7 CFR 1941.18 (c)

Deferral section of Operating Loan regulation

The

(3) Deferral. Installments on OL loans may be deferred.
use of deferral authority will generally involve beginning
farmers, applicants with limited income and resources and
applicants who have had production and economic losses because
of natural or economic conditions.

(1) General requirements. Deferred payments may be authorized if the following conditions exist:

(A) A Farm and Home Plan and, if appropriate, a Business Analysis-Nonagricultural Enterprise, show loan installments cannot be repaid according to schedule.

(B) A typical Farm and Home Plan and if appropriate, a Business Analysis-Nonagricultural Enterprise, for a full crop year following the deferral period indicate that full installments can be paid if normal conditions exist.

Insert 1

7 CFR §1943, 18

Deferral section of Farm Ownership regulation (continued)

(b) Deferred payments.

(c)

(1) Borrowers are expected to pay all interest that becomes
due on their loans. However, if necessary, principal and
interest payments may be deferred up to three installments
from the date of the note. The deferral will never extend beyond
the final due date of the note. An applicant will be expected to
repay some interest each year beginning the first year and full
payments will be scheduled at the earliest date the Farm and Home
Plan indicates they can be paid. The applicant will be advised to
make payments on the loan as soon as the applicant has repayment
ability even though the deferral period has not expired.
The use

of deferral authority will generally involve beginning farmers,
applicants with limited income and resources and applicants who
have had production and economic losses because of natural or
economic conditions. Bearing in mind the above limitations,
deferred payments may be authorized under the following
conditions:

(1) The initial Farm and Home Plan and Business AnalysisNonagricultural Enterprise, when appropriate, show full installments cannot be paid during the deferred period; and (11) A Long-Time Farm and Home Plan is prepared, when appropriate, and

(iii) A typical Farm and Home Plan and Business AnalysisNonagricultural Enterprise, when appropriate, for a full crop year following the deferred period indicates full installments can be paid under normal conditions.

(2) Deferred interest will not be capitalized. Installments
after the deferral period will be calculated in accordance
with FMI for Form FmHA 1940-17.

Interest rate to borrower. See FmHA Instruction 440.1, Exhibit B, for the applicable interest rate. This exhibit may be obtained from any FmHA Office. A lower rate is established in this exhibit for a limited resource applicant subject to the following:

7 CFR 1951.33

Summary of Guidelines for Deferrals Servicing Action to Defer Installments when
Rescheduling or Reamortizing

I Subtitle B (operating) purposes.
Emergency loans:

Operating loans, Emergency loans, Economic

A.

General requirements

B.

4.

Borrower's account not being serviced by OGC, U.S. Attorney and no plans for their servicing in near future.

5. County Supervisor determines borrower is or will make satisfactory progress with revised payment terms.

6. Borrower is co-operating in servicing the account and maintaining security.

Processing

1.

Appropriate plans show installments cannot be repaid as scheduled. 2. Typical plan for a full crop year following the deferral period indicates that full installments can be paid if normal conditions exist. 3. Long-time plans, if appropriate, are prepared.

4.

Any development and improvements are provided for in a Development Plan.

5. Form FmHA 1940-17 - Promissory Note.

3.

4.

5.

Annual partial payments of accrued interest must be scheduled.

Full payments scheduled at earliest date plans indicate can be repaid. Advise borrowers they are expected to make payment as soon as they have repayment ability, even though deferral period has not expired. 6. Deferred interest will not be capitalized.

D. Interest

Interest rate Current rate for type of loan except for
EM Toss loans which will remain the same as original
note rate.

II

Subtitle A (real estate) purposes. Farm ownership, Soil & Water, Recreation loans, Economic Emergency, Emergency:

A. General requirements

1.

Account not now or planned to be serviced by OGC or U.S. Attorney. 2. Not to avoid FmHA graduation requirements.

3.

Will be to best interest of borrower and Government.

4.

Not to only remove a delinquency or delay liquidation.

5. Not ordinarily reamortized if it appears borrower can pay current within 2 years time.

6. Can, in case of a farm ownership loan, be changed to limited resource interest rate if requirements are met.

7.

Necessary to enable borrower to remain on the farm.

8. Borrower shows that due to circumstances beyond the borrower's control, the borrower is temporarily unable to continue making payments of principal and interest due on the loans without unduly impairing the borrower's standard of living.

9. The borrower is co-operating in servicing the account and maintaining the security.

10.

Farm & Home Plans show reamortized installments or the full installments at end of deferred period can be paid.

B. Terms

C.

D.

1. Generally within remaining period of note or assumption agreement but not to exceed 40 years.

2. Generally only one installment will be deferred at a time but cannot
exceed three.

3. Whole installments will not be deferred. Some payment will be
scheduled each installment due date.

4. Borrowers will be encouraged to make additional payments during the
deferral period if they are able to do so.

1. Current prevailing market rate except for limited resource farm
ownership and EM actual loss loan.

2. EM actual loss loan will remain same as in original note.
3.

Farm ownership limited resource first 3 years unchanged.
years whole number increments if increased.

After 3

4. Unpaid accrued interest will be added to principal at time of
reamortization.

Processing

1. Separate Form FmHA 194-17

assumption agreement.

Promissory Note for each note or

(date)

2. Original note marked Deferred

3.

No limit on times processed for reamortization.

4. No more than three installments deferred at one time.

Mr. BEDELL. Thank you, Mr. Coleman.

We will have an opportunity for members to ask additional questions. I think it is critically important. I have to tell you, the chairman is not very pleased with the answers we are getting here.

I cannot understand why you would have a different requirement for deferral than you do for granting a new loan to somebody that is already in trouble. Maybe there is something I don't understand.

The second thing is, unless I am misreading this bill, the bill clearly leaves it up to the borrower to show he is meeting those criteria and we may have to get your lawyers up here before us, because I happen to agree with Mr. Glickman and Mr. Coleman, that the excuse that this would say that people would have to be given loans when they just said they had met those things is, in this gentleman's opinion, inaccurate.

Could we get back to the situation that we had in regard to the first chart that you had there that showed where there was a 20some percent loan-to-equity ratio, Mr. Naylor? It is the very first

one.

Thank you. Do you have a breakdown in regard to the various segments of agriculture? Can you tell us how many farmers, for example, do not have any substantial debt?

Mr. NAYLOR. Mr. Bedell, we do have a breakdown, both in real and nonreal. But it is important to keep in mind the characteristics that you are talking about, the number of farmers, 2.4 million total farmers that you are breaking out.

Yes, I can give that to you. In both cases, in real and nonreal debt, about half of the producers in the United States are self-financed. In other words, they have no outstanding debt, real or nonreal.

Predominantly, however, those are small farmers. Your larger family commercial producer or commercial producer typically uses credit in the same way any corporation does, and has a leverage position somewhat higher in total debt outstanding.

And that produces the average that you have.

Mr. BEDELL. We are short on time. But the point I want to make is, that half, if half of your farmers essentially have no debt, then if that would then change that 21 percent, I should think, to 42 percent for the balance of those. If all the debt is concentrated with half of the farmers, then the debt-to-equity ratio, assuming they are similar size, would make a difference, I understand that, if you take that and cut that in half, I presume you have got a further concentration in that bottom 25 percentile.

And at least-where is the equity base-as of what date was that equity base established?

Mr. NAYLOR. At the end of fiscal year 1982, September last year. Mr. BEDELL. Did that account for the decline in land values? Mr. NAYLOR. Yes, it does reflect decline in real estate sales. Mr. BEDELL. What I think would be beneficial to this member of the committee, if we could get from you, since you have those figures, the breakdown at least by quartiles of the borrowers so that we knew where that bottom 25 percent fell into this figure, so that we knew how much of the total equity we were talking about, and most particularly so we knew if we saw another 15-percent decline