Enhancing Program Access and Delivery for Farm Loans

<RULE> DEPARTMENT OF AGRICULTURE <SUBAGY>Farm Service Agency</SUBAGY> <CFR>7 CFR Parts 761, 762, 764, 765, 766, 768, 769, and 770</CFR> <RIN>RIN 0560-AI61</RIN> <DEPDOC>[Docket No. FSA-2023-003]</DEPDOC> <SUBJECT>Enhancing Program Access and Delivery for Farm Loans</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Farm Service Agency, USDA. <HD SOURCE="HED">ACTION:</HD> Final rule; with request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Farm Service Agency (FSA) is amending the Farm Loan Programs (FLP) regulations to implement the Distressed Borrower Set-Aside (DBSA) Program and other changes. DBSA will provide a new loan servicing program for financially distressed borrowers that will allow for the deferral of one annual loan installment at a reduced interest rate. DBSA will provide a simpler option to resolve financial distress than existing loan servicing programs. In addition to helping borrowers by adding DBSA as a new loan servicing program, FSA is amending the FLP regulations to revise loan making and servicing to improve program access and delivery. This rule is part of FSA's ongoing efforts for farm loans to remove barriers to capital access and increase opportunities for borrowers to be successful. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> September 25, 2024. <E T="03">Comment date:</E> We will consider comments on the information collection requirements under the Paperwork Reduction Act that we receive by: October 7, 2024. We will also consider comments on the rule and may conduct additional rulemaking in the future based on the comments. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> We invite you to submit comments on the information collection requirements. You may submit comments by any of the following methods: • <E T="03">Federal eRulemaking Portal:</E> Go to: <E T="03">www.regulations.gov</E> and search for docket ID FSA-2023-0003. Follow the instructions for submitting comments. Comments will be available for viewing online at <E T="03">www.regulations.gov.</E> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Houston Bruck; telephone: (202) 650-7874; email: <E T="03">houston.bruck@usda.gov.</E> Individuals who require alternative means of communication for program should contact USDA TARGET Center at (202) 720-2600 (voice and text telephone (TTY)) or dial 711 for Telecommunications Relay Service (both voice and text telephone users can initiate this call from any telephone). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> FSA makes and services a variety of direct and guaranteed loans to farmers who are unable to obtain commercial credit sufficient to meet their needs at reasonable rates and terms. FSA also provides direct loan borrowers with credit counseling and supervision, to increase the borrowers' chance for success. FSA loan applicants are often: • beginning farmers (BF) and socially disadvantaged (SDA) farmers who do not meet the underwriting requirements of commercial lenders because of insufficient net worth; or • established farmers who have suffered financial setbacks due to natural disasters or economic downturns. FSA loan applicants are also often farmers whose short- and long-term operational and personal goals are not well met by commercial lending products. FSA loans are tailored to a farmer's needs and may be used to buy farmland and to finance agricultural production. The Consolidated Farm and Rural Development Act (CONACT, Pub. L. 87-128, as amended; 7 U.S.C. 1921-2009cc-18) provides the authority for most FLP loans, including farm ownership, operating, and emergency loans. After FSA provides a loan to a farmer, FSA continues to work with the borrower to monitor the progress of their operation, provide guidance on budgetary issues, and ensure loan repayment. If FSA loan borrowers become financially distressed and are unable to make loan installments as scheduled, or if the borrowers' plans change requiring reconsideration of original terms, FSA staff work with borrowers to explore options to improve profitability. A common solution to resolving financial distress is providing the distressed loan with more flexible rates or terms to improve profitability. These loan servicing options are commonly referred to as the Primary Loan Servicing Program (PLS) and the Disaster Set-Aside Program (DSA). Section 22006, Farm Loan Immediate Relief for Borrowers with At-Risk Agricultural Operations, of the Inflation Reduction Act of 2022 (IRA, Pub. L. 117-169) authorized $3.1B in funds for FSA to create and provide certain additional assistance opportunities for distressed farm loan borrowers of FLP loans authorized under the CONACT. To date, FSA has provided historic assistance under IRA Section 22006 to assist distressed borrowers, including 6 different rounds of payments addressing both long-term and immediate sources of distress. To complement PLS, DSA, and previous IRA assistance, FSA is implementing a new loan modification option, the DBSA Program. DBSA is similar to DSA and will provide a new loan servicing option for financially distressed borrowers that will allow for the deferral of one annual loan installment per loan at a reduced interest rate under certain conditions. DBSA has three important distinctions compared to DSA: • the deferred payment will accrue at a reduced interest rate, • the loan must have been outstanding as of September 25, 2024, and • the borrower does not have to suffer a loss from a declared disaster to qualify for DBSA. This rule implements DBSA and makes other changes as the next step in FSA's ongoing effort to remove barriers to capital access and increase opportunities for borrowers to be successful. The COVID-19 pandemic highlighted the need for FSA to undertake a culture shift in its approach to farm loans to expand virtual opportunities and implement loan processes to improve turnaround times on financial assistance. For example, for loans overall, recent investments in online education and application platforms are making the loan process simpler to navigate virtually, and new underwriting techniques based on financial benchmarking of FSA's portfolio are expediting the loan process. FSA is also clarifying and amending information throughout the FLP regulations to make it easier for borrowers to understand program requirements. These changes were developed with significant input from employee associations and the gathering of important insights from lending industry partners and agricultural advocacy groups. Advice and recommendations from agricultural advocacy groups on potential program improvements were carefully considered as FSA developed some of the more substantial changes, including improvements to the direct loan security requirements, cash flow budgeting process, and flexible repayment terms offered on direct loans. While most of the amendments are not substantially altering existing policy, or are anticipated to impact a relatively small number of farmers, some changes are substantial, impacting nearly all direct loan customers, including changes that amend requirements for farm assessments, budget development, and loan security. These substantial changes will encourage borrower profitability by expanding opportunities for borrowers to leverage asset equity, and by establishing opportunities to budget for a reasonable amount of cash flow margin to increase working capital reserves and savings, including savings for retirement and education, including the use of flexible repayment terms to achieve essential short- and long-term operational growth goals. These program enhancements reflect FSA's commitment to furthering strong partnerships with commercial lenders, as the borrower growth opportunities from the changes in this rule will result in more financially stable borrowers that are better prepared to transition to commercial banking. The enhancements will also be reflected in the subsidy rates for the respective FLP loan types, per Federal Credit Reform Act (FCRA, 2 U.S.C. 661) and OMB Circular A-11 section 185. The CONACT requires that all FLP applicants and loans meet certain requirements related to eligibility, security, and feasibility. The changes in this rule ensure FLP regulations continue to align with the CONACT and better reflect the needs of farmers, industry trends, historical data, and modernization of underwriting standards. Although many of the amendments in this rule are technical corrections or clarifications, there are several changes to FLP policy that better reflect customer needs and modernized standards in the greater agricultural lending industry. This rule marks the most recent example of FSA's dedication to increase equity, improve customer service, and provide opportunities for customers to maximize their financial success. Throughout this rule, any reference to “farm” or “farmer” also includes “ranch” or “rancher,” respectively. <HD SOURCE="HD1">DBSA Program Implementation</HD> This rule is implementing the DBSA Program to assist distressed borrowers whose operations are at financial risk and face the possibility of bankruptcy, liquidation, or foreclosure. Using available funds under section 22006 of IRA, DBSA is a payment deferral program for financially distressed or delinquent borrowers with outstanding direct loans administered under subtitle A (Farm Ownership Loan (FO) Program, Conservation Loan (CL) Program, and Soil and Water Loan (SW) Program), subtitle B (Operating Loan (OL) Program), or subtitle C (Emergency Loan (EM) Program) of the CONACT. While the DBSA Program will operate similarly to the existing DSA Program, there are important eligibility distinctions. Specifically, deferral under DBSA is only available for eligible direct loans outstanding as of September 25, 20 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 203k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━