Disaster Set-Aside Program

DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Part 1951

RIN 0575-AB85

Disaster Set-Aside Program

AGENCY: Farmers Home Administration, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Farmers Home Administration (FmHA) amends its Farmer

Programs servicing regulations by adding the Disaster Set-Aside (DSA)

Program. This program will be made available to Farmer Program

borrowers who operated a farm or ranch in a county where a disaster

occurred in 1993 and was declared/designated a disaster area in

accordance with FmHA regulations. Under this program, the distressed

borrower will have the opportunity to move the next scheduled FmHA

annual installment to the end of the loan term. The intended effect is

to service disaster victims in an efficient and timely manner while

keeping them in business.

DATES: Interim final rule effective October 21, 1994. Written comments

must be submitted on or before November 21, 1994.

ADDRESSES: Submit written comments, in duplicate, to the Office of the

Chief, Regulations Analysis and Control Branch, FmHA, USDA, Room 6348-

S, 14th Street and Independence Avenue, SW., Washington, DC 20250. All

written comments will be available for public inspection during regular

working hours at the above address.

FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Loan Officer,

Farmer Programs Loan Servicing Division, Farmers Home Administration,

U.S. Department of Agriculture, South Building, 14th Street and

Independence Avenue, SW., Washington, DC 20250, Telephone (202) 720-

4572.

SUPPLEMENTARY INFORMATION:

Classification

This rule has been determined to be not significant for purposes of

Executive Order 12866 and therefore has not been reviewed by OMB.

Intergovernmental Consultation

For the reasons set forth in the final rule related to Notice 7

CFR, part 3015, subpart V (48 FR 29115, June 24, 1983), and FmHA

Instruction 1940-J, ``Intergovernmental Review of FmHA Programs and

Activities'' (December 23, 1983), Emergency Loans, Farm Ownership

Loans, and Farm Operating Loans are excluded, with the exception of

nonfarm enterprise activity, from the scope of Executive Order 12372,

which requires intergovernmental consultation with State and local

officials. The Soil and Water Loan Program, however, is subject to the

provisions of Executive Order 12372.

Programs Affected

These changes affect the following FmHA programs, as listed in the

Catalog of Federal Domestic Assistance:

10.404--Emergency Loans

10.406--Farm Operating Loans

10.407--Farm Ownership Loans

10.410--Low Income Housing 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.'' FmHA has determined that

this action does not constitute a major Federal action significantly

affecting 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.

Civil Justice Reform

This document has been reviewed in accordance with Executive Order

(E.O.) 12778. It is the determination of FmHA that this action does not

unduly burden the Federal Court System in that it meets all applicable

standards provided in section 2 of the E.O.

Paperwork Reduction Act

The information collection 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 number [0575-0163] in accordance with the

Paperwork Reduction Act of 1980 (44 U.S.C. 3507). The interim final

rule does not revise or impose any new information collection or

recordkeeping requirements from those approved by OMB.

Discussion of Interim Final Rule

FmHA has chosen to publish this regulation as an interim final rule

without first publishing a proposed rule due to the nature of the

program and the eligibility requirements involved. Eighty percent of

the 3,151 counties serviced by FmHA were declared disaster areas in

1993. Due to heavy flooding in the midwest and extreme droughts in the

South, considerably more borrowers were affected by disasters in 1993

than in any of the previous five years. This program will also help

those borrowers who are affected by the 1994 flood disaster in the

South if they were also affected by the previous disasters in 1993.

FmHA is considering extending this program in the future to assist

borrowers affected only by the 1994 disaster. In order to prevent

massive delinquencies and farm failures, borrowers in a crisis

situation must receive immediate financial assistance.

It is for this purpose and by the authority granted the Secretary

under the Consolidated Farm and Rural Development Act (CONACT), section

331A (7 U.S.C. 1981a), FmHA has made available the Disaster Set-Aside

Program. As provided in section 331A, the Secretary has the authority

to defer principal and interest at the request of the borrower on any

outstanding loan made, insured, or held by the Secretary under the

CONACT, subject to the borrower showing that due to circumstances

beyond his/her control, he/she is temporarily unable to continue making

payments when due without unduly impairing his/her standard of living.

The set-aside program is designed to assist borrowers in financial

distress who operated a farm or ranch in a county where a disaster

occurred in 1993 and was declared/designated a disaster area as set

forth in subpart A of part 1945 of this chapter.

Under this program, farmer programs borrowers can receive immediate

financial relief from their FmHA payment obligations in a more

expedient manner than under subpart S of part 1951. For example, the

application process is simple and easy, unlike the primary loan

servicing application under subpart S of part 1951 which requires

extensive documentation by both the borrower and the servicing

official. There are no additional security requirements to deter the

borrower from requesting debt set-aside. On the average, the borrower's

installments can be set-aside the same day he/she makes the request,

whereas under subpart S of part 1951, it takes an average of 90 days to

process an application and restructure a loan.

To comply with the statute, the borrower must be temporarily unable

to make the payment being set-aside because of circumstances beyond

his/her control. This is demonstrated by requiring that the borrower

must have operated a farm or ranch during 1993 in which a disaster

occurred and the county was declared/designated a disaster area, or a

contiguous county, as set forth in subpart A of part 1945 of this

chapter; that the borrower be current or not more than 1 installment

behind on any and all farmer program loans, which would assure that all

payments prior to the disaster were paid or the loan restructured; that

if no other payments have been due on the loan, the projected farm plan

for the disaster year shows that the payment could have been paid under

normal conditions; and that the borrower's actual records for the

disaster year must show that, because of the disaster, the borrower's

projected income was reduced to an amount that would prevent payment of

all family living and operating expenses and paying amounts due FmHA

and/or other creditors.

FmHA projects that approximately 60,000 borrowers affected by 1993

disasters will request assistance under the set-aside program. Of these

borrowers, the majority have installments that came due January 1,

1994. If these installments are not paid by January 1, 1995, or

otherwise set-aside, the borrower will be two installments behind and

will no longer be eligible to receive disaster set-aside assistance.

Borrowers more than one payment behind will be able to receive more

assistance through FmHA's loan servicing program under subpart S of

part 1951 of this chapter than through the debt set-aside program.

However, borrowers who cannot obtain servicing through subpart S of

part 1951 of this chapter may be able to cure their delinquency with

set-aside assistance alone. The set-aside program will be better for

some borrowers than servicing through subpart S of part 1951 of this

chapter since the set-aside will be a faster process, eligibility

requirements are easier to meet, paperwork is less, and some borrowers'

financial distress can be resolved with only one payment deferred. The

program will allow some borrowers to use sources other than FmHA to

maintain their farm operation and allow them to work out their

financial difficulty over the next year or so. Other borrowers may

prefer to use the year to voluntarily liquidate. This regulation will,

therefore, provide options to prevent the foreclosure of borrowers in

both of these instances. However, borrowers who are not eligible for

the DSA program, or who need more extensive servicing, will still have

the opportunity to be considered for FmHA's primary loan servicing

program as set forth in subpart S of part 1951 of this chapter.

The set-aside program allows eligible borrowers to move one FmHA

annual installment for each loan to the end of the loan term, thereby

quickly eliminating the immediate financial stress. The installment

set-aside may be the one due immediately after the disaster or, if that

installment is paid to the neglect of other creditors or family living

and operating expenses, then the next scheduled installment may be set-

aside. Borrowers who received primary loan servicing after the disaster

will not be eligible for the disaster set-aside, as restructuring of

the account already resolved the financial distress for the current and

next production/marketing period. Borrowers whose farmer program loans

have been accelerated will also not be eligible for disaster set-aside

as their financial situation is much more severe than the borrower who

is only one installment behind. These type of borrowers have already

been processed through 1951-S primary and preacquisition preservation

loan servicing resulting in no servicing granted. The disaster set-

aside program cannot offer more favorable options than those provided

in subpart S of part 1951.

Based on past experience, the Agency has found that a borrower

needs a minimum of one to two years to recover from a disaster.

Therefore, in order for an installment to be set-aside, the term

remaining on the loan must equal or exceed two years from the date on

which the installment set-aside was due. This requirement automatically

eliminates all one-year loans and any loans that will mature in less

than two years. Borrowers with less than two years remaining on the

loan will receive greater benefit from the servicing options available

under subpart S of part 1951 of this chapter as restructuring could

possibly provide longer repayment terms for the entire debt.

The set-aside amount will include unpaid interest and any principal

that would be credited to the borrower's account as if the payment were

paid on the due date. This amount will not exceed the annual scheduled

installment being set-aside minus any portion of the installment paid

prior to the set-aside addendum being signed. The unpaid interest is

set-aside in order that the remaining amortized installments can be

credited properly to principal and interest. Interest will continue to

accrue on any principal amount set-aside at the same rate charged on

the non-set-aside portion of the note. The amount set-aside, including

interest accrual on any principal set-aside, will be due on or before

the final due date of the loan. The interest amount set-aside will not

accrue interest, as permitted by section 331A of the CONACT.

Borrowers who apply for both set-aside and 1951-S servicing, must

choose which program they wish to accept. Borrowers cannot choose both

because the options are overlapping servicing tools geared toward

borrower financial stability. The program not chosen will automatically

be withdrawn once the borrower either signs the set-aside addendum or

the promissory note(s) restructured under 1951-S, whichever is

applicable. This assures the borrower's eligibility for the program

chosen prior to the other request being withdrawn. If the set-aside

program is chosen and any 1951-S request is withdrawn, the borrower

will not lose any future servicing rights under subpart S of part 1951

of this chapter. The borrower may re-apply for 1951-S servicing at any

time after the set-aside addendum is signed. However, if a borrower is

offered servicing under subpart S of part 1951 of this chapter while

waiting for notice of eligibility for the set-aside and the time limits

for 1951-S servicing expire without timely response by the borrower,

the borrower will lose the rights to 1951-S servicing.

The Agency anticipates that circumstances may arise beyond the

borrower's control that could warrant restructuring the debt prior to

the next scheduled installment coming due. In these cases, since the

set-aside brings the account current, the borrower may be considered

for a writedown or net recovery buyout as set forth in subpart S of

part 1951 and/or granted assistance in accordance with Sec. 1941.14 of

subpart A of part 1941 of this chapter only if the set-aside is

reversed and the addendum cancelled. If the set-aside is reversed, the

account will reflect the current payment status as if the payment had

never been set-aside.

In the case of entity borrowers, all members of the entity liable

for the debt must apply for set-aside in order for FmHA to consider the

application. This procedure is consistent with that under subpart S of

part 1951.

The set-aside program will be available only until July 1, 1995.

This timeframe will provide those borrowers who have already made their

payment that was due after the disaster ample time to determine if the

loss they incurred from the disaster will affect their repayment

ability for the following year.

List of Subjects in 7 CFR Part 1951

Account servicing, Credit, Loan programs--Agriculture, Loan

programs--Housing and community development, Low and moderate income

housing loans--Servicing, Debt restructuring.

Accordingly, part 1951, Chapter XVIII, title 7, Code of Federal

Regulations is amended as follows:

PART 1951--SERVICING AND COLLECTIONS

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

follows:

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

2.23 and 2.70.

2. Subpart T of part 1951, consisting of Secs. 1951.951 through

1951.1000, is added to read as follows:

Subpart T--Disaster Set-Aside Program

Sec.

1951.951 Purpose.

1951.952 General.

1951.953 Notification and request for DSA.

1951.954-1951.956 [Reserved]

1951.957 Eligibility determination and processing.

1951.958 Supervision and servicing of borrowers with DSA.

1951.959 Exception authority.

1951.960-1951.999 [Reserved]

1951.1000 OMB control number.

Subpart T--Disaster Set-Aside Program

Sec. 1951.951 Purpose.

This subpart sets forth the policies and procedures for

establishing and implementing the Disaster Set-Aside (DSA) Program. The

DSA program is available to Farmer Programs (FP) borrowers, as defined

in subpart S of this part, who suffered losses as a result of a 1993

disaster. FP loans that may be serviced under this subpart include Farm

Ownership (FO), Operating (OL), Soil and Water (SW), Emergency (EM),

Economic Emergency (EE), Special Livestock (SL), Economic Opportunity

(EO), Softwood Timber (ST), Recreation (RL), and Rural Housing loans

for farm service buildings (RHF). Nonprogram (NP) farm type loans may

be serviced under this subpart for borrowers who also have FP loans. FP

borrowers have until July 1, 1995, to request disaster set-aside and

submit a complete application. Partial applications will not be

acceptable. Requests received after July 1, 1995, will not be accepted.

Sec. 1951.952 General.

DSA is a program whereby borrowers who are current or not more than

one installment behind on any and all FP loans may be permitted to move

one Farmers Home Administration (FmHA) scheduled annual installment(s)

for each eligible FP loan to the end of the loan term. The intent of

this program is to relieve some of the borrower's immediate financial

stress caused by the disaster and avoid foreclosure by the Government.

Sec. 1951.953 Notification and request for DSA.

(a) Notification. The County Supervisor will use Form Letter 1951-

T-1 to notify FP borrowers of the availability of the DSA program and

how to apply. All FP borrowers, as defined in Sec. 1951.906 of subpart

S of this part, who have not been accelerated and who operated a farm

or ranch in a county during 1993 in which a disaster occurred and was

declared/designated as a disaster area or contiguous county, as set

forth in subpart A of part 1945 of this chapter, will be notified

within 10 days of the effective date of this subpart. However, those

borrowers whose FP loan(s) has been accelerated, or restructured after

a 1993 disaster, will not be notified under this paragraph.

Notification of the DSA program will not affect the notification

requirements set forth in subpart S of this part.

(b) Request for DSA. All FP borrower liable for the debt must

provide the County Office with the information described in paragraphs

(b) (1) and (2) of this section on or before July 1, 1995 to request

DSA. Borrowers may only be considered for DSA one time.

(1) A written request for DSA signed by all parties liable for the

debt, and

(2) Actual production, income, and expense figures for the

production/marketing period in which the 1993 disaster occurred, unless

this information is already in the borrower case file.

(c) Eligibility requirements. The County Supervisor will determine

whether the borrower meets the following eligibility requirements:

(1) The borrower's FP loan(s) has not been accelerated.

(2) The borrower operated a farm or ranch in a county declared/

designated a disaster area as set forth in subpart A of part 1945 of

this chapter or a county contiguous to such an area based on a 1993

disaster. The borrower must have been operating the farm or ranch at

the time of the disaster.

(3) The borrower has acted in good faith as defined in

Sec. 1951.906 of subpart S of this part.

(4) All nonmonetary defaults have been resolved. This means that

even though the borrower has acted in good faith, he/she may still be

in default for reasons, such as, but not limited to: no longer farming,

prior lienholder foreclosure, bankruptcy, not properly maintaining

chattel and real estate security, not properly accounting for the sale

of security as agreed, or not

carrying out any other agreements made with FmHA.

(5) The borrower is current or not more than one installment behind

on any and all FP loans at the time the scheduled installment(s) will

be set-aside as reflected on the Finance Office 540 or 582 status

reports.

(6) The borrower's projected income for the disaster year was

reduced as a result of the disaster, causing insufficient income

available to pay all family living and operating expenses, debts to

other creditors, and FmHA. This determination will be based on the

borrower's actual production and income and expense records for the

disaster year.

(7) The term remaining on the loan(s) receiving DSA equals or

exceeds 2 years from the due date of the installment being set-aside.

(8) All FP and NP farm type loans will be current after the

scheduled installments are set-aside.

(9) The borrower's FP loan(s) was not restructured under subpart S

of this part after the 1993 disaster.

Secs. 1951.954-1951.956 [Reserved]

Sec. 1951.957 Eligibility determination and processing.

(a) Eligibility determination. Upon receipt of a DSA request, the

County Supervisor will determine whether the borrower meets the

eligibility requirements set forth in Sec. 1951.953(c) of this subpart

and notify the borrower of the results within 30 days from the date of

the DSA request. The file shall contain documentation to reflect the

date of request and the date the borrower was notified and the addendum

signed.

(1) The borrower shall be provided up to 30 days to sign Exhibit A

of this subpart, (available in any FmHA Office). If Exhibit A is not

signed within 30 days and prior to the borrower becoming more than one

installment behind, the DSA request will be withdrawn and the borrower

notified of their rights to an appeal review in accordance with subpart

B of part 1900 of this chapter. Note: If borrower becomes more than one

installment behind, he/she is no longer eligible.

(2) Pending requests for primary loan servicing will continue to be

considered as set forth in subpart S of this part. However, borrowers

cannot accept servicing under both programs.

(i) Borrowers determined eligible for the DSA program and primary

loan servicing in accordance with subpart S of this part will be

required to choose between the two program requests. The choice will be

noted in the borrower case file and initialed by the borrower.

(ii) Borrowers may choose to proceed with the DSA program prior to

a decision being made for primary loan servicing such as in cases where

a decision will not be available on the primary loan servicing

application prior to the borrower becoming more than one installment

behind.

(iii) The application for the program not chosen will automatically

be withdrawn at the time the installment(s) is set-aside or the loan(s)

restructured, whichever is applicable. This voluntary withdrawal is not

appealable.

(iv) By signing Exhibit A of this subpart, (available in any FmHA

Office), the borrower agrees to the withdrawal of any pending request

for primary loan servicing. The borrower may resubmit a request at any

time according to subpart S of this part.

(b) Processing. Installments will be set-aside as set forth in this

paragraph.

(1) All borrowers liable for the debt will sign Exhibit A of this

subpart, (available in any FmHA Office), for each loan installment set-

aside. Exhibit A may be modified with the assistance of the Office of

the General Counsel to comply with individual State laws.

(2) Only one unpaid installment for each FP loan may be set-aside.

(i) The installment set-aside will be the first scheduled annual

installment due immediately after the disaster occurred, or if that

installment is paid current, the next scheduled annual installment.

Set-aside will not be granted on the loan if both of these installments

are paid current.

(ii) The amount set-aside will not exceed the annual scheduled

installment being set-aside minus any portion of that installment paid

prior to Exhibit A of this subpart, (available in any FmHA Office),

being signed by the borrower. This amount will include the unpaid

interest and any principal that would be credited to the account as if

the installment were paid on the due date.

(iii) Recoverable cost items charged to FO, SW, and RHF loans may

be set-aside with the annual installment. Cost items identified with a

loan number different from the parent loan cannot be set-aside.

(3) Interest will accrue on any principal amount set-aside at the

same rate charged the non-set-aside portion. Interest will not accrue

on the interest portion set-aside.

(4) The amount set-aside, including interest accrual on any

principal set-aside, will be due on or before the final due date of the

loan.

(5) There are no additional security requirements attached to the

DSA program. All existing security instruments will remain in effect.

(6) The original Exhibit A of this subpart, (available in any FmHA

Office), will be stapled to the respective original promissory note or

assumption agreement filed in the County Office operational file. A

copy will be stapled to the copy of the promissory note or assumption

agreement filed in position 2 of the borrower's case file.

(7) Exhibit A of this subpart, (available in any FmHA Office), will

be used as the source document to process the DSA through the Automated

Discrepancy Processing System (ADPS). Until automation capabilities are

implemented, Exhibit A should be placed in a pending file and the

borrower's account flagged ``51-S.'' The Finance Office borrower

account status reports will reflect the amount(s) set-aside for each

loan.

(8) The National Automated Tracking System (AGCREDIT) will be

utilized to document the notification and servicing scheme associated

with this subpart.

(9) The loan(s) will be considered current after the installment(s)

is set-aside and, therefore, debt writedown or net recovery buyout may

not be subsequently approved under subpart S of this part, and loans

may not be made under Sec. 1941.14 of subpart A of part 1941 of this

chapter, unless the set-aside is reversed as set forth in

Sec. 1951.958(b)(2) of this subpart or the borrower becomes delinquent

on the non-set-aside portion.

(c) Adverse determination. Borrowers who do not meet the

requirements for the DSA program will be notified of their appeal

rights in accordance with subpart B of part 1900 of this chapter. If

the borrower becomes more than one installment behind on any FP loan

while processing the DSA request, or while an appeal is being

considered, and the second installment cannot be paid current prior to

Exhibit A of this subpart, (available in any FmHA Office), being

signed, the DSA request will be denied and/or any associated appeal

request withdrawn. Being denied set-aside based on the failure to meet

the not-more-than-one-installment-behind requirement is not an

appealable issue, but is reviewable. The letter to the borrower will

describe in full detail all the reasons for the adverse decision.

Borrowers denied DSA will continue to be serviced in accordance with

subpart S of this part.

Sec. 1951.958 Supervision and servicing of borrowers with DSA.

(a) Supervision. Borrower supervision will continue as set forth in

subpart B of part 1924 of this chapter.

(b) Servicing. FP loans will continue to be serviced in accordance

with the appropriate servicing regulations.

(1) Payments applied to the amount set-aside will be processed as a

miscellaneous payment on Form FmHA 451-2, ``Schedule of Remittances.''

(2) The set-aside will be reversed and Exhibit A of this subpart,

(available in any FmHA Office), cancelled if, prior to the first

scheduled installment due date after set-aside, the current borrower

needs a writedown in order to develop a feasible plan or a net recovery

buyout in accordance with subpart S of this part or loan assistance set

forth in Sec. 1941.14 of subpart A of part 1941 of this chapter. The

Finance Office must be notified by memorandum of the set-aside reversal

prior to the time assistance is granted. A copy of the memorandum will

be attached to Exhibit A and remain stapled to the promissory note or

assumption agreement as indicated in Sec. 1951.957(b)(6) of this

subpart.

(3) In cases not covered by paragraph (b)(2) of this section, the

set-aside will be considered automatically cancelled whenever a program

loan receives primary loan servicing.

(4) Releases of normal income security will continue as set forth

in subpart A of part 1962 of this chapter.

Sec. 1951.959 Exception authority.

The Administrator may, in individual cases, make an exception to

any requirement or provision of this subpart or address any omission of

this subpart which is not inconsistent with the authorizing statute or

other applicable law if it is determined that application of the

requirement or provision or failure to take action in the case of an

omission would adversely affect the Government's interest. The

Administrator will exercise this authority upon the request of the

State Director with the recommendation of the Assistant Administrator

for Farmer Programs, or upon request initiated by the Assistant

Administrator for Farmer Programs. Requests for exception must be made

in writing and supported with documentation to explain the adverse

effect and proposed alternative courses of action, and to show how the

adverse effect will be eliminated or minimized if the exception is

granted.

Secs. 1951.960-1951.999 [Reserved]

Sec. 1951.1000 OMB control number.

The collection of information requirements in this regulation have

been approved by the Office of Management and Budget and assigned OMB

control number 0575-0163. Public reporting burden for this collection

of information is estimated to be 15 minutes per response, including

time for reviewing instructions, searching existing data sources,

gathering and maintaining the data needed, and completing and reviewing

the collection of information. Send comments regarding this burden

estimate or any other aspect of this collection of information,

including suggestions for reducing this burden, to Department of

Agriculture, Clearance Office OIRM, Room 404-W, Washington D.C. 20250;

and to the Office of Management and Budget, Paperwork Reduction Project

(OMB# 0575-0163), Washington, D.C. 20503.

Dated: August 26, 1994.

Bob Nash,

Under Secretary, Small Community and Rural Development.

[FR Doc. 94-26160 Filed 10-20-94; 8:45 am]

BILLING CODE 3410-07-U