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Federal Register / Vol. 86, No. 150 / Monday, August 9, 2021 / Rules and Regulations
The definition of a family farm is provided in 7 CFR 761.2b.
It is commonly understood that the borrower themselves will provide substantial labor and make the majority of daily operating decisions and all strategic business decisions associated with the operation. However, the existing definition allows operational inputs to be provided by the borrower and relatives, with no delineation as to how much management or labor is specifically expected of the borrower or the relative. This can result in an individual obtaining a farm loan with the intention of having a relative operate the farm for all practical purposes, essentially relegating the borrower to a minor role.
This rule amends the definition of family farm to close the unintended loophole that would create a scenario where the borrower has only a minor role in actually operating the farm, while maintaining the ability of a borrower to rely on management and labor input from relatives. Specifically, this rule amends the definition of family farm to require the borrower to be the one to provide the required substantial labor, and make the majority of daily operating decisions, and all strategic management decisions; while the relatives can provide input and assistance with both the labor to operate the farm and daily operating and strategic management decisions.

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Addition of Non-Monetary Default Definition FSA is adding the definition of nonmonetary default to the general program definitions in 7 CFR 761.2.
Previously, certain FSA documents contained this definition, and FSA is incorporating it into its regulations. No change is being made to the definition.
Use of Appraisals Issued Within 18
Months Appraisals of proposed real estate loan security are necessary to ensure farm loans are adequately collateralized.
Currently in 7 CFR 761.7, an appraisal can be relied upon to determine security values if it was completed within the previous 12 months and if market values have remained stable since the original appraisal was completed.
Many applicants apply for additional loan making or servicing benefits at the end of a crop year, typically within 12
to 18 months of when initial loan benefits were obtained. If subsequent loan making or servicing benefits require appraised values of real estate collateral, an updated appraisal typically needs to be obtained as the original appraisal was completed more
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than 12 months prior. This results in significant additional time and cost to obtain an updated appraisal that often results in only minor changes in value.
This rule amends 7 CFR 761.7c and 766.202a to allow the use of real estate appraisals completed within the previous 18 months if FSA determines market values have remained stable.
Supervised Bank Account Guidance Supervised bank accounts are accounts with financial institutions established through a deposit agreement entered into between the borrower, FSA, and the financial institution. To ensure direct loan funds are used for authorized purposes, 7 CFR 761.51a describes the various uses of a supervised bank account.
This rule amends 7 CFR 761.51a to memorialize the current practice in the regulation and specify additional common uses of supervised bank accounts that are currently described in administrative handbook guidance including construction and site development work, and sale of basic security.
Substituting Realistic County or State Yields To Develop Operating Plans Projected yields used to develop farm operating plans for direct loans are typically calculated using the applicant or borrowers own production history for the previous 3 years. Currently, if an applicant for a direct loan has historical yields in the previous 3 years that are substantially affected by a qualifying declared disaster, 7 CFR 761.104c4i allows the applicant or borrower to choose to use county or state average yields in place of their actual disaster year yields when developing a farm operating plan.
While the existing rule often ensures reasonable and accurate yield projections, substituting disaster year yields with county or state average yields does not always result in the development of realistic operating plans. While it is particularly rare, it can occur when county or state average yields are higher than an applicants yields in non-disaster years.
Section 331Ea of the CONACT 7
U.S.C. 1981ea, requires farm operating plans be based on accurate projections.
To ensure accurate plans are developed, this rule amends 7 CFR 761.104c4i to allow for the use of county or state yields only when those yields are realistic and reasonable compared to an applicants actual non-disaster year yields.
If the agency approval official determines the county or state yields are not realistic and reasonable compared to
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an applicants actual non-disaster year yields, the applicant or borrower may no longer exercise the provision in 7
CFR 761.104c4i, but may continue to exercise the provision in 7 CFR
761.104c4ii, authorizing the exclusion of the production year with the lowest actual or county average yield if their yields are affected by disasters in at least 2 of the 3 years.
This amendment will help ensure the success of an applicant or borrower by ensuring the development of farm operating plans based only on realistic and reasonable yield projections.
Loan Debt Verification Guarantee loan applications and direct loan debt settlement applications require verification of all applicant debts over $1,000. However, direct loan making applications require verification of all applicant debts over $5,000. The direct loan making program increased this threshold from $1,000 to $5,000
administratively in November 2020 as regulations governing the direct loan program do not identify the dollar threshold for requiring debt verifications.
To ensure consistency among loan programs, this rule amends 7 CFR
761.405a6, 762.110d and 762.145b to allow FSA to administratively establish the minimum threshold for debt verification on guaranteed loans.
FSA is setting the threshold at $5,000
initially to be consistent with the direct loan making program. This change will improve program delivery by reducing the time required for an applicant to complete an application and reducing the time required by FSA to analyze an application. Program integrity will not be compromised as all significant debts will continue to be verified, and credit reports will continue to be obtained to verify debts of all sizes from lenders reporting to credit bureaus.
Entity Owner and Operator Requirements The entity owner-operator rules for direct and guaranteed farm ownership loans are stated similarly and both have the same minor inconsistency. The rules initially state that when entity members are not related, the members holding a majority interest must own and operate the farm. However, the rule subsequently states that members of the farm entity real estate must own at least 50 percent of the family farm operating entity. As 50 percent ownership does not constitute a majority, this minor inconsistency can cause confusion for applicants who are unsure if they can own the farm
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