Grazing Loans. Grazing loans are made to organizations primarily composed of Farmers, ranchers, certain Indian tribes, and other rural residents to provide seasonal grazing for livestock belonging to members of the associations. Membership in an association permits a farmer or rancher to graze his livestock on association pasture for the grazing season and return them to his base unit for the balance of the year. Such a plan provides a farmer or rancher an opportunity to increase the size of his operation. These loans are made at not less than the cost of money interest rate for 40 years or less. Indian Tribe Land Acquisition Loans. Public Law 91-229, approved April 11, 1970, authorized Toans to any Indian tribe recognized by the Secretary of the Interior or tribal corporation established pursuant to the Indian Reorganization Act, which does not have adequate uncommitted funds, to acquire lands or interest in lands within the tribe's reservation or Alaskan Indian community, as determined by the Secretary of the Interior, for use of the tribe or the corporation or the members thereof. Loans are made for 40 years or less. The tribe is charged not more than the cost of money interest rate except those tribes that are unable to pay the higher rate may be charged interest, initially, at a lower rate. Operating Loans Subtitle B of the Consolidated Farm and Rural Development Act contains the authorization for insured and guaranteed operating loans. Operating loans made by the Farmers Home Administration are accompanied by supervisory assistance in farm and financial management. Operating credit is needed by family farmers throughout the United States who are unable to obtain credit from private and cooperative sources to develop a reasonable standard of living. The use of operating loan funds for this purpose helps provide parity of opportunity for farm operators and encourages farm families to remain in rural areas. The Rural Development Act of 1972 authorized operating loans to be made on an insured basis or guaranteed basis. Loans are made to assist (1) full-time and part-time operators to continue and improve their farm and home operations, (2) part-time farm operators to convert their farming operations to full-time and to improve their income and level of living while continuing to live in rural areas, (3) young farmers who lack the necessary credit to acquire the resources needed for success, (4) farmers who are handicapped because of age, physical handicaps, or limited education or potential, to enable them to continue as self-supporting citizens and (5) rural youths. Operating loans are made to eligible farmers and ranchers, including individual partnerships, corporations and cooperatives operating family-size farms, who (1) are U.S. citizens or aliens lawfully admitted to the United States for permanent residence, (2) have either training or farm experience and any other training or experience which is determined to be sufficient to assure reasonable prospects of success in the proposed operation, (3) are/or will become operators of not larger than family farms, except for rural youths, and (4) are unable to obtain sufficient credit elsewhere to finance their actual needs at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near which the applicant resides for loans for similar purposes and periods of time. Operating loans may be made for such things as paying costs incident to reorganizing a farming system for more profitable operations; purchasing livestock, poultry and farm equipment; purchasing feed, seed, fertilizer, insecticides, and farm supplies and to meet other essential operating expenses, including cash rent and costs incident to the production and harvesting of forestry products; financing land and water development, use, and conservation; developing recreation and other nonfarm enterprises; and refinancing existing indebtedness. In no case may an operating loan be made which would result in a total principal loans balance outstanding in excess of $100,000 for insured loans and $200,000 for guaranteed loans. The amount of each operating loan is limited to the needs of the applicant and his ability to pay with due consideration given to the proposed farming program and the value of the chattel property, including crops, which are available as security. Operating loans may be scheduled for payment over periods from 1 to 7 years depending on loan purposes. In some situations, they may be rescheduled for an additional 7 years. The borrower is charged not more than the cost of money interest rate for insured loans except for low-income, limited resource borrowers who may initially be charged a lower interest rate. The interest rate for guaranteed loans is negotiated by the lender and the borrower. Insured loan borrowers are encouraged to supplement their operating loans with credit from other sources when this is feasible. They are required to graduate to other credit sources when able to do so. Emergency (Disaster) Loans The Consolidated Farm and Rural Development Act, as amended by P.L. 96-438, contains new authorizations for insured and guaranteed emergency (EM) loans. The Small Business Development Act of 1980, P.L. 96-302, made credit-worthy borrowers eligible for FmHA EM actual loss loans. Emergency loans are made available in designated areas (counties) where property damage and/or severe production losses have occurred as a direct result of a natural disaster. Areas may be designated for emergency loan assistance by the President or FmHA State Directors. Emergency loans are made to established eligible farmers, ranchers and aquaculture operators, partnerships and private domestic corporations may also qualify, providing they are primarily engaged in agricultural or aquacultural production, for actual losses, annual operating expenses, major adjustments, and other essential needs arising from natural disasters. The insured annual operating and major adjustment loans bear a market rate of interest as established periodically by the Secretary of Agriculture and the interest rate for guaranteed loans will be at rates agreed upon by the borrower and the lender not to exceed such rates as may be determined by the Secretary. A farmer who cannot get credit elsewhere is eligible for actual loss loans of up to $500,000 per disaster at an interest rate of 5 percent and for EM annual production and major adjustment loans at authorized rates, terms and dollar ceiling limitations. Annual production and major adjustment loans for applicants not indebted for EM loans on December 15, 1979 are limited to the combined principal balance ceiling of $1,000,000 during fiscal year 1981, $500,000 during fiscal year 1982 and not authorized thereafter. Credit-worthy borrowers can obtain an actual loss loan up to $500,000 per disaster but at an interest rate based on the costof-money to the Government. An additional charge on actual loss loans of not to execed cne per centum per annum may be set by the Secretary for credit-worthy borrowers. Actual loss loans are made for physical losses to repair, restore or replace damaged or destroyed farm property and supplies, and for production losses to compensate for loss of income based on reduced production of crops, livestock, and livestock products resulting from the disaster. Repayment terms vary according to the purposes of the loan and the projected reasonable repayment ability of the borrower. Loans for actual losses to crops, livestock, supplies and equipment may be scheduled for repayment in up to 7 years. Under some conditions a longer repayment period may be authorized, but not to exceed 20 years. Generally real estate will be needed as security when more than 7 years is authorized. Real estate loans will normally be scheduled for repayment within 30 years but under some conditions may be scheduled for up to 40 years. Annual operating expenses usually will be scheduled for repayment each year when the principal income from the year's operations is received. The appropriation language makes funds available in such amounts as may be necessary to meet the needs resulting from natural disasters. An applicant who qualifies for an emergency loan based on actual losses and who cannot obtain credit elsewhere may also qualify for additional assistance at a market rate to purchase livestock, poultry, or other animals and pay costs incident to reorganizing a farming system to make it a sound operation. The reorganized farming operation, however, must be approximately equivalent in earning capacity to the operation conducted prior to the disaster. Under certain conditions, loan funds may be used to buy essential home equipment and furnishings and to refinance debts. Two subsequent insured emergency loans, to an indebted borrower, for annual operating purposes may be made at prevailing market interest rates within three consecutive years after the disaster to permit the borrower sufficient time to recover from the disaster losses and return to usual credit sources. The exception to this provision is for those borrowers who were indebted to FmHA on December 15, 1979 who may receive five subsequent emergency loans within six consecutive years after the disaster. Economic Emergency Loans Economic emergency loans make financial assistance available in the form of loans insured or guaranteed by FmHA to bona fide farmers and ranchers, including farm cooperatives and private domestic corporations and partnerships, who are primarily and directly engaged in agricultural production. The applicant for such a loan (A) needs the experience or training and resources necessary to assure a reasonable prospect for successful operation; (B) needs such credit in order to maintain a viable agricultural production operation; and (C) is unable at the time the loan application is filed to obtain sufficient credit from normal credit sources to finance actual needs at reasonable rates and terms due to national or areawide economic stress. The economic emergency loan program expires September 30, 1981. Loans may be used for (1) refinancing outstanding indebtedness on farm or home real estate and other farm and essential home debts, (2) reorganization of the farming, ranching or aquaculture operation to provide an economically sound and operating unit, (3) purchase of essential water rights, supplies and irrigation facilities, (4) purchase of essential livestock, poultry and farm equipment, (5) purchase of feed, seed, fertilizer, insecticides and farm supplies, (6) financing essential land and water development, use and conservation, (7) other essential farm, ranch and aquaculture needs including family subsistence, and (8) loan closing costs. The total principal balance outstanding at any time on an economic emergency loan will not exceed $400,000. Borrowers indebted to FmHA for a farm ownership loan, operating loan or a soil and water loan may be considered for an economic emergency loan provided the total outstanding principal indebtedness to FmHA will not exceed $650,000. Emergency disaster and emergency livestock loans will not be considered in determining the $650,000 loan limitation on economic emergency loans. Loans for operating purposes will be scheduled for repayment for up to 7 years although if unusual conditions exist, this period may be extended but for not more than 20 years. Loans for real estate purposes will be repaid in a period not to exceed 30 years unless conditions are shown which would justify a 40 year repayment period. The interest rate charged for insured loans will be at the cost of money to the Government plus up to a 1 per centum charge which may be imposed by the Secretary. The guaranteed loan interest rate will be negotiated between the lender and the borrower. Watershed Works of Improvement and Flood Prevention Loans Under Public Law 83-566, as amended, loans are made to local organizations for financing the local share of the cost of installing, repairing or improving works of improvement and water storage facilities, purchasing sites or rights-of-way and for related costs in approved watershed works of improvement and flood prevention projects. FmHA has been assigned responsibility for making these loans to sponsors of such projects approved for operation by the Soil Conservation Service. No loan may be made until the Soil Conservation Service and the local organization have agreed on a plan for works of improvement. Public Law 92-419, approved August 30, 1972, provided for making such loans on an insured basis under the Agricultural Credit Insurance Fund. These loans are repayable in not more than 50 years at an interest rate based on the average rate paid by the U. S. Treasury on obligations of similar maturity. For any single plan for works of improvement, the amount of the loan may not exceed $10 million. Resource Conservation and Development Loans Under Public Law 87-703 and other existing Departmental authorities, loans are made to local sponsoring organizations when needed, for financing the local share of the cost of installing, repairing or improving works of improvement and water storage facilities, purchasing sites or rights-of-way and for related costs in approved resource conservation and development projects. The Farmers Home Adminstration has been assigned responsibility for making these loans to sponsors of resource conservation and development projects approved for operation by the Soil Conservation Service. No loan may be made until the Soil Conservation Service and the local organization have agreed on a plan for development work. Public Law 92-419, approved August 30, 1972, provided for making such loans on an insured basis under the Agricultural Credit Insurance Fund. These loans are repayable in not more than 30 years, with repayment of principal and interest deferred up to 5 years, if necessary. Loans bear interest at a rate based on the average rate paid by the U.S. Treasury on obligations of similar maturity. JUSTIFICATION OF INCREASES AND DECREASES The following adjustments result in a net decrease of $2,847,400,000 for loan programs financed through the Agricultural Credit Insurance Fund consisting of: (1) An increase of $580,000,000 for farm ownership loans ($920,000,000 Need for Change. Areawide economic stresses brought about by an inflationary spiral have cause a greater demand for FmHA farm ownership loans. Commercial loans dropped in 1980 as money markets tightened and interest rates soared drying-up commercial money markets for many farmers. Farmers unable to obtain credit elsewhere sought FmHA assistance. A great deal of these farm borrowers became eligible for lower interest/limited resource loans. This increase in FY 1982 would target more money to these limited resource borrowers who initially may be charged a lower than cost-of-money interest rate. With the expiration of the economic emergency loan program at the end of FY 1981, substantial loan demand pressure will be felt in this program. More farm ownership funds will be needed to continue to provide loans to farmers who are unable to obtain credit elsewhere because of a lack of agricultural credit due to economic stresses. Nature of Change. The expansion of this program will provide for 5,230 (2) (3) An increase of $625,000,000 for farm operating loans ($875,000,000 Need for Change. The present inflationary spiral and credit squeeze has With the expiration of the economic emergency loan program at the end of FY 1981, substantial loan demand pressure will be felt in this program. More farm operating funds will be needed to continue to provide loans to farmers who are unable to obtain credit elsewhere because of a lack of agricultural credit due to economic stresses. Nature of Change. The expansion of this program will provide for 15,660 additional Toans in FY 1982 than in FY 1981. A decrease of $2,400,000 for recreation loans ($2,400,000 available in Need for Change. No program is proposed in FY 1982 for recreation loans Since this type of assistance is available through farm ownership and farm operating assistance. A farmer cannot convert all of his farm into a recreational enterprise with farm ownership or operating assistance but can 77-802 0-81--66 |