44 [Amended]

72. Section 1962.44 is amended by

removing and reserving paragraphs (a)

and (c); and by removing all references

to ‘‘FmHA or its successor agency under

Public Law 103–354’’ in paragraph (b)

and adding the words ‘‘the Agency’’ in

their place.

§ 1962.46 [Amended]

73. Section 1962.46 is amended by:

a. removing the words ‘‘an insured’’

in the fourth sentence of the

introductory text of paragraph (c) and

adding the words ‘‘a direct’’ in its place;

b. removing all references to ‘‘FmHA

or its successor agency under Public

Law 103–354’’ and adding the words

‘‘the Agency’’ in their place, and

c. by removing all references to

‘‘FmHA or its successor agency under

Public Law 103–354’s’’ in paragraphs (b)

through (d) and adding the words ‘‘the

Agency’s’’ in their place.

§ 1962.47 [Amended]

74. Section 1962.47 is amended:

a. by removing the words ‘‘an

insured’’ in the first sentence of

paragraph (b)(2)(iv) and adding the

words ‘‘a direct’’ in its place;

b. by removing references to ‘‘FmHA

or its successor agency under Public

Law 103–354’’ in paragraphs (a)(3)(i),

(b), introductory text, (b)(2)(i), (b)(2)(iv),

and (c) introductory text, and adding the

words ‘‘the Agency’’ in its place; and

c. by removing the phrase ‘‘or its

successor agency under Public Law

103–354 1965–14’’ in the first sentence

of paragraph (b)(2)(i).

Exhibit F of Subpart A—[Removed and

Reserved]

75. Exhibit F of Subpart A is removed

and reserved.

PART 1965—REAL PROPERTY

76. The authority citation for part

1965 is revised 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 Credit Program

Loans and Certain Note—Only Cases

§ 1965.13 [Amended]

77. Section 1965.13 is amended by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraph (f)(4)(ii) and

adding the words ‘‘FSA Farm Credit

Programs’’ in its place; and

b. removing the references to

‘‘§ 1924.57(c)(5)’’ and § 1924.57(b)’’ in

paragraphs (f)(4)(ii)(A) and (B) and

adding ‘‘§ 1924.56’’ in their place.

PART 1980—GENERAL

78. The authority citation for part

1980 is revised to read as follows:

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

U.S.C. 1480.
35932 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

Subpart B—Farm Credit Programs

Loans

§ 1980.101 [Amended]

79. Section 1980.101 is amended by:

a. removing the words ‘‘Farmers

Home Administration or its successor

agency under Public Law 103–354’’ in

the first sentence of paragraph (a);

b. removing all references to ‘‘FmHA

or its successor agency under Public

Law 103–354’’ in paragraphs (a) and (b)

and adding the word ‘‘Agency’’ in their

place;

c. adding and reserving paragraphs

(c)(1) and (c)(2);

d. removing the words ‘‘Farmer

Programs’’ in paragraphs (a) and (b) and

adding the words ‘‘Farm Credit

Programs’’ in its place;

e. removing the phrase ‘‘or its

successor agency under Public Law

103–354’’ in paragraph (e)(1), and

f. by revising paragraph (e)(2) to read

as follows:

§ 1980.101 Introduction.

* * * * *

(e) * * *

(2) Contract of Guarantee (Operating

Loans—Line of Credit only). Lenders

desiring a guarantee on a ‘‘line of

credit’’ will use the method contained

in subpart A of this part. Line of credit

loans are guaranteed in accordance with

Form FmHA 1980–27, ‘‘Contract of

Guarantee (Line of Credit).’’ Line of

credit notes and agreements may not be

sold by the originating lender, but the

originating lender may use participating

lenders in accordance with § 1980.119.

Any amount advanced by the lender in

excess of the line of credit ceiling set

forth in the contract is not guaranteed

by the Agency.

§ 1908.106 [Amended]

80. Section 1980.106(b) is amended

by:

a. removing the words ‘‘Farmer

Programs’’ in the definition of

‘‘Applicant’’ and adding the words

‘‘Farm Credit Programs’’ in its place;

b. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the definition of Approval

official and adding the word Agency in

its place; and

c. adding the definition of Agency

before the definition of Applicant.

* * * * *

Agency. Farm Service Agency, its

county and State committees and their

personnel, and any successor agency.

* * * * *

§ 1980.108 [Amended]

81. Section 1980.108 is amended by:

a. removing the phrases ‘‘FmHA or its

successor agency under Public Law

103–354’’ and ‘‘FmHA or its successor

agency under Public Law 103–354’s’’ in

paragraph (a)(1)(iii) and adding the

words ‘‘the Agency’’ and ‘‘the Agency’s’’

in their place respectively, and

b. by revising paragraphs (a)(1)(i) and

(a)(2)(i) to read as follows:

§ 1980.108 General provisions.

(a) * * *

(1) * * * (i) The lender is responsible

for seeing that security is obtained and

maintained to protect the interests of the

lender and the Agency.

* * * * *

(2) * * * (i) Guarantees of parent,

subsidiary, or affiliated companies may

be required. Guarantees will be required

in an amount which reasonably assures

repayment of the loan or line of credit

and provides sufficient security. If a

review of all credit factors indicates the

need for additional security, the lender

or the Agency may require additional

personal and corporate guarantees. The

lender or the Agency also may require

that such guarantees be secured.

* * * * *

82. Section 1980.109 is amended by

revising the introductory text of

paragraph (b) to read as follows:

§ 1980.109 Promissory notes, line of credit

agreements, security instruments, and

financing statements.

* * * * *

(b) Financing statements. Commercial

financing statement forms that comply

with state laws and regulations may be

used. If the financing statement does not

already contain the following

provisions, they must be inserted to

meet Agency requirements:

* * * * *

§ 1980.103 [Amended]

83. Section 1980.110 is amended by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the introductory text, in the

first and last sentences of paragraph (a),

the second time it appears in paragraph

(b) and in paragraph (c) and adding the

words ‘‘the Agency’’ and ‘‘The Agency’’

in their place;

b. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354 Instruction 440.1’’ in the last

sentence of paragraph (a) and adding the

words ‘‘FmHA Instruction 440.1’’ in its

place; and

c. by removing the phrase ‘‘Form

FmHA or its successor agency under

Public Law 103–354 1980–24’’ in

paragraph (b) and adding the words

‘‘Form FmHA 1980–24’’ in its place.

84. Section 1980.113 is amended by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ wherever it appears in the

introductory text and adding the word

‘‘Agency’’ in its place;

b. removing the phrase ‘‘or its

successor agency under Public Law

103–354’’ in paragraphs (a),

introductory text, (a)(1), (a)(2), (a)(5),

and (b), introductory text;

c. removing the words ‘‘cash flow’’ in

the third sentence in the introductory

text of paragraph (a)(7) and adding the

words ‘‘case file’’ in its place;

d. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraph (a)(7)(ii) and

adding the word ‘‘Agency’’ in its place;

e. removing the words ‘‘a disaster(s)’’

in the introductory text of paragraph

(a)(7)(ii)(D) and adding the word

‘‘disasters’’ in its place;

f. revising paragraphs (a)(6),

(a)(7)(i)(B), (a)(7)(ii)(B) and (C),

(a)(7)(ii)(D)(1), and (a)(11)(ii) and (iii);

and

g. adding new paragraphs (a)(12) and

(c) to read as follows:

§ 1980.113 Receiving and processing

applications.

* * * * *

(a) * * *

(6) Proposed loan agreement or line of

credit agreements between the applicant

and lender. Loan agreements or line of

credit agreements will address at least

the following:

(i) Improved management or

production practices to be implemented.

(ii) Requirements for accounting,

recordkeeping, and financial reporting.

(iii) Limitations on the purchase or

sale of capital assets.

(iv) Prohibitions against incurring

additional debt or cosigning for the

liabilities of others.

(v) Limits on family living expenses.

(vi) Insurance requirements and

collateral inspections.

(vii) Purposes for which loan or line

of credit funds can be used.

(viii) Interest rates and terms; how

and when the rate may fluctuate; term

of loan; and conditions related to the

repayment, renewal, etc., of loans with

balloon payments.

(ix) Credit ceiling, special limitations,

and conditions precedent to annual

readvancement or continuation of loans

or lines of credit.

(x) Limitations on salaries paid to

entity members, hired labor, or

consultants. Limitations on withdrawals

in the case of joint operations and

partnerships.

(7) * * *

(i) * * *
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations 35933

(B) Government loan rates, i.e., FSA

(formerly ASCS) target prices.

* * * * *

(ii) * * *

(B) For those farmers with less than a

5-year production or yield history, the

applicant’s available production history

will be utilized.

(C) For those farmers whose actual

history is insufficient to provide an

accurate estimate, consider the use of

FSA Farm Programs actual records for

specific farms, county averages, State

averages, university data, or any other

reliable sources of information that are

acceptable to the lender, applicant, and

the Agency.

(D) * * *

(1) County average yields will be used

for disaster years in developing an

historical base yield. If the applicant’s

disaster years are less than the county

average yields, county average yields

will be used for those years. If county

average yields are not available, State

average yields will be used. Once the

yield base has been established, plus or

minus adjustments may be made to

reflect production trends or changes that

will impact expected yields during the

projected farm budget period.

Adjustments can be made providing

there is factual evidence to demonstrate

that the yield used in the farm plan is

the most reliable.

* * * * *

(11) * * *

(ii) A current, personal balance sheet

from all members of a cooperative, joint

operators of a joint operation, partners

of a partnership, or stockholders of a

corporation. To be current, the balance

sheet must be no more than 90 days old

on the date that the application is

completed.

(iii) A current balance sheet of the

cooperative, corporation, partnership, or

joint operation.

* * * * *

(12) A concise narrative summary of

the following items:

(i) The agricultural and

nonagricultural enterprises comprising

the operation, including any proposed

to be added or dropped.

(ii) The real estate used in the

operation including significant planned

and existing improvements, significant

conservation practices in effect,

adequacy of facilities, external factors of

negative or positive impact.

(iii) Chattel property, including the

adequacy of machinery, equipment, and

foundation livestock to carry out the

existing or proposed operation.

(iv) The farm business organization

and key personnel. For example, the

legal business structure, roles, functions

and backgrounds of key individuals, the

accounting and record keeping system,

and agreements for transferring or

dissolving the business.

(v) Goals. The short-term and longterm business goals of the operation.

(vi) Historical financial data.

(vii) Planned changes. Changes to

overcome negative trends or other

aspects of the operation. Consider such

items as improved production

techniques or management practices.

* * * * *

(c) Market Placement applications.

This paragraph explains the

requirements for market placement

applications for lenders that have

expressed interest in financing or

refinancing specific direct loan

applicants described under § 1910.4 (c),

as well as for ‘‘commercial’’ or

‘‘standard’’ borrowers defined under

§ 1951.252. If more than one lender is

interested in providing financing, the

direct loan applicant or borrower will

rank the lenders in order of preference,

and the Agency will present the market

placement applications in that order. A

market placement application should be

ready for immediate acceptance by the

lender and approval by the Agency,

subject to the terms and conditions of

the Request for Obligation of Funds and

Conditional Commitment. The items

needed for a market placement

application are to be packaged by the

Agency and consist of the following:

(1) Form FmHA 1980–25 will be

prepared using estimated interest rates

and terms. All other items required,

with the exception of the loan or line of

credit agreement, for a complete

application under this section will be

attached. The lender will submit the

loan or line of credit agreement prior to

the Agency’s issuance of the

Conditional Commitment.

(2) Form FmHA 1940–3, ‘‘Request for

Obligation of Funds—Guaranteed

Loans.’’

85. Section 1980.114 is amended by:

a. removing the introductory text; by

removing and reserving paragraphs (a)

and (b);

b. by redesignating paragraphs (c) and

(d) as paragraphs (d) and (e),

respectively;

c. by removing and reserving the

ADMINISTRATIVE section;

d. by revising the section heading;

e. by removing and reserving the

redesignated paragraph (d); by revising

redesignated paragraph (e); and by

adding a new paragraph (c) to read as

follows:

§ 1980.114 Evaluation and assessment of

applications.

* * * * *

(c) Agency analysis of complete

application. In addition to other

applicable requirements under this part,

an application for a guarantee must

meet the following conditions:

(1) The proposed loan or line of credit

is for authorized purposes, and the

amounts of borrowed capital are

appropriate to successfully carry on the

agricultural operation.

(2) The operation’s capital position is

adequate taking its strengths and

weaknesses into consideration.

(3) The applicant has adequate

repayment ability and has a reasonable

chance of securing non-guaranteed

commercial credit for the operation in

the future. Developing an acceptable

farm plan is the responsibility of the

lender and its borrower.

(4) Security is adequate, values are

reasonable, and loan terms are

consistent with the useful life of the

security and Agency regulations.

(5) The projected budget is reasonable

in light of the applicant’s stated goals.

* * * * *

(e) Indication of acceptability. If the

Agency’s evaluation indicates that the

guarantee may be approved, the Agency

will consider the guarantee request for

eligibility.

§ 1980.115 [Amended]

86. Section 1980.115 is amended by:

a. revising the heading to read

‘‘Eligibility review.’’;

b. removing paragraphs (a) through (d)

and the ADMINISTRATIVE section;

c. removing all references in the

introductory text to ‘‘County

Committee’’ and adding the word

‘‘Agency,’’ in their place; and

d. by removing the reference to

‘‘FmHA or its successor agency under

Public Law 103–354’’ in the

introductory text.

§ 1980.125 [Amended]

87. Section 1980.125 is amended by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraphs (a),

introductory text, (b)(3), (c) introductory

text, (d)(5), and in the seventh and

eighth lines of paragraph (d)(4) and

adding the words ‘‘the Agency’’ in its

place; and

b. by removing the phrase ‘‘or its

successor agency under Public Law

103–354’’ from paragraphs (b)(1)(i),

(c)(4), (d)(3), (d)(6) and in the second

and third lines of paragraph (d)(4).

§ 1980.126 [Amended]

88. Section 1980.126 is amended by

removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the last sentence and
35934 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules and Regulations

adding the words ‘‘the Agency’’ in its

place.

§ 1980.129 [Amended]

89. Section 1980.129 is amended by:

a. removing the ADMINISTRATIVE

section;

b. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraph (a) and adding

the words ‘‘the Agency’’ in its place;

and

c. revising the introductory text to

read as follows:

§ 1980.129 Planning and performing

development.

The lender is responsible for seeing

that any buildings or other

improvements or major land

development to be paid for with loan

funds are properly completed within a

reasonable period of time. The lender is

responsible for perfecting the required

lien in the security, which includes

ensuring that the security property is

free of any mechanic’s, materialmen’s,

or other liens which would affect lien

priority. All major construction, major

repairs, and major land development

must be performed by qualified parties

under conditions considered standard

and prudent by commercial lenders and

their financial regulators. Form FmHA

449–11, ‘‘Certificate of Acquisition or

Construction,’’ must be completed and

submitted to the Agency. In connection

with construction, the lender is

responsible for:

* * * * *

§ 1980.130 [Amended]

90. Section 1980.130 is amended by

removing the ADMINISTRATIVE

section.

§ 1980.136 [Amended]

91. Section 1980.136 is amended by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraphs (a) and (b) and

adding the words ‘‘The Agency’s’’ and

‘‘Agency’’ respectively in their place;

and

b. by removing the word

‘‘instrument(s)’’ in paragraph (d) and

adding the word ‘‘instruments’’ in its

place.

§§ 1980.148, 1980.149 and 1980.153

[Removed and Reserved]

92. In Part 1980 §§ 1980.148,

1980.149, and 1980.153 are removed

and reserved.

§ 1980.175 [Amended]

93. Section 1980.175(b) is amended

by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in the introductory text and

adding the word ‘‘Agency’’ in its place

the first time it appears and to read

‘‘FmHA’’ the second time it appears and

to read ‘‘Agency’’ in paragraph (b)(1)(i);

b. removing the reference to

‘‘§ 1980.106(b)(21)’’ in the first sentence

of paragraph (b)(1)(i) and adding the

reference to ‘‘§ 1980.106(b)’’ in its place.

Exhibit A of Subpart B—[Amended]

94. Exhibit A of subpart B is amended

by:

a. removing the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’’ in paragraph III.A and adding

the words ‘‘the Agency’’ in its place in

the next to last sentence and to remove

the phrase ‘‘or its successor agency

under Public Law 103–354’’ everywhere

else it appears in that paragraph;

b. removing the phrase ‘‘or its

successor agency under Public Law

103–354’’ in paragraph III.C; and

c. by revising paragraph IV to read as

follows:

IV. Agency Actions. The Agency will

complete the evaluation described in

§ 1980.114 in any case where the

approval official determines an

independent analysis is needed before

approval or denial of a request for

guarantee. The Agency may request

additional information, review the

lender’s ‘‘complete application’’ file or

make an independent evaluation of the

application, if needed, to determine

whether the applicant is eligible, the

loan or line of credit is for authorized

purposes, there is reasonable assurance

of repayment ability, and sufficient

collateral and equity is available. The

Agency will make the final

determinations on the eligibility of

applicants for a guaranteed OL loan or

line of credit, an SW loan, or FO loan,

and the purposes and terms of such

loans or lines of credit.

A. [Reserved].

B. [Reserved].

Each approved lender who currently

has an Approved Lender Agreement

executed prior to January 6, 1988, will

be required to execute a new Approved

Lender Agreement. If liquidation of the

account becomes imminent, the Lender

will consider the borrower for Interest

Assistance and request a determination

of the borrower’s eligibility by the

Agency. The lender may not initiate

foreclosure action on the loan until 60

days after a determination has been

made on the borrower’s eligibility to

participate in the Interest Assistance

Program.

* * * * *

Signed at Washington, DC, on July 2, 1996.

Eugene Moos,

Under Secretary for Farm and Foreign

Agricultural Services.

Jill Long Thompson,

Under Secretary for Rural Development.

[FR Doc. 96–17266 Filed 7–8–96; 8:45 am]

BILLING CODE 3410–05–P

DEPARTMENT OF JUSTICE

Immigration and Naturalization Service

8 CFR Part 214

[INS No. 1765–96]

RIN 1115–AE40

Adding Oakland, California, and

Sanford, Florida, to the List of Ports of

Entry Accepting Applications for Direct

Transit Without Visa

AGENCY: Immigration and Naturalization

Service, Justice.

ACTION: Final rule.

SUMMARY: This rule amends the

Immigration and Naturalization Service

(the Service) regulations by adding

Oakland, California, and Sanford,

Florida, to the list of ports of entry

where, except for transit from one part

of foreign contiguous territory to

another part of the same territory, an

alien must make application for

admission to the United States for direct

transit without visa. This change is

necessary to accommodate the increase

in international commerce service

Oakland, California, and Sanford,

Florida.

EFFECTIVE DATE: July 9, 1996.

FOR FURTHER INFORMATION CONTACT:

Robert F. Hutnick, Assistant Chief

Inspector, Immigration and

Naturalization Service, 425 I Street,

NW., Room 7228, Washington, DC

20536, telephone number (202) 616–

7499.

SUPPLEMENTARY INFORMATION: This final

rule adds Oakland, California, and

Sanford, Florida, to 8 CFR 214.2(c)(1) as

ports of entry where, except for transit

from one part of foreign contiguous

territory to another part of the same

territory, application for direct transit

without visa must be made. The

Orlando Sanford Airport in Sanford,

Florida, will be adding additional

international passenger service,

specifically arrivals transiting between

the United Kingdom and Mexico. By

allowing this airport to accept

applications for direct transit without

visa, the Orlando Sanford Airport will

be able to accommodate these transit air