Application Fast Track Pilot Program

AGENCY:

Farm Service Agency, USDA.

ACTION:

Notice.

SUMMARY:

The Farm Service Agency (FSA) is announcing a pilot program called “Application Fast Track” that will expedite the processing of direct Operating Loans (OL) and Farm Ownership Loans (FO) to family farmers and ranchers if qualified. The Application Fast Track Pilot Program (AFT) provides an alternative underwriting process for applicants that meet certain financial benchmarks. AFT will be available in selected pilot office locations beginning August 7, 2023, and will be available in all locations nationwide beginning January 1, 2024. AFT will run through September 30, 2024. The Consolidated Farm and Rural Development Act (CONACT) authorizes pilot projects of limited scope and duration to evaluate processes and techniques to improve program efficiency and effectiveness.

DATES:

Comment due date: We will consider comments on the AFT as described in this notice that we receive by: October 2, 2023.

ADDRESSES:

You may submit comments, identified by FSA docket number FSA–2023–0005 by any of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

• Mail: AFT Comments—Deputy Administrator for Farm Loan Programs, Farm Service Agency, 1400 Independence Ave. SW, Stop 0522, Room 3605, Washington, DC 20250–0522.

• Hand Delivery/Courier: Houston Bruck, Assistant to the Deputy Administrator for Farm Loan Programs, Farm Service Agency, 1400 Independence Ave. SW, Stop 0522, Room 3605, Washington, DC 20250–0522.

FSA will post all comments on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Houston Bruck; telephone: (202) 650–7874; or by email: houston.bruck@usda.gov. Individuals who require alternative means for communication should contact the 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).

SUPPLEMENTARY INFORMATION:

Background

FSA makes and services a variety of direct and guaranteed loans to farmers who are temporarily unable to obtain private commercial credit. FSA also provides direct loan borrowers with credit counseling and supervision, so they have a better chance for success. FSA loan applicants are often Beginning Farmers (BF), some of whom do not qualify for commercial loans because of insufficient net worth, or established farmers who have suffered financial setbacks due to natural disasters or economic downturns. FSA loans are intended to be tailored to the specific needs of an applicant and may be used for a variety of purposes including the financing of agricultural production and to purchase livestock, equipment, and farmland. FSA staff are statutorily required to evaluate the farm operating plan and financial situation of each applicant. The farm operating plan assesses various aspects of the operation, including the financial viability of each operation requesting loan assistance.

FSA underwriting processes require a thorough evaluation of each farm operating plan to ensure eligibility, security and feasibility criteria are satisfied, and loan applications are required to be processed within 60 days of receipt of a complete application. Completing a feasibility evaluation based on an applicant's cash flow budget is often a time-consuming undertaking that adds significant time to the processing of a loan application. Additionally, the CONACT (Pub. L. 92–419; 7 U.S.C. 1921–2009cc–18) requires FSA loan underwriting to be completed in a manner similar to commercial lending methods. FSA policy has historically provided for the completion of an in-depth cash flow evaluation for all applicants. An extensive manual underwriting process is often appropriate, as FSA borrowers frequently are at an elevated level of financial risk, which resulted in the inability to obtain commercial credit at reasonable rates and terms. However, commercial lenders increasingly rely on data analytics to develop alternative underwriting methods to streamline the financial viability evaluation of certain operations while minimizing the risk of loan default.

To capture loan making efficiencies that result from innovative underwriting methods that rely on data analytics, FSA has developed and is piloting an alternative method of evaluating financial viability designed specifically to address the unique characteristics of the FSA loan portfolio and satisfy the unique goals and requirements of the Farm Loan Programs. This innovative process is referred to as AFT, and is modeled after similar scoring tools that have been successfully used by commercial lenders for many years. To continue effective stewardship of taxpayer resources, the AFT underwriting process is designed to improve processing times while ensuring portfolio performance and loan default rates remain constant. To achieve this outcome, applicants who meet certain financial benchmarking criteria will be qualified for an expedited underwriting evaluation available through AFT.

Using the actual portfolio performance data of over 100,000 direct loans, FSA analyzed hundreds of potential variables to identify commonalities of loans with strong repayment history. The analysis identified several financial variables and minimum thresholds that are statistically reliable indicators of whether or not a debt will be repaid according to the terms of the loan. The identified benchmark variables were modeled with optimized ranges and weights and used to develop a scoring tool that can identify with over 92 percent accuracy the probability of successful loan repayment for approximately a quarter of all applications. Importantly, the AFT scoring tool does not rely on projected cash flow budget data, which provides the opportunity for the AFT scoring tool to be an alternative method for FSA to reliably evaluate an applicant's financial viability and likelihood of repayment. For those customers who meet the minimum scoring threshold, FSA is provided with adequate assurance of an applicant's ability to successfully repay the FSA loan. Accordingly, FSA staff will not have to rely on traditional underwriting evaluation methods that require time-consuming income and expense validation of a projected cash flow budget. The AFT underwriting process is estimated to improve application processing timeframes by more than a week for those estimated 25 percent of customers who qualify for AFT under these AFT benchmarks, which under full implementation would translate to a projected annual time savings of 70,000 staff hours nationwide. This time savings will allow existing staffing resources to better assist all other applicants timelier.

As AFT is a pilot program to evaluate the administrative effectiveness of this new process, FSA has identified a limited number of targeted USDA service centers for participation in the initial implementation of the pilot beginning August 7, 2023 (see Initial Pilot Locations section below). Limiting the number of initial pilot locations will allow for a control group where AFT is not implemented, enabling accurate and actionable analysis of data collected on the AFT process. FSA will evaluate the time savings, number of producers qualifying, and user functionality of the AFT process in the initial pilot offices. If the anticipated benefits are realized, AFT will be implemented to all USDA service centers nationwide beginning January 1, 2024. Expanding the number of pilot locations will enable FSA to further evaluate the effectiveness of AFT when the scope of AFT is limited to a pilot program benchmark of 25 percent of applicants. If anticipated benefits are not realized, FSA will modify or terminate AFT through a subsequent notice in the Federal Register prior to January 1, 2024.

The authority to conduct AFT is provided in section 333D of the CONACT (7 U.S.C. 1983d), which authorizes pilot projects of limited scope and duration to evaluate processes and techniques to improve program efficiency and effectiveness.

AFT

AFT will expedite the processing of direct OLs and FOs to qualified family farmers and ranchers by providing an alternative underwriting process for applicants that meet certain financial benchmarks. While application submission, eligibility, and security requirements are unaffected by AFT, the feasibility evaluation for each loan application will be improved. Specifically, an initial feasibility assessment of each loan application will be conducted based on financial benchmarking. Applications that satisfy certain benchmark thresholds will be determined to meet the AFT standards and will not be subject to the traditional feasibility evaluation. If a loan application does not satisfy the AFT benchmarking criteria, additional feasibility evaluation will be completed on the loan application in accordance with existing loan making regulations. AFT will be effective August 7, 2023, and will continue through September 30, 2024.

Initial Pilot Locations

To adequately evaluate the effectiveness of the AFT underwriting method, FSA has targeted USDA service centers from each state and Puerto Rico as initial pilot locations for AFT. FSA coordinated with the National Agricultural Statistics Service (NASS) to identify 150 initial pilot locations that provide a statistically relevant random sample of all FSA service centers with 16 additional offices selected by FSA to facilitate specific state-level input on the effectiveness of the AFT processes. FSA will closely monitor the implementation of AFT in the initial pilot locations to validate the anticipated efficiencies and identify areas for improvement. Applicants whose standard county code falls within the jurisdiction of one of the identified 166 initial pilot locations will be considered for AFT beginning August 7, 2024. Beginning January 1, 2024, AFT will be implemented in all USDA service centers nationwide unless the projected AFT benefits are not realized, in which case FSA will modify or terminate the AFT through a subsequent notice prior to January 1, 2024. The following FSA county service centers are identified as initial pilot locations:

Application Process

All direct OL and FO applicants will be considered for AFT, except for applicants requesting Youth Loans or loan servicing.

There is no need for customers to apply for AFT, as applicants in selected pilot locations will be evaluated for AFT using the traditional Farm Loan Programs application materials. Therefore, AFT will use the standard Farm Loan Programs application criteria described throughout 7 CFR parts 761 and 764.

Applications that satisfy the AFT standards do not ultimately depend on FSA validation of cash flow budgets to determine feasibility; however, each applicant is still required to complete a cash flow budget as a part of their business plan, regardless of whether or not the applicant satisfies the AFT standards. Creation of realistic cash flow budgets remains an important component of successful business planning, but those applications meeting the AFT standards will undergo formal loan evaluation of repayment ability and farm operating plan viability through the alternative AFT process. Furthermore, only 25 percent of applications are anticipated to qualify for AFT, which means the majority of loan applications will still require thorough evaluation of cash flow budgets by FSA staff as part of the standard underwriting process.

AFT Evaluation

Upon receipt of a complete application, FSA staff will load application data into its underwriting platform. Once loaded, the AFT scoring tool developed in the underwriting platform will be used by loan staff to evaluate a consistent set of selected financial variables for each application. To avoid potential manipulation of financial data, the ranges and weights of each benchmarked variable are maintained solely by select FSA headquarters development staff. The variables evaluated are optimized to identify applications with a reduced probability of default based on the analysis of the historic Farm Loan Programs portfolio data. The variables assessed in AFT consist only of validated data from financial statements submitted by the applicant to FSA and an applicant's repayment history.

The scoring tool evaluates the selected financial variables against the pre-determined benchmark ranges and determines if the applicant meets the minimum scoring threshold to qualify for the AFT underwriting process. If the applicant meets the AFT standards, a modified feasibility evaluation will be conducted by FSA staff as described in the Feasibility Evaluation section. Alternatively, applicants who do not qualify for the AFT process will continue to have their application processed consistent with the traditional underwriting and feasibility evaluation processes that require cash flow budget validation.

It is emphasized that the inability to qualify for the AFT process will never result in a loan application being denied. Instead of a potential expedited AFT feasibility evaluation, the applications that do not meet the AFT scoring threshold will undergo the routine evaluation and underwriting process currently in effect. AFT is designed to complement existing underwriting methods and is being used to create an efficiency in direct loan processing for the entire portfolio.

Also, applicants who meet the AFT standards will not receive an automatic loan approval, as other criteria, including eligibility and security provisions, still need to be satisfied.

General Eligibility Evaluation

General eligibility requirements are unchanged for loans processed under AFT. FSA staff will still be required to evaluate the ability of an applicant to obtain credit at reasonable rates and terms from commercial credit sources. For those applications qualified to be processed under AFT, test for other credit eligibility will need to be based on factors other than projected cash flow budget data. This may include, but is not limited to, an analysis of area lender standards, an applicant's historic performance and current financial statements.

Feasibility Evaluation

Applicants who qualify for AFT will undergo a modified feasibility evaluation by FSA staff. FSA staff will assess the applicant's financial strengths and viability in the farm assessment based on the selected AFT financial variables. For AFT-qualifying applicants, FSA staff will not take additional steps to validate the income and expense projections as is typically completed per established regulation.

Security

AFT will not change existing security requirements for loans.

Loan Requirements, Amounts, Rates, Terms, Conditions, and Regulatory Waivers

The loan making requirements, amounts, terms, and conditions of the loans processed under AFT are the same as standard Farm Loan Programs loans with the following exceptions to existing processes and regulatory requirements which otherwise apply to loans authorized under subtitle A, B, and C of the CONACT:

(1) An AFT applicant must provide a farm operating plan that is accurate and verifiable, which will be evaluated by FSA to assess compliance with loan requirements and to determine loan terms. The regulations in 7 CFR 761.103(b)(6) and (7), 7 CFR 761.103(c)(2) and (4), and 7 CFR 761.104(c), (d), (e), (f) and (g), which provide guidance on income, expense, yield, and price planning to create accurate and verifiable cash flow budgets for farm operating plans, are waived only to the extent these regulations require FSA to verify the accuracy of a cash flow budget, because FSA will not verify the accuracy of cash flow budget projections for applicants participating in AFT due to sufficient assurances of plan feasibility from the AFT benchmarking financial review process;

(2) While the farm operating plan will be evaluated by FSA, its cash flow evaluation will not be the basis for feasibility determinations for applicants participating in AFT. The AFT evaluation itself reflects the applicant's ability to successfully repay the loan. The requirements in 7 CFR 764.401(a)(1)(i) and (b)(1) are waived to the extent the regulation requires FSA to validate the farm operating plan cash flow budget;

(3) All regular FOs under AFT will have a 40-year equally amortized repayment term while all Microloan FOs under AFT will have a 25-year term, and all Down Payment FOs will have a 20-year term, notwithstanding that FO repayment terms will not exceed the useful life of security. A reduced repayment term must be requested by the applicant in writing. A consistent repayment term is necessary because AFT does not require a validated cash flow operating plan, which would be necessary to determine the ability of the applicant to accommodate alternate repayment terms. The requirements in 7 CFR 764.154(b) and (b)(1) are waived to the extent the regulation requires FO loan repayment terms to be based on the applicant's ability to repay;

(4) All OLs under AFT other than annual OLs will have a 7-year equally amortized repayment term. OL repayment terms for purposes other than annual operating expenses will be equal to the useful life of security or 7 years, whichever is less. A reduced repayment term must be requested by the applicant in writing. A consistent repayment term is necessary because AFT does not require a validated cash flow operating plan, which would be necessary to determine the ability of the applicant to accommodate alternate repayment terms. The requirement in 7 CFR 764.254(b)(2) is waived to the extent the regulation provides for alternative OL repayment terms;

(5) Repayment installments will be equally amortized over the life of the loan and are not eligible for unequal installments including interest only or balloon payments. A consistent repayment term is necessary because AFT does not require a validated cash flow operating plan, which would be necessary to determine the ability of the applicant to accommodate alternate repayment terms;

(6) Approved AFT applications are not eligible to be considered for limited resource rates because AFT does not require a validated cash flow operating plan, which would be necessary to determine the potential need for limited resource rates. Instead, the standard cost of money interest rate will be used for AFT applicants. The requirements in 7 CFR 764.154(a)(2) and 764.254(a)(2) are waived to the extent the regulations allow FSA to provide a limited resource interest rate to applicants who are unable to develop a feasible plan;

(7) FSA must ensure the maximum loan limits in 7 CFR 761.8 are not exceeded at the time of loan closing. However, 7 CFR 761.8(a) is waived to the extent the regulation requires an evaluation of a cash flow budget to make that assessment at closing;

(8) The OL amount for AFT loans for annual operating expense purposes are subject to existing maximum loan limits and will not exceed both:

a. 75 percent of the Gross Farm Income reported on the most recent available Tax Return; and

b. the total Gross Farm Income in the projected cash flow budget submitted by the applicant as part of the loan application.

The requirement in 7 CFR 764.107(b)(1), which establishes the security value of annual crop production as equal to the annual OL amount developed as part of the farm operating plan cash flow budget, is waived to the extent inconsistent with part A and B of this exception because AFT does not require a validated cash flow operating plan, which would be necessary to validate the value of annual crop production;

(9) An applicant who qualifies and has their loan approved through AFT will be granted a waiver of borrower training requirements as they have demonstrated sufficient management ability to qualify for the waiver as reflected by the financial strength of their operations that qualified those applicants for AFT. The requirements in 7 CFR 764.453(a) and (b) are waived to the extent the regulation sets other conditions for a borrower to receive a waiver of borrower training requirements; and

(10) To be consistent with existing regulations, FSA must complete a Year-end analysis when a borrower is being considered for a new loan. However, the requirement in 7 CFR 765.105(b) is waived to the extent the regulation requires an evaluation of a cash flow budget to complete that analysis.

All provisions of the CONACT applicable to the Farm Loan Programs apply to loans made under AFT. Unless waived or adjusted by this document, all regulatory requirements applicable to the Farm Loan Programs apply to loans made under AFT. All standard operating procedures applicable to the Farm Loan Programs that are not superseded by any provision of this document apply to loans made under AFT.

Approval Notification and Loan Closing

As the application process for customers remains the same regardless of whether or not they qualify for AFT, the first time an applicant will be officially notified that their application was processed using the AFT method will be at the time of loan approval. Specifically, a customer will be informed on Part C of form FSA–2313 “Notification of Loan Approval and Borrower Responsibilities” that their loan application was approved using the AFT process. The applicant will be required to acknowledge their application was approved using the AFT underwriting evaluation and concur that they wish to proceed with loan closing. The applicant will also be given the opportunity to not accept the loan approval conditions and request a meeting with FSA to discuss any concerns. If the applicant requests a traditional underwriting evaluation be completed, FSA will reevaluate the application and make an updated final disposition. If the loan application is approved using traditional underwriting evaluation, a new form FSA–2313 will be issued. If the application is not approved using traditional underwriting evaluation, FSA will issue a written denial letter with appeal rights.

Loan Servicing

Loan servicing requirements are unchanged for loans processed under AFT.

Contact Information

Questions on AFT may be directed to the Farm Loan Programs staff in the local FSA county office. The local FSA county office may be found at http://www.farmers.gov/working-with-us/USDA-service-centers .

Paperwork Reduction Act Requirements

In accordance with the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), there are no changes the information collection approved by OMB under control numbers 0560–0236 and 0560–0237.

Environmental Review

The environmental impacts have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321- 4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500–1508), and the FSA regulations for compliance with NEPA (7 CFR part 799).

The purpose of AFT is to improve internal underwriting processes to expedite Farm Loan Programs application processing. The limited discretionary aspects of AFT do not have the potential to impact the human environment as they are administrative. Accordingly, these discretionary aspects are covered by the categorical exclusions in 7 CFR 799.31(b)(3)(i) that applies to Farm Loan Programs, provided no extraordinary circumstances are found to exist. As such, the implementation of AFT and the participation in AFT do not constitute major Federal actions that would significantly affect the quality of the human environment, individually or cumulatively. Therefore, FSA will not prepare an environmental assessment or environmental impact statement for this action and this document serves as documentation of the programmatic environmental compliance decision for this federal action.

Federal Assistance Programs

The title and number of the Federal assistance programs, as found in the Assistance Listing, to which this document applies is 10.406 Farm Operating Loans and 10.407 Farm Ownership Loans.

USDA Non-Discrimination Policy

In accordance with Federal civil rights law and USDA civil rights regulations and policies, USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family or parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Individuals who require alternative means of communication for program information (for example, braille, large print, audiotape, American Sign Language, etc.) should contact the responsible Agency or 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). Additionally, program information may be made available in languages other than English.

To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD–3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all the information requested in the form. To request a copy of the complaint form, call (866) 632–9992. Submit your completed form or letter to USDA by mail to: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250–9410 or email: OAC@usda.gov.

USDA is an equal opportunity provider, employer, and lender.