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§ 307.5 Additional requirements in connection with loans to homestead entrymen, contract purchasers of farm units from the Bureau of Reclamation and certain Indians. Whenever loans are made subject to agreements with other Government agencies, the title clearance and loan closing requirements of special instructions with respect thereto, as well as those of this part, will be applicable. § 307.6 Cancellation of loan.

If for any reason it is determined that the loan cannot be made, the County Supervisor will promptly notify the borrower and those who are involved in the particular case at the time the determination is made, such as sellers (if land is being acquired), designated attorney, other local attorney, Office of the General Counsel, and title insurance company or its local representative.

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In the case of every such loan closed after November 20, 1962, the borrower shall not discriminate, or permit discrimination by any agent, lessee, or other operator, in the use or ocupancy of the housing or related facilities because of race, color, creed, or national origin.

§ 308.4 Mortgage covenant.

In the case of every such loan closed after receipt by the County Supervisor of Administration Letter 777 (444), the mortgage or other security instrument shall contain the following covenant:

Borrower covenants and agrees that borrower will not discriminate, or permit discrimination by any agent, lessee, or other operator, in the use or occupancy of the housing or related facilities financed in whole or in part with the loan in connection with which this instrument is given, because of race, color, creed, or national origin. § 308.5 Violations.

Discrimination in violation of the regulations in this part shall constitute default under the mortgage or other security instrument held by the Government in connection with the loan.

SUBCHAPTER B-FARM OWNERSHIP LOANS

PART 322-APPRAISAL OF FARMS

Sec.

322.1 322.2

General.

Definitions of values to be recommended.

322.3 Long-time commodity prices, costs, and other basic appraisal data. AUTHORITY: §§ 322.1 to 322.3 issued under R.S. 161, secs. 41, 6, 50 Stat. 528, as amended, 870, sec. 510, 63 Stat. 437, sec. 4, 64 Stat. 100; 5 U.S.C. 22, 7 U.S.C. 1015, 16 U.S.C. 590w, 42 U.S.C. 1480, 40 U.S.C. 442. Interpret or apply sec. 2, 50 Stat. 523, as amended; 7 U.S.C. 1002.

SOURCE: §§ 322.1 to 322.3 appear at 21 F.R. 6207, Aug. 18, 1956, except as otherwise noted. § 322.1

General.

(a) Appraisals required. An appraisal report will be required in connection with each initial Farm Ownership and Farm Housing loan, and in connection with each Soil and Water Conservation loan in excess of $5,000 to be secured by a lien on the farm to be improved. An appraisal report also will be prepared when required by Farmers Home Administration regulations or when requested by the County Committee, County Supervisor, or State Director in connection with making subsequent loans, initial Soil and Water Conservation loans not in excess of $5,000, and servicing loans where real estate is taken as security.

(b) Employees authorized to appraise farms. For the purpose of this part, an "appraiser" is an employee of the Farmers Home Administration who has been designated in writing to appraise farms.

(c) Appraisal forms. Form FHA-596, "Appraisal Report," and Form FHA596B, "Map of Farm," will be used in recording appraisals. In addition, when a farm under consideration is to be irrigated or is located in a drainage or levee district, or when minerals, timber, or other rights are leased, reserved, or exempted, Form FHA-596A, "Supplemental Report (Irrigation, Drainage, Levee, and Minerals)," will be used to the extent applicable.

(d) Real estate improvements to be considered. In making an appraisal, the appraiser will consider the real estate improvements already on the farm and those to be made by the applicant in connection with the loan, rather than those real estate improvements that a typical operator would have.

(e) Typical owner-operator. In appraising the farm, the appraiser will assume that the farm will be operated by a typical owner-operator for the area in which the farm is located. Such operator will be representative of the farmers in the area who possess average skills and managerial ability. The typical operator to be assumed should not be one who is significantly above or below average in managerial ability for the area. For example, the appraiser will assume that the operator would be a typical dairyman if the farm being appraised is in an area where both dairy farming and corn-hog farming have proven successful and the farm has building and land resources, including improvements to be made in connection with the loan, which make it more suitable for dairying.

[21 F. R. 6207, Aug. 18, 1956, as amended at 21 F. R. 9789, Dec. 12, 1956]

§ 322.2 Definitions of values to be rec

ommended.

(a) Normal earning capacity value. This value is defined as the maximum amount that can be invested safely in a family-type farm consistent with the net income that the farm unit reasonably can be expected to produce, after any planned land and building improvements are completed. A distinction will be made between "normal earning capacity" and "normal earning capacity value." The term "normal earning capacity" means the long-time average annual production and income that reasonably can be expected from the farm. The term "normal earning capacity value" is an expression of the value of the farm based on its normal earning capacity. It is determined in connection with familytype farms being considered for Title I loans. For a normal earning capacity appraisal, the appraiser will:

(1) Make the following assumptions: (i) The farm will be operated by a typical owner-operator for the area.

(ii) Cropping and livestock systems used are typical for the farm under consideration and will maintain the anticipated productivity. In determining the proper cropping system, the appraiser will take into account acreage allotments for the basic crops.

(iii) Average crop yields and livestock production estimates are used for the farm under consideration.

(iv) Approved commodity prices and farm operating costs are employed in estimating net income.

(v) The farm will be improved as shown in the Farm Development Plan.

(vi) The normal farm operating and family living expenses, the cost of necessary farm and equipment repairs and replacements, and principal and interest payments will be met out of farm income.

(vii) Income credited to the farm will include only income from the sale of farm commodities.

(2) Consider the amount that could be invested in the farm based upon capitalization of the net farm income available for payment on real estate loans. The minimum capitalization rate will be six percent. Farming systems which include major enterprises considered to be high-risk enterprises, or farms located in areas with unusual hazards such as droughts, hail, flood, and frosts which cause yields to fluctuate to the extent that net farm income is reduced significantly at rather frequent intervals, should be capitalized at rates higher than six percent.

(3) Determine the normal earning capacity value which should be consistent with and supported fully by the earning ability of the farm. Such value, however, is not merely a mathematical computation resulting from capitalization of the net farm income available for payment on the real estate loan(s). Some other factors that he must consider in determining normal earning capacity value

are:

(i) The desirability of the farm for a home.

(ii) The adaptability of the farm for alternative systems of farming.

(iii) Natural characteristics of the farm that would cause it to remain productive or characteristics that would cause production to decline because of such factors as erosion or leaching.

(b) Normal market value of farm as improved. This value is defined as the amount a typical purchaser would, under normal conditions, be willing to pay and be justified in paying for the farm, as improved, for farming purposes and for any nonagricultural assets the farm may have. This value is reflected by prices at which comparable properties in the community have been sold for similar use over a period of years, assuming long-time prices and costs. This value assumes that the farm normally may be expected to sell for that amount with a

reasonable amount of effort and that the purchaser is a willing but not anxious buyer and the seller is a willing but not forced seller. Some of the important factors that the appraiser must consider in determining the normal market value

are:

(1) Net farm earnings to the owneroperator and to the landlord based on long-time prices and cost.

(2) Improvement shown on the Farm Development Plan.

(3) Hazards of weather and highrisk enterprises.

(4) Location of farm with respect to: (i) Off-farm employment opportunities and dependability of such employment.

(ii) Community services such as schools, churches, markets, trading centers, and roads.

(5) Condition and suitability of buildings.

(6) Condition and productivity of land.

(7) Nonagricultural assets such as timber, gravel, stone, or proven minerals.

(8) The price at which comparable properties in the area have sold. These prices will be adjusted to normal market values.

(9) Opinion of informed people who are familiar with real estate values in the area such as agricultural leaders, real estate brokers, and private and cooperative lenders.

(c) Normal market value of acreage to be purchased. This value will be determined as outlined in paragraph (b) of this section, except that planned improvements to be made by the applicant in connection with the loan will not be considered.

(d) Present market value of farm as improved. This value is defined as the amount a typical purchaser would be willing to pay and be justified in paying for the farm, as improved, for farming purposes and for any nonagricultural assets the farm may have. This value assumes that on the current market the farm may be expected to sell for that amount with a reasonable amount of effort and that the purchaser is a willing but not anxious buyer and the seller is a willing but not forced seller. In determining present market value, the appraiser will consider the same factors as listed in paragraph (b) of this section as they apply to present conditions rather than normal conditions.

§ 322.3

Long-time commodity prices, costs, and other basic appraisal data. Long-time prices for farm commodities, long-time farm operating and family living costs, and other basic appraisal data will be used in the preparation of Form FHA-596.

(a) Long-time commodity price schedules. A State schedule of long-time farm commodity prices will be prepared by the State Director. Each State schedule will be submitted to the National Office for approval before issuance.

(b) Cost schedules. A State schedule of cost items will be prepared by the State Director.

(c) Other basic appraisal data. The State Director will assemble other basic appraisal data for use of employees authorized to appraise farms as an aid to securing greater consistency in appraisals. All available sources of materials, such as publications of Agricultural Experiment Stations, Agricultural Colleges, United States Department of Agriculture, and so forth, should be utilized in developing and assembling the data. Such data will include to the extent practicable:

(1) A listing of recognized systems of farming, and the areas in the State where applicable.

(2) Standard crop rotations for various soils, conditions, and enterprises. (3) Approved feed tables.

(4) Hired labor cost figures. (5) Machinery requirements and depreciation rates.

(6) Tractor expense data.

(7) Values of buildings and depreciation rates.

(8) Method of determining the cash expense for family living.

(9) Capitalization rates.

(10) Other items which will be helpful to appraisers.

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This part outlines the policies and authorities for making insured and direct Farm Ownership loans under Title I of the Bankhead-Jones Farm Tenant Act, as amended (7 U.S.C. 1000 et seq.). As used in this part, the term "insured loan" means a loan made from funds furnished by lenders and insured by the Government at the time of closing, or a loan made from the insurance fund pursuant to Public Law 85-748, 85th Congress (7 U.S.C. 1006e), and insured by the Government subsequent to closing, or both, as appropriate. "Direct loan" means a loan made from funds authorized annually by the Congress. The making of Farm Ownership loans to Indians is subject to the additional policies and procedures contained in Part 392 of this chapter.

[24 F.R. 10941, Dec. 30, 1959] § 331.2

Objectives.

The basic objectives of Farm Ownership loans are to enable farm families to become soundly established in a successful system of farming and to qualify for credit from other sources within a reasonable period, to promote more secure Occupancy of farms and farm homes, and to correct economic instability resulting from changing conditions and some forms of farm tenancy. Primary emphasis will be given to assisting farm families who will conduct a familytype farming operation. Supervision will be provided borrowers to the extent necessary to achieve the objectives of the loan and to protect the interests of the Government in accordance with Part 302 of this chapter. These objectives will be accomplished by extending credit and supervisory assistance to:

(a) Individuals who will be owneroperators of family-type farms that will provide adequate income to meet living and operating expenses and amounts due on their loans.

(b) Disabled veterans who will be owner-operators of less than family-type farms that, together with their pensions, will provide adequate income to meet living and operating expenses and amounts due on their loans.

(c) Individuals who are established bona fide farmers and owner-operators of less than family-type farms that, with income from other sources, will enable the family to meet living and operating expenses and amounts due on their loans. (Secs. 1, 41, 50 Stat. 522, as amended, 528, as amended, sec. 18, 72 Stat. 840; 7 U.S.C. 1001, 1015, 1006e; Order of Acting Sec. of Agr., 19 F.R. 74, 22 F.R. 8188) [26 F.R. 7121, Aug. 9, 1961]

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(a) Family-type farm. A family-type farm is defined as a farm (1) that is of sufficient size and productivity to furnish income that will enable a farm family to have a reasonable standard of living, pay operating expenses, including maintenance of necessary livestock, farm and home equipment, land and buildings, pay their debts, and have a reasonable reserve to meet unforseen emergencies, (2) for which the management is furnished by the operator and his immediate family, and (3) for which the labor is furnished primarily by such operator and family except during seasonal peakload periods. It is not intended to include in this definition farms which require large amounts of seasonal hired labor.

(b) Less than family-type farm. A less than family-type farm is defined as a farm on which the applicant's income from the land he owns will be insufficient to meet the requirements of a familytype farm as defined in paragraph (a) of this section. In any case, to be suitable for a Farm Ownership loan, a less than family-type farm is one (1) that will produce agricultural commodities in sufficient quantities that the proceeds from their sale will be a substantial portion of the operator's total cash income, (2) that will provide farm income which together with any income from other sources, including income from rented land or grazing permits, will enable the family to have a reasonable standard of living, pay operating expenses, pay their debts, and have a reasonable reserve for unforeseen emergencies, (3) on which the management is furnished by the operator and his immediate family, (4) for which the labor is furnished primarily by the

operator and his immediate family except during seasonable peak-load periods, and (5) that will be recognized in the community as a farm rather than a rural residence. It is not intended to include in this definition farms which require large amounts of seasonal hired labor.

(c) Farm. The word "farm" as used in regulations relating to Farm Ownership loans includes the land, buildings, fences, water, water stock, water facilities, and other improvements which customarily pass with the farm in the change of ownership.

(1) In some states, certain improvement items or appurtenances which ordinarily would be considered a part of the real estate may, by agreement between the owner of the land and the person furnishing or using such appurtenances, remain personal property. Such an agreement would be binding on a Farm Ownership borrower who purchases the land. In all cases where funds are included in a Farm Ownership loan to purchase such improvement or appurtenances, the County Supervisor, with the advice of the designated attorney, title insurance company, or the Office of the General Counsel, will ascertain that such appurtenances are free from any liens or encumbrances and are covered adequately by a first real estate or chattel mortgage.

(2) In some areas, facilities or improvement items not generally considered to be a part of the real estate, however, ordinarily do pass with the land when such a farm changes ownership. If it is administratively determined that certain such items customarily do pass with the land in the area, Farm Ownership loan funds may be included for the acquisition of such items necessary to the efficient operation of the farm. The advice of the designated attorney, title insurance company, or the Office of the General Counsel should be obtained in such cases. Where such facilities or improvement items do not commonly pass with the land when such a farm Farm changes ownership, Ownership loan funds will not be used for acquisition of the facilities even though such facilities may be necessary to the efficient operation of the farm.

(d) Average value. The term "average value" for a county, parish, or locality means the average value efficient family-type farm-management

of

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