The 2008 Farm Bill Credit Provisions Bill Burton Area Agricultural Economics Specialist Cooperative Extension Service Oklahoma State University

Abbreviations and definitions BF/R = Beginning Farmer/Rancher FO = farm ownership OL = Operating loan SD = Socially disadvantaged Must have been subject to racial, ethnic, or gender prejudice. Women, American Indians, African Americans, Alaskan Natives, Hispanics, Asian Americans and Pacific Islanders

Beginning Farmer/Rancher FO Loans Previous legislation Have not operated a farm/ranch for more than 10 years Meets the loan eligibility requirements of the program Substantially participates in the operation Does not own a farm greater than 30 percent of the median size farm in the county Must have participated in the business operation of a farm for at least 3 years out of the last 10 years 2008 Farm Bill Farm experience no matter when it occurred Section 5001

Conservation Loan and Loan Guarantee Programs Qualified Conservation Loans for USDA approved projects Installing structures, water conservation measures, waste management systems Establishing forest cover Establishment or improvement of permanent pasture Other No regulations yet (2009 funding) Section 5002

Conservation Loan and Loan Guarantee Programs (continued) Eligible borrowers include farmers, ranchers and other entities controlled by them engaged in production ag Priority to Beginning farmers/ranchers SDA farmers/ranchers Owners/tenants converting to sustainable or organic ag production systems Producers building structures or practices to comply with section 1212 of FSA 1985 Section 5002

Conservation Loan and Loan Guarantee Programs (continued) Guarantee limited to 75% of the principal Loans made or guaranteed should be geographically dispersed Priority to SDA BF but may be opened to others at a higher interest rate Section 5002

Limitations on FO Loans Previous legislation Borrowing limit = $200,000 Guarantee limit = $982,000 2008 Farm Bill Borrowing limit = $300,000 Guarantee limit = $1,094,000 Section 5003

Down Payment Loan Program Previous legislation Financing for beginning farmers/ranchers at 4% fixed rates for up to 15 years at 40% of sale price appraised value 2008 Farm Bill Adds SD farmers/ranchers 45% of purchase price, appraised value or $500,000 whichever is lowest Interest rate 4% below regular direct FO loan rate, minimum of 1.5% Section 5004

Down Payment Loan Program (continued) 2008 Farm Bill Increases loan duration from 15 to 20 years Reduces borrower down payment from 10% to 5% Requires Secretary to establish annual performance goals to promote use Section 5004

BF/R and SDA Contract Land Sales Program Previous legislation Established pilot program to guarantee up to 5 loans per state made by a private seller to qualified BF/R if underwriting criteria met and commercial lending institution agreed to serve as escrow agent 15 states and we won’t know for a couple of months who gets it Section 5005

BF/R and SDA Contract Land Sales Program (continued) 2008 Farm Bill Expands to include SDA Permanent and nationwide Minimum down payment of 5% Maximum purchase price of $500,000 Maximum loan period of 10 years Acceptable credit history Unable to obtain credit without guarantee Section 5005

BF/R and SDA Contract Land Sales Program (continued) 2008 Farm Bill Offers sellers choice of guarantee options Prompt payment guarantee plan 3 amortized annual installments An amount equal to 3 annual installments Standard guarantee plan coving an amount equal to 90 percent of the outstanding principal Seller must secure a commercial entity to serve as an escrow agent or Use an appropriate, approved alternate arrangement Section 5005

Operating Loans Previous legislation 2008 Farm Bill Must have participated in the business operation of a farm for at least 3 years Borrowing limit of $200,000 Waived eligibility time limits on guaranteed OL through May 2008 on a case by case basis, one-time, up to 2 years 2008 Farm Bill Farm experience no matter when it occurred Borrowing limit of $300,000 Extends waiver eligibility through Dec. 31, 2010 for guaranteed loans only Section 5101, 5102, 5103

Emergency Loans 2008 Farm Bill Makes equine farmers/ranchers eligible for emergency loans Section 5201

Administrative Provisions New Farmer Individual Development Account (IDA) Pilot Program Matching-funds savings accounts for BF/R At least 15 states Will require monthly deposit into personal savings Agreement on eligible expenditures for which savings will be used at end of contract Agreement on level of matching of at least 100% but not more than 200% of savings, up to $6,000 Eligible expenditures: farmland, breeding stock , trees and other similar expenditures No regs but hope to know in the next couple of months FSA won’t regulate Section 5301

Administrative Provisions New Farmer Individual Development Account (IDA) Pilot Program Savings account entities must provide 50% non-Federal match with up to 10% of Federal match for admin expenses New farmer must lack significant assets have an income that is either below 80% of State’s median or below 200% of State’s poverty income guidelines Complete financial training Section 5301

Inventory Sales Preferences Previous legislation Beginning farmers have preference to buy FSA inventory farm property for 135 days Property divided or combined to make more suitable for these borrowers 2008 Farm Bill Extends preference for 135 days to include SD If more than 1 offer, buyer chosen randomly Section 5302

Loan fund set asides Previous legislation reserved for BF/R 70% of available funds of FO loans of which 60% were reserved for down payment loans. 25% of available funds for guaranteed ownership loans 35% of funds for direct OL 2008 Farm Bill reserves for BF/R 75% of available funds of FO loans of which 2/3 are reserved for down payment loans and joint financing 40% of available funds for guaranteed ownership loans 50% of funds for direct OL Section 5302

Transition to Private Commercial or Other Sources of Credit Must encourage transition of borrowers in shortest practicable time Section 5304

Extension of Right of First Refusal to Reacquire Homestead Property to Immediate Family Members of Borrower-Owner Previous legislation Established the right 2008 Farm Bill Extends right to SD groups. Eliminates right of first refusal to borrowers who are not members of SD groups. Section 5305

Loans to Purchasers of Highly Fractioned Land 2008 Farm Bill Secretary may make and insure loans to Indian tribal members of highly fractioned land Excludes trust land, restricted tribal land, or tribal corporation land Section 5501

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