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In March, the USDA announced that it is updating its farm loan programs to allow FSA flexibility in working with existing borrowers who may be in non-compliance with their loan program requirements, if the borrower acted in good faith and relied on a material action of, advice of, or non-action from an FSA official. This change applies to all current borrowers, but may especially impact historically underserved farmers and ranchers. Keep reading to find out more.
Previously, FSA was required to determine that borrowers who were non-compliant with FSA program requirements, regardless of the cause, had necessarily received unauthorized assistance, and the borrowers were then required to immediately repay the loan or convert it to a non-program loan with likely higher interest rates, less favorable terms, and limited loan servicing. The 2018 Farm Bill, however, authorized FSA to provide equitable relief to certain direct loan borrowers who are non-compliant with program requirements as a direct result of the borrowers’ good faith reliance on either a material action of, advice of, or non-action from an FSA official. FSA is now saying that it is going to use that authority granted to it under the 2018 Farm Bill to assist borrowers who are in exactly those situations.
Specifically, under FSA’s new regulation, if a borrower is not in compliance with their loan program requirements, and the reason they aren’t in compliance is because FSA provided them with incorrect guidance or it failed to provide them guidance where it should have, and the borrower relied in good faith on FSA’s incorrect advice or its inaction, then, using its new authority, FSA may provide equitable relief to that borrower. That is, the agency may assist the borrower by allowing the borrower to keep their loans at current rates or other terms received in association with the loan that was determined to be noncompliant, or the borrower may receive other equitable relief for the loan as the FSA determines to be appropriate.
What Does “Material” Mean?
Under the new regulation, whether the action, advice or lack of action on the part of the FSA is material to why a borrower is non-complaint with their loan program requirements will be determined within the USDA. The agency, has, however, provided examples of materiality. One example is when a borrower tells a loan officer that the borrower plans to sell FSA collateral and the loan officer fails to advise the borrower that selling the FSA collateral might not be in compliance with their loan program requirements. According to the example provided by the agency, then, depending on the circumstances, the failure of the farm loan officer to advise the borrower of the consequences of selling the collateral (and the borrower does sell the collateral and then is determined to be non-compliant with the loan program requirements) may constitute a material lack of action under the new regulation. “In contrast, minor customer service issues, such as a failure by FSA to make a courtesy reminder phone call under FSA policy to a borrower would not rise to the requisite level of materiality.”
Equitable relief is one of several changes authorized by the 2018 Farm Bill that USDA has made to the direct and guaranteed loan programs. Other changes that were previously implemented include:
Modifying the existing three-year farming experience requirement for Direct Farm Ownership loans to include additional items as acceptable experience.
Allowing socially disadvantaged and beginning farmer applicants to receive a guarantee equal to 95%, rather than the otherwise applicable 90% guarantee.
Expanding the definition of and providing additional benefits to veteran farmers.
Allowing borrowers who received restructuring with a write down to maintain eligibility for an Emergency loan.
Expanding the scope of eligible issues and persons covered under the agricultural Certified Mediation Program.
Additional information on these changes is available in the March 8, 2022 rule on the Federal Register.
Other Steps FSA Has Taken To Increase Equity In Its Programs
As I wrote about in this blog post, this summer, the USDA announced it was providing $67 million in competitive loans through its new Heirs’ Property Relending Program to help agricultural producers and landowners resolve heirs’ land ownership and succession issues.
FSA also invested $4.7 million to establish partnerships with organizations to provide outreach and technical assistance to historically underserved farmers and ranchers, which, according to the agency, contributed to a fourfold increase in participation by historically underserved producers in the Coronavirus Food Assistance Program 2 (CFAP 2) since April 2021.
In January 2021, USDA Secretary Vilsack announced a temporary suspension of past-due debt collection and foreclosures for distressed direct loan borrowers due to the economic hardship imposed by the COVID-19 pandemic.