1 1 (June 03, 2020)

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               Researh Sevice






COVID-19 and USDA Farm Loan Flexibilities



June 3, 2020
On May 21, 2020, the U.S. Department of Agriculture (USDA) temporarily expanded the Disaster Set-
Aside (DSA) provision to allow flexibility for farm loan repayment due to the economic effects of the
Coronavirus Disease 2019 (COVID-19) pandemic. The set-aside provision allows a borrower to move a
loan payment owed to USDA's Farm Service Agency (FSA) to the end of the loan or, in the case of an
annual operating loan, to extend the payment by a year. Interest continues to accrue on the deferred
principal; neither the interest nor the principal is forgiven. The set-aside (deferment) is meant to provide
financial relief and cash flow flexibility during a crisis.
Earlier during the pandemic, on March 26, 2020, USDA announced certain flexibilities in its loan-making
and servicing procedures. These included relaxing deadlines, accommodating social distancing, and
temporarily suspending loan accelerations and new foreclosures.

Disaster Set-Aside Provision
Disaster set-aside has been available to FSA farm loan borrowers since 1994 (7 C.F.R. 766.51-61). The
underlying authority (Section 331 A of the Consolidated Farm and Rural Development Act, 7 U.S.C.
 1981 a) gives the Secretary of Agriculture discretion to defer principal and interest to forgo foreclosure if
a borrower is temporarily unable to make payment due to circumstances beyond the borrower's control.
USDA implemented the regulations to apply to natural disasters but has made temporary exceptions for
losses due to low prices in 1998 and 1999 (64 federal[Register 392, January 5, 1999; and 65 Federal
Register 31248, May 17, 2000) and now for the COVID-19 pandemic in 2020.
The DSA affects loans made and serviced by FSA, referred to as direct loans. The DSA covers direct farm
ownership (real estate) loans and direct farm operating loans but may also apply to conservation and
emergency loans that are also direct. The DSA does not apply to guaranteed loans that are made and
serviced by an originating lender such as the Farm Credit System (FCS) or commercial banks. (See CRS
Report RS21977, Agricultural Credit: Institutions and Issues.) DSA is intended to allow borrowers to
recover from losses without incurring additional debt or liquidating assets. The cost to the government is
less than forgiving debt. Normally, one set-aside installment is allowed for each loan, but the temporarily
expanded provision allows for a second set-aside if one already exists.




                                                                 Congressional Research Service
                                                                   https://crsreports.congress.gov
                                                                                       IN11415

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