Disaster Set-Aside ProgramSecond Installment Set-Aside

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1951

RIN 0560-AE98

Disaster Set-Aside Program--Second Installment Set-Aside

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,

Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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

SUMMARY: The Farm Service Agency (FSA) is amending the disaster set-

aside program requirements to allow a second installment to be set-

aside for borrowers affected by a natural disaster in a county declared

a major disaster or emergency by the President between January 1, 1997

and August 1, 1997. The impact of these provisions will allow the

agency to service disaster victims in an efficient and timely manner

while keeping them in business.

DATES: Effective August 1, 1997. Comments must be submitted by

September 30, 1997.

ADDRESSES: Submit written comments to Director, Farm Loan Programs Loan

Servicing and Property Management Division, United States Department of

Agriculture, Farm Service Agency, STOP 0523, 1400 Independence Avenue,

SW, Washington DC 20250-0523.

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

Officer, Farm Service Agency, U.S. Department of Agriculture, Stop

0523, 1400 Independence Avenue, SW, Washington, D.C. 20250-0523;

Telephone: 202-720-1659; Facsimile: 202-690-0949, e-mail:

[email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

The issuing agencies certify that this rule will not have a

significant impact on a substantial number of small entities as defined

in the Regulatory Flexibility Act, Pub. L. 96-534, as amended (5 U.S.C.

601). Amendments included in this rule will not impact small entities

to a greater extent than large entities or individual farm borrowers.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940,

subpart G, ``Environmental Program.'' The issuing agencies have

determined that this action does not significantly affect the quality

of human environment, and in accordance with the National Environmental

Policy Act of 1969, Pub. L. 91-190, an Environmental Impact Statement

is not required.

Executive Order 12988

This interim rule has been reviewed under Executive Order 12988,

Civil Justice Reform. In accordance with this rule: (1) All State and

local laws and regulations that are in conflict with this rule will be

preempted; (2) no retroactive effect will be given to this rule; (3)

administrative proceedings in accordance with 7 CFR parts 11 and 780

must be exhausted before bringing suit in court challenging action

taken under this rule.

Executive Order 12372

For reasons set forth in the notice to 7 CFR part 3015, subpart V

(48 FR 29115, June 24, 1983), the programs within this rule are

excluded from the scope of Executive Order 12372, which requires

intergovernmental consultation with State and local officials.

The Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.

L. 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local and tribal

governments and the private sector of $100 million or more in any 1

year. When such a statement is needed for a rule, section 205 of the

UMRA, FSA generally must prepare a written statement, including a cost-

benefit analysis, for proposed and final rules with ``Federal

mandates'' that may result in expenditures to State, local, or tribal

governments, in the aggregate, or to the private sector. When such a

statement is needed for a rule, section 205 of the UMRA generally

requires FSA to identify and consider a reasonable number of regulatory

alternatives and adopt the least costly, more cost-effective or least

burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under regulatory provisions

of Title II of the UMRA) for State, local, and tribal governments or

the private sector. Thus, this rule is not subject to the requirements

of sections 202 and 205 of the UMRA.

Paperwork Reduction Act of 1995

The information collection requirements contained in these

regulations were previously approved by OMB pursuant to the Paperwork

Reduction Act of 1995 (44 U.S.C. chapter 35) under OMB control number

0560-0164 through August 31, 1998. The amendments set forth in this

interim rule do not contain additional information collections that

require clearance by the OMB under the provisions of 44. U.S.C. chapter

35.

Federal Assistance Programs

10.404--Emergency Loans

10.406--Farm Operating Loans

10.407--Farm Ownership Loans

10.416--Soil and Water Loans

Discussion of the Interim Rule

FSA publishes this amendment to subpart T of part 1951 without

prior notice and comment because of the emergency nature of the program

and the eligibility requirements involved. Publication as a proposed

rule for notice and comment is impractical and contrary to the public

interest. The Disaster Set-Aside (DSA) program was first made available

to FSA Farm Loan Programs (FLP) borrowers beginning October 21, 1994,

because of the heavy flooding in the Midwest and extreme

[[Page 41252]]

drought in the South. Since that time, approximately 12,000 borrowers

have received DSA assistance. The overall success of the program can be

attributed to the small amount of paperwork required in applying and

processing DSA requests. DSA gives FLP borrowers a chance to recover

from their losses without having to incur additional debt to pay

creditors or liquidate essential assets. The cost to the government is

substantially less under this servicing program than any other

servicing program as no debt is written off, no appraisal costs are

incurred as under subpart S of part 1951, and no liquidation costs are

incurred.

Many of the borrowers who received DSA in 1994 and 1995 were again

affected by heavy snowfall and flooding in the Midwest during the

beginning months of 1997. The President has declared the majority of

North Dakota, South Dakota, and Minnesota as a disaster area. Many of

these borrowers have received a previous writedown of debt under

subpart S of part 1951, thereby making them ineligible for additional

writeoffs or emergency loans as a result of Sec. 373 of the

Consolidated Farm and Rural Development Act. The expansion of the

program to permit a second debt set-aside, therefore, is needed

immediately to benefit these disaster victims. While there is

justification for the rule to become effective 10 days after

publication, FSA will accept public comments on the rule for 60 days.

The existing regulations provide that each loan can only have one

set-aside installment outstanding. The only way a borrower could

receive DSA again, would be if the previous set-aside installment were

paid in full, or cancelled through restructuring under subpart S of

part 1951. This rule will allow borrowers, who were affected by a

natural disaster in a county declared a major disaster or emergency by

the President between January 1, 1997 and August 1, 1997, to receive a

second installment set-aside without having to pay in full the first

set-aside installment, or cancel the set-aside altogether. Borrowers

who farmed in counties contiguous to the county that was declared a

disaster area are not eligible for the second installment set-aside

unless they also farmed in the county declared a disaster area and meet

all the eligibility requirements. This rule will allow such borrowers

to receive immediate financial relief from their FLP obligations in a

more expedient manner than under subpart S of part 1951.

If the borrower pays any portion of the set-aside installments in

the future, the payment will be applied to the oldest installment set-

aside first.

Borrowers affected by a disaster declared by the President prior to

the effective date of this rule will have 6 months from the date they

are notified of the program to apply for a second installment set-

aside.

The notification requirements described in section 1951.953 are

also being amended in FSA's internal instructions to require

notification of DSA assistance quarterly instead of each time an area

is designated a disaster area. The notification would include a list of

all designations outstanding, including those received during the

preceding quarter. This will eliminate a lot of confusion as well as

provide a reminder to the borrower of any outstanding declarations to

apply for DSA and emergency loans.

A clarification is also being made to Sec. 1951.954(b)(4). The

amount that can be set-aside was limited to the amount the borrower was

unable to pay FSA from the production marketing period in which the

disaster occurred, or the amount the borrower was unable to pay other

creditors and expenses, rounded up to the nearest whole installment.

This was misleading. The other creditors and expenses do not come into

play unless the FLP installment was paid. As written, this would make

borrowers ineligible to receive DSA if the lesser amount due other

creditors was less than their FLP installment since section

1951.954(a)(6) requires all FLP installments to be current after the

scheduled installments are set-aside. In this case, all FLP

installments would not be current if the total of the FLP installments

was less than the other creditors payments. The provision has been

clarified to state that if the installment due immediately after the

disaster was paid, but other creditors and expenses were not, the

amount set-aside will be the lesser of the amount the borrower is

unable to pay other creditors and expenses, rounded up to the nearest

whole FLP installment, or the next FLP installment due.

List of Subjects in 7 CFR Part 1951

Accounting, Credit, Disaster assistance, Loan programs--

agriculture, Loan programs--housing and community development, Low and

moderate income housing.

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

Subpart T--Disaster Set-Aside Program

2. Section 1951.953 is amended by removing and reserving paragraph

(a) and by revising paragraph (b) to read as follows:

Sec. 1951.953 Notification and request for DSA.

* * * * *

(b) Deadline to apply. All FLP borrowers liable for the debt must

request DSA within 8 months from the date the disaster was designated,

except borrowers applying for a second installment set-aside for

disasters declared by the President between January 1, 1997 and August

1, 1997, have 6 months from the date of the notification letter to

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

disaster.

* * * * *

3. Section 1951.954 is amended in paragraph (a)(1) by adding a

sentence at the end of the paragraph and revising (b)(2) and (b)(4) to

read as follows:

Sec. 1951.954 Eligibility and loan limitation requirements.

(a) * * *

(1) * * * If the borrower is applying for a second installment to

be set-aside, the disaster area operated must have been in a county

declared a major disaster or emergency by the President between January

1, 1997 and August 1. 1997.

* * * * *

(b) * * *

(2) Only one unpaid installment for each farm loan may be set-

aside. Except for Presidential disaster declarations between January 1,

1997 and August 1, 1997, if there is an installment still set-aside

from a previous disaster, the loan is not eligible for DSA. For

Presidential declarations between January 1, 1997 and August 1, 1997,

borrowers who already have one installment set-aside from a previous

disaster may set-aside a second installment. If the set-aside is later

paid in full, or cancelled through restructuring under subpart S of

this part, the set-aside will no longer exist and, therefore, the loan

may be considered for Disaster Set-Aside (DSA) in the future.

(3) * * *

(4) The amount set-aside shall be limited to the amount the

borrower is

[[Page 41253]]

unable to pay Farm Service Agency (FSA) from the production and

marketing period in which the disaster occurred. However, if the

installment due immediately after the disaster was paid, but other

creditors and expenses were not, the amount set-aside will be the

lesser of the amount the borrower is unable to pay other creditors and

expenses, rounded up to the nearest whole installment, or the next

installment due. Expenses which the borrower is unable to pay may

include the following year's operating and family living expenses if

the income or commodities lost from the disaster year would have been

used for these purposes, or if normal income security from the disaster

year is approved for release under subpart A of 7 CFR part 1962 or

otherwise authorized under subpart B of 7 CFR part 1924 for these

purposes. Under no circumstances will a portion of the installment be

set-aside leaving a balance still due. The portion not set-aside must

be paid by the borrower on or before the date Exhibit A of FmHA

Instruction 1951-T (available in any FSA office) is signed.

* * * * *

4. Section 1951.957 is amended by revising paragraph (b)(7) to read

as follows:

Sec. 1951.957 Eligibility determination and processing.

* * * * *

(b) * * *

(7) Payments applied to the amount set-aside will be applied first

to interest and then to principal. If more than one installment is set-

aside on the loan, payments will be applied to the oldest installment

set-aside until paid in full, before applying payments to the second

installment set-aside.

* * * * *

Signed at Washington, D.C., on July 22, 1997.

James W. Schroeder,

Acting Under Secretary for Farm and Foreign Agricultural Services.

[FR Doc. 97-20280 Filed 7-31-97; 8:45 am]

BILLING CODE 3410-05-P