Driving Efficiency in Farm Loan Delivery

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Federal Register / Vol. 91, No. 171 / Friday, September 4, 2026 / Rules and Regulations

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 763, 764, 765, 766, 767, 768, 770, 772, 773, 774

Driving Efficiency in Farm Loan Delivery

Farm Service Agency, USDA.

Final rule.

The Farm Service Agency (FSA) is amending the Farm Loan Program (FLP) regulations to permanently implement the Application Fast Track (AFT) process, which expedites underwriting for certain direct loan applicants by using financial benchmarks and historical repayment data to identify applicants least likely to default. This rule also includes regulatory changes intended to improve program efficiency and support IT modernization efforts consisting of minor policy changes, clarifications, and technical corrections. These changes are part of FSA's ongoing effort to deliver farmer-focused programs in the most efficient and cost-effective manner possible.

Effective date: October 1, 2026.

Matthew Henderson; telephone: (202) 720-5847; email: [email protected]. Individuals who require alternative means of 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).

Table of Contents

I. Background II. AFT Implementation III. IT Modernization IV. Other Regulatory Changes A. Minor Policy Changes Limited to Direct Loans 1. Age of Real Estate Appraisals for Direct Loans 2. Repayment Terms for Direct Loans 3. Borrower Training Provisions 4. Conversion of EM Loans to Non-Program Rates and Terms 5. Limited Resource Reviews 6. Direct Loan Subordinations 7. Appraisals for Security Released Without Compensation 8. Certified Mailing Requirements 9. Request To Extend Balloon Installment 10. Real Estate Evaluations and Related Definitions B. Minor Policy Changes Limited to Guaranteed Loans 1. Delegated Authority for Certain Guaranteed Lenders 2. Concurrence Requirements for Unguaranteed Loans or Advances 3. Annual Analyses for Guaranteed Loans 4. Real Estate Evaluations for Guaranteed Loans C. Minor Policy Changes Affecting Both Direct and Guaranteed Loans 1. Crop Insurance Requirements D. Clarifications and Technical Corrections Limited to Direct Loans 1. Farm Assessments 2. Additional Security for Direct FO Loans 3. Youth Loan Clarification 4. Direct OL Security 5. Application of Loan Payment Proceeds 6. Deferred, Non-Capitalized Interest 7. Releases Without Compensation 8. Updates to Form FSA-2510 9. Removal of Obsolete Net Recovery Buyout Recapture Agreements 10. Unauthorized Assistance Clarification 11. Equitable Relief 12. Removal of Obsolete Provisions E. Clarifications and Technical Corrections Limited to Guaranteed Loans 1. Definition of Adequate Security F. Clarifications and Technical Corrections Affecting Both Direct and Guaranteed Loans 1. Delegation of Authority for FSA Employees 2. Updates to CFR References 3. References to Chattel Property 4. Definitions of Administrative Appraisal Review, Market Value, and Potential Liquidation Value V. Regulatory Analyses A. Notice and Comment and Effective Date B. Executive Orders 12866, 13563, and 14192 C. Environmental Review D. Executive Order 13175 E. Unfunded Mandates Reform Act F. Paperwork Reduction Act Requirements G. E-Government Act Compliance

FSA makes and services direct and guaranteed loans to farmers and ranchers who are unable to obtain sufficient commercial credit at reasonable rates and terms. FSA also provides direct loan borrowers with credit counseling and supervision to help improve their financial management and increase their likelihood of success. FSA loan applicants typically include: Beginning farmers who do not yet meet commercial lenders' underwriting requirements; and Established farmers who have experienced financial setbacks due to natural disasters or other economic conditions. FSA loans are tailored to meet the specific needs of farmers and may be used to purchase personal property, acquire farmland, finance agricultural production, or address other operational needs. The Consolidated Farm and Rural Development Act (CONACT, Pub. L. 87-128, as amended; 7 U.S.C. 1921-2009cc-18) provides the authority for most FLP loans, including farm ownership (FO), operating (OL), and emergency (EM) loans. In August 2023, FSA launched the AFT pilot program to provide expedited loan processing for low-risk direct loan applicants (88 FR 51260-51265). FSA extended the pilot on September 30, 2024 (89 FR 79504), and again on December 31, 2025 (90 FR 61362). AFT offers an alternative underwriting process for applicants who meet specified financial benchmarks and have a favorable repayment history, enabling accelerated application processing. The pilot initially operated in 166 service centers and was subsequently expanded; AFT has been available to all qualifying customers nationwide since January 1, 2024. The AFT pilot has substantially improved processing times for all customers without any notable impact on portfolio performance or loan repayment. During the pilot period from August 2023 through the present time, an average of 23 percent of direct loan customers qualified for AFT, and application processing time for those customers decreased by approximately 8 calendar days. These efficiencies translate into an estimated annual savings of 58,000 staff hours, allowing staff to devote additional time to assisting other applicants. This rule permanently implements AFT and makes other regulatory

changes as part of FSA's ongoing efforts to improve the timeliness and efficiency of program delivery. This action represents a step in FSA's broader initiative to deliver assistance to farmers and ranchers more efficiently. This rule also facilitates IT modernization efforts for guaranteed loans and makes other regulatory changes to reduce administrative burdens, improve program access, and enhance overall program efficiency. The regulatory changes are organized into two groups: (1) minor policy changes; and (2) clarifications and technical corrections. Each group includes changes that apply only to direct loans, only to guaranteed loans, or to both direct and guaranteed loans. Most of the regulatory changes in this rule do not substantially alter existing policy and are anticipated to affect a relatively small number of farmers. However, some changes are more substantial and will affect many direct and guaranteed loan customers. These changes include provisions that grant delegated authority to certain guaranteed lenders, clarify direct loan collateral valuation policies, and facilitate improvements to loan servicing processes. The delegated authority provisions streamline the process for preferred lenders--who are the most experienced and highest-performing participants in the guaranteed loan program--to obtain an FSA loan guarantee. The clarifications to collateral valuation for direct loans ensure that FSA loans remain adequately secured while reducing the time required to close loans. The loan servicing updates ensure that flexibilities related to direct loan collateral subordinations (subordination allows another lender to be paid before the Government in the event of liquidation) remain available to producers who fully comply with their loan agreements, while still protecting the Government's security interest. The CONACT requires that all FLP applicants and loans meet specified eligibility, security, and feasibility requirements. This rule ensures that FLP regulations remain aligned with the CONACT while reflecting producer needs and modernizing underwriting standards. Although many of the changes in this rule are technical corrections or clarifications, this rule also includes minor FLP policy updates that respond to customer needs and incorporate modernized processes that more closely align with commercial agricultural lending practices. Throughout this rule, any reference to "farm" or "farmer" also includes "ranch" or "rancher," respectively.

FSA developed and piloted AFT, which uses data analytics to improve loan-making efficiencies. AFT uses a hybrid approach modeled after scoring tools used by commercial lenders and is designed to improve processing times for applicants who demonstrate low expected default risk based on specific financial benchmarking criteria and favorable repayment history. To develop AFT, FSA analyzed hundreds of financial variables associated with over 100,000 direct loans to identify the common characteristics of borrowers with strong repayment histories. A streamlined approach was developed to determine which financial variables are most consistently associated with borrowers who exhibit strong repayment performance, while remaining consistent with FSA's business process constraints. These financial variables were used to develop a statistical regression model and a scoring tool to identify applicants with the highest probability of successful loan repayment. The model identified 24 percent of all direct loan applicants as eligible for AFT. The AFT scoring tool does not use projected cash flow data. For applicants who meet or exceed the minimum AFT scoring threshold, the scoring tool provides sufficient assurance of the applicant's ability to repay. All applicants must still submit a cash flow budget. However, for those applicants later approved through the AFT process, FSA staff are not required to conduct the traditional manual verification of projected income and expenses associated with conventional projected cash flow analysis. The absence of a cash flow analysis by FSA requires loans approved through AFT to have equally amortized installments after the first year, as a detailed cash flow analysis would otherwise be necessary to justify additional unequal installments. Loans approved through AFT are also limited to FSA's standard interest rates for the respective loan program, including the joint financing rates as provided in 7 CFR 764.154(a)(3), and are not eligible for further subsidized, limited resource interest rates. Since AFT is designed for the highest- performing borrowers, these standard rates and terms generally provide sufficient opportunity to build an adequate equity base. However, borrowers who believe they need additional unequal installments or limited resource interest rates may opt out of having their request processed through AFT, which makes those flexible options available to them. This rule incorporates AFT into FSA's regulations, ensuring that FSA can continue offering this type of alternative underwriting process to applicants who meet established financial benchmarks. The types of loan transactions eligible for AFT are specified in 7 CFR 764.401 and include all loan transactions other than EM, youth loans (YL), and loans made in conjunction with other servicing actions. Formalizing AFT through regulation will not affect application submission requirements, eligibility requirements, authorized loan purposes, or security requirements for direct loan applicants.

USDA is modernizing the IT systems that support FLP to expedite loan delivery. This multi-year effort will begin with the guaranteed loan program and later extend to all FLP loans. The modernized system will enable electronic submission of loan applications and supporting documents, replacing the Agency's largely paper-based process, and will support electronic delivery of lender notifications and other materials that have traditionally required manual processing. This rule makes several changes to support implementation of the modernized IT system for guaranteed loans, including clarifying that applications may be submitted electronically or by paper. It also specifies that lender notifications issued during application intake may be provided electronically or in paper form, consistent with the method of application submission. In addition, this rule updates regulatory provisions to allow the electronic delivery and acceptance of loan approval documents, loan guarantee documents, and guaranteed loan servicing documents. It also removes prior requirements that obligated guaranteed lenders to identify specific branches covered by their lender status. Eliminating these requirements will support implementation of the modernized IT system and reduce administrative burden, as lender status will now apply to the institution as a whole.

In addition to making AFT permanent and facilitating IT modernization, FSA is making discretionary regulatory changes to clarify and amend existing processes and requirements to support farmer-focused program delivery. FSA has determined that clarifying

information in the regulation will make it easier for borrowers to understand program requirements. Certain amendments and technical corrections do not constitute policy changes and are discussed in more detail later in this rule. This rule also updates cross references where necessary throughout the regulations and corrects minor grammatical errors. As previously outlined, the regulatory changes in this rule are organized into two groups: (1) minor policy changes; and (2) clarifications and technical corrections. Each group includes changes that apply only to direct loans, only to guaranteed loans, or to both direct and guaranteed loans. The following discussion provides additional detail on the amendments identified as minor policy changes. Below that, clarifications and technical corrections are discussed, in that order.

1. Age of Real Estate Appraisals for Direct Loans Under current regulations, a real estate appraisal for a direct loan must have been completed within the previous 18 months at the time the Agency makes an approval decision. This requirement was originally intended to ensure that the value of real estate used to secure the loan reflects current market information and up-to-date property information. Appraisals for guaranteed loans, however, have historically allowed greater flexibility regarding the age of the appraisal. Economic analysis shows that farm real estate values are relatively stable over the long term, with observed fluctuations generally showing increases rather than decreases in value. Therefore, commercial industry practice permits the use of an older real estate appraisal when the lender can document specific conditions related to the subject property. For FSA guaranteed loans, lenders may already rely on a real estate appraisal older than 18 months if: (1) the lender can document that market conditions have remained stable or improved; (2) the property is in the same or better condition; and (3) the property's value has remained the same or increased. With this rule, FSA will apply a similar policy to direct loans and increase the acceptable age of a real estate appraisal for direct loans in 7 CFR 761.7. Allowing the use of real estate appraisals older than 18 months old will reduce the number of new appraisals that FSA must fund and will shorten loan processing and closing times. Before relying on an older appraisal, the authorized Agency official must document the three criteria listed above to ensure that the use of such appraisal does not increase Agency risk. This rule also establishes a maximum threshold prohibiting the use of any appraisal more than 36 months old for direct loans. This provision is intended to support and strengthen the Agency's risk-mitigation efforts. 2. Repayment Terms for Direct Loans FSA regulations for most direct loan programs currently specify that the first installment will be an interest-only payment due 12 months after loan closing, unless the loan applicant submits a written request for an alternative repayment arrangement. FSA data indicate that the majority of direct loan applicants request an alternative arrangement that allows them to begin repaying loan principal within the first 12 months after receiving their loan. Since most direct loan applicants elect not to use the interest-only installment, FSA is amending 7 CFR 764.154, 764.254, and 764.354 to remove the requirement that borrowers must submit a written request if they choose not to use an interest-only installment in the first year of a direct loan. Interest-only installments and other flexible repayment terms will continue to be available to borrowers. This change only removes the written-request requirement for borrowers who choose to begin repaying principal with their first installment or who choose to have their first installment due less than 12 months after loan closing. 3. Borrower Training Provisions FSA regulations generally require recipients of direct loans to complete a financial training course within 2 years of receiving their loan. Borrowers may request a waiver of this requirement if they have previously completed a similar training course or can demonstrate sufficient financial management skills and operational experience. Currently, borrowers must request a training waiver in writing, separate from their loan application, which creates an unnecessary administrative burden because most FSA applicants request a waiver. This rule removes the requirement that borrowers submit a separate written request for a financial training waiver in 7 CFR 764.453 and 764.454. FSA will continue to evaluate each borrower's eligibility for a waiver using the existing criteria and inform the borrower as to any need for financial training. 4. Conversion of EM Loans to Non-Program Rates and Terms Congress designed FSA direct loans to be a temporary source of credit to enable farmers to start or maintain their operations until they are able to qualify for commercial credit at reasonable rates and terms. Consistent with this purpose, FSA periodically reviews the financial condition of direct loan borrowers to determine whether they are able to graduate to commercial credit. When FSA determines that a borrower is financially capable of graduation, the borrower is required to actively seek and apply for commercial credit to refinance their FSA debt. Failure to do so constitutes non-monetary default. When a borrower is in non-monetary default for failure to graduate, FSA has allowed FO and OL borrowers to convert their loans to non- program rates and terms to avoid acceleration and foreclosure. Non- program rates and terms generally match those available from commercial lenders and are not subsidized like typical FSA interest rates. As a result, allowing a capable borrower to convert their FO or OL loans to non-program rates and terms effectively eliminates the Government subsidy and achieves an outcome comparable to graduation. When this policy was originally implemented for FO and OL loans (89 FR 65020, August 8, 2024), the regulation inadvertently did not include the corresponding amendment for EM loans in 7 CFR 765.102. This rule corrects that omission and clarifies that EM loans may be converted to non-program rates and terms when a borrower fails to graduate. 5. Limited Resource Reviews FSA may offer a direct loan applicant a "limited resource rate" when the applicant is unable to develop a feasible farm operating plan at the regular interest rate but can do so, with a positive cash flow, at a lower, limited resource rate. Once a borrower receives a loan with a limited resource rate, the Agency is required to periodically review the borrower's financial condition to determine whether the reduced rate continues to be needed for the operation to remain viable. A "limited resource review" is conducted as part of the broader "operational review" process, which is a structured assessment of an existing direct loan borrower's farming operation to evaluate compliance, efficiency, and accuracy, and requires extensive documentation. An operational review identifies risks and corrects operational gaps, which

may result in repayment or restructuring actions when necessary. In 2025, FSA revised its administrative guidance to clarify that operational reviews are required, for most borrowers, every 3 years. To align the regulatory requirements with this updated guidance, this rule amends 7 CFR 761.105 and 765.51 to change the required frequency of limited resource reviews from every 2 years to every 3 years. 6. Direct Loan Subordinations FSA regulations allow the Agency to subordinate its lien position to a commercial lender to facilitate new financing for a mutual customer in certain circumstances. The new loan may be either an FSA- guaranteed loan or an unguaranteed commercial loan. Although many commercial lenders are willing to provide credit to farmers who have existing FSA direct loans, most lender policies and regulatory standards require the lender to obtain a first lien position on the proposed loan security. As a result, borrowers may request that FSA subordinate its lien position in favor of the commercial lender so the new loan can be repaid first upon sale of the loan security. Subordination allows borrowers to access necessary additional credit while maintaining adequate security for the FSA loan through established safeguards that govern the circumstances in which subordinations may be approved. Existing regulations require borrowers requesting an FSA subordination to a commercial lender to submit a farm operating plan and cash flow budget and require FSA to analyze that cash flow budget with the same level of scrutiny applied to applications for additional direct loan funds. However, the primary consideration in evaluating such a subordination request involves the adequacy of loan collateral given FSA's new lien position after the subordination is executed. Since FSA is not extending new credit, the borrower's repayment schedule for their FSA loan(s) remains the same. Additionally, commercial lenders extending the new credit are required to independently verify the borrower's repayment capacity to service the new debt. Therefore, any additional cash flow analysis by FSA is redundant and unnecessary. This rule removes the requirement for direct loan borrowers to submit, and for FSA to conduct, a financial feasibility review of a separate cash flow projection and farm operating plan when a direct loan subordination is requested in 7 CFR 761.105 and 765.205. All other requirements for direct loan subordinations will remain unchanged, including, but not limited to, the stipulations that the borrower is not in default on their FSA loan and that FSA has verified that the FLP loan will remain adequately secured after the subordination. 7. Appraisals for Security Released Without Compensation When a borrower requests the release of a portion of loan security "without compensation," FSA evaluates whether the loan will remain adequately secured. The term "without compensation" refers to situations in which FSA releases its claim on a portion of the collateral without requiring the borrower to make a payment to FSA in exchange for that release. FSA typically appraises the property that will remain as security to verify that its market value is sufficient to secure the remaining balance of the FSA loan. FSA is removing the requirement to appraise the property being released because its value is not relevant to decisions on releases without compensation. The appraisal or evaluation of remaining collateral will continue, as it provides the basis for determining whether the loan remains adequately secured. Valuation of the property being released will still be required when compensation is involved to ensure that the compensation received by the borrower reflects fair market value. FSA is removing this non-essential appraisal requirement for releases without compensation in 7 CFR 765.305 and 765.351 to reduce administrative burden and appraisal costs. 8. Certified Mailing Requirements Section 331D of the CONACT (7 U.S.C. 1981d) requires FSA to provide loan servicing notifications by certified mail to borrowers who are at least 90 days past due on their installments. However, FSA's implementing regulations at 7 CFR 766.101 require certified mail for primary loan servicing notices for all delinquent borrowers, including those less than 90 days past due. Because certified mail is more costly and may require additional processing time compared to other delivery methods that also provide confirmation of receipt, FSA is revising 7 CFR 766.101 to require certified mail only when specifically required by statute--that is, for borrowers 90 days or more past due. This change will improve efficiency and reduce costs. Borrowers who are less than 90 days past due will continue to receive timely loan servicing notifications via delivery methods other than certified mail, and no other loan servicing notification requirements are being changed. 9. Request To Extend Balloon Installment In 7 CFR 766.120, FSA provides direct loan borrowers the opportunity to extend an upcoming balloon installment outside of the primary loan servicing process when certain requirements are met, including that the loan be current. FSA has received requests for balloon installment extensions so close to the due date that the Agency is unable to process the transaction before the installment becomes past due. Therefore, to qualify for this quick restructure option, a borrower must now submit the request no later than 30 days prior to the balloon installment due date. Borrowers who submit a request less than 30 days before the installment due date may still be eligible to have the balloon installment restructured; however, they will not be able to use the quick restructure option and will instead be required to use the traditional primary loan servicing procedure, which is a lengthier process. 10. Real Estate Evaluations and Related Definitions Establishing the value of proposed real estate security is a key component of the loan approval process. FSA seeks to ensure that the value of the real estate pledged as collateral is at least equal to the loan amount to ensure that adequate proceeds will be available to repay the loan in full if it cannot be repaid through cash flow and the collateral must be liquidated. In many cases, FSA is also required, when additional security is available, to obtain security for direct loans up to 125 percent of the loan amount to account for potential fluctuations in the value of collateral over time. For clarity, collateral refers to the physical asset, such as farmland, pledged for the loan, while security refers to the lender's legal interest or lien on that asset. Real estate collateral value is typically established through a formal appraisal conducted by a State Certified General Appraiser in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). Although FSA employs staff appraisers throughout the country, demand for appraisals exceeds internal capacity, and most appraisals are obtained by contracting with private sector appraisers. The average real estate appraisal contracted by FSA costs between $2,000 and $3,000 and is completed

approximately 30 to 45 days after FSA initiates the request. These costs are paid by FSA and require annual appropriations from Congress. Producers frequently express concerns about the length of time required to receive a direct FO loan for the purchase of real estate partially due to the length of the appraisal process. In some cases, the time between the submission of a loan application and closing may exceed 90 days. OMB Circular A-129 (Revised), Policies for Federal Credit Programs and Non-Tax Receivables (Office of Management and Budget, August 2025), provides guidance on the valuation of collateral. For many years, this circular has permitted Federal agencies to use a less formal real estate evaluation for smaller loans instead of a full appraisal. Evaluations are conducted by individuals trained to assess real estate value but who are not licensed appraisers. FSA has used evaluations for microloans of up to $50,000 to expedite loan closing and has not experienced increased losses attributable to the use of evaluations instead of appraisals. OMB updated circular A-129 in 2025 to increase the dollar thresholds at which agencies must obtain a formal appraisal: to over $500,000 for commercial real estate transactions and over $250,000 for business loans. Previously, the circular established a $250,000 threshold for business loans but did not separately address commercial real estate transactions. This rule updates 7 CFR 761.7 to align with the revised OMB guidance, allowing FSA to use real estate evaluations instead of an appraisal for business loans of $250,000 or less and for commercial real estate transactions of $500,000 or less. Applicants and borrowers will retain the right to appeal the Agency's real estate evaluation if it leads to an adverse decision, consistent with appeals procedures applicable to formal real estate appraisals. These changes will allow FSA to reduce the time to loan closing for many direct FO loans and result in cost savings to taxpayers. This rule also adds definitions related to real estate evaluations in 7 CFR 761.2. In developing definitions for "business loan" and "commercial real estate transaction", FSA reviewed definitions used by commercial lending regulators, including the Farm Credit Administration (FCA) and the Federal Deposit Insurance Corporation (FDIC). Generally, OLs correspond to business loans and FOs correspond to commercial real estate transactions. The definition of "commercial real estate transaction" clarifies that such transactions include most real estate-secured loans except those secured by property that is primarily residential. As a result, this rule will allow FSA to complete evaluations for new FO loans with a transaction value up to $500,000 for farm real estate containing a residence, as long as the property is not primarily residential. EM loans with shorter terms will generally be processed as business loans, while EM loans with longer terms secured by real estate will generally be processed as commercial real estate transactions. EM loans may either be short-term or long- term depending on the nature of a producer's loss created by a natural disaster. The expanded use of real estate evaluations will not apply to primary loan servicing; appraisals for servicing actions will continue to follow existing policy. In addition to the definitions discussed above, FSA is also adding related definitions for "appraisal", "non-residential real property", "real estate evaluation", and "real estate-related financial transaction". These definitions provide necessary context to implement the changes described above.