RESTRUCTURING DISTRESSED LOANS.

SEC. 102. RESTRUCTURING DISTRESSED LOANS. (a) In General.— Part C of title IV is amended by inserting after section 4.14 (12 U.S.C. 2202) the following new sections: “SEC. 4.14A. RESTRUCTURING DISTRESSED LOANS. “(a) Definitions.— As used in this part (other than in sections 4.17 and 4.18): “(1) Application for restructuring.— The term ‘application for restructuring’ means a written request— “(A) from a borrower for the restructuring of a distressed loan in accordance with a preliminary restructuring plan proposed by the borrower as a part of the application; “(B) submitted on the appropriate forms prescribed by the qualified lender; and “(C) accompanied by sufficient financial information and repayment projections, where appropriate, as required by the qualified lender to support a sound credit decision. “(2) Cost of foreclosure.— The term ‘cost of foreclosure’ includes— “(A) the difference between the outstanding balance due on a loan made by a qualified lender and the liquidation value of the loan, taking into consideration the borrower’s repayment capacity and the liquidation value of the collateral used to secure the loan; “(B) the estimated cost of maintaining a loan as a nonperforming asset; “(C) the estimated cost of administrative and legal actions necessary to foreclose a loan and dispose of property acquired as the result of the foreclosure, including attorneys’ fees and court costs; “(D) the estimated cost of changes in the value of collateral used to secure a loan during the period beginning on the date of the initiation of an action to foreclose or liquidate the loan and ending on the date of the disposition of the collateral; and “(E) all other costs incurred as the result of the foreclosure or liquidation of a loan. “(3) Distressed loan.— The term ‘distressed loan’ means a loan that the borrower does not have the financial capacity to pay according to its terms and that exhibits one or more of the following characteristics: “(A) The borrower is demonstrating adverse financial and repayment trends. “(B) The loan is delinquent or past due under the terms of the loan contract. “(C) One or both of the factors listed in subparagraphs (A) and (B), together with inadequate collateralization, present a high probability of loss to the lender. “(4) Foreclosure proceeding.— The term ‘foreclosure proceeding’ means— “(A) a foreclosure or similar legal proceeding to enforce a lien on property, whether real or personal, that secures a nonaccrual or distressed loan; or “(B) the seizing of and realizing on nonreal property collateral, other than collateral subject to a statutory lien arising under title I or II, to effect collection of a nonaccrual or distressed loan. 101 STAT. 1575 “(5) Loan.— The term ‘loan’ means a loan made to a farmer, rancher, or producer or harvester of aquatic products, for any agricultural or aquatic purpose and other credit needs of the borrower, including financing for basic processing and marketing directly related to the borrower’s operations and those of other eligible farmers, ranchers, and producers or harvesters of aquatic products. “(6) Qualified lender.— The term ‘qualified lender’ means— “(A) a System institution that makes loans (as defined in paragraph (5)) except a bank for cooperatives; and “(B) each bank, institution, corporation, company, union, and association described in section 2.3(a)(2) but only with respect to loans discounted or pledged under section 2.3(a). “(7) Restructure and restructuring.— The terms ‘restructure’ and ‘restructuring’ include rescheduling, reamortization, renewal, deferral of principal or interest, monetary concessions, and the taking of any other action to modify the terms of, or forbear on, a loan in any way that will make it probable that the operations of the borrower will become financially viable. “(b) Notice.— “(1) In general.— On a determination by a qualified lender that a loan made by the lender is or has become a distressed loan, the lender shall provide written notice to the borrower that the loan may be suitable for restructuring, and include with such notice— “(A) a copy of the policy of the lender established under subsection (g) that governs the treatment of distressed loans; and “(B) all materials necessary to enable the borrower to submit an application for restructuring on the loan. “(2) Notice before foreclosure.— Not later than 45 days before any qualified lender begins foreclosure proceedings with respect to a loan outstanding to any borrower, the lender shall notify the borrower that the loan may be suitable for restructuring and that the lender will review any such suitable loan for restructuring, and shall include with such notice a copy of the policy and the materials described in paragraph (1). “(3) Limitation on foreclosure.— No qualified lender may foreclose or continue any foreclosure proceeding with respect to any distressed loan before the lender has completed any pending consideration of the loan for restructuring under this section. “(c) Meetings.— On determination by a qualified lender that a loan made by the lender is or has become a distressed loan, the lender shall provide a reasonable opportunity for the borrower thereof to personally meet with a representative of the lender— “(1) to review the status of the loan, the financial condition of the borrower, and the suitability of the loan for restructuring; and “(2) with respect to a loan that is in nonaccrual status, to develop a plan for restructuring the loan if the loan is suitable for restructuring. “(d) Consideration of Applications.— “(1) In general.— When a qualified lender receives an application for restructuring from a borrower, the qualified lender shall determine whether or not to restructure the loan, taking into consideration— 101 STAT. 1576 “(A) whether the cost to the lender of restructuring the loan is equal to or less than the cost of foreclosure; “(B) whether the borrower is applying all income over and above necessary and reasonable living and operating expenses to the payment of primary obligations; “(C) whether the borrower has the financial capacity and the management skills to protect the collateral from diversion, dissipation, or deterioration; “(D) whether the borrower is capable of working out existing financial difficulties, reestablishing a viable operation, and repaying the loan on a rescheduled basis; and “(E) in the case of a distressed loan that is not delinquent, whether restructuring consistent with sound lending practices may be taken to reasonably ensure that the loan will not become a loan that it is necessary to place in nonaccrual status. “(2) Applications not required for restructuring plans.— This section shall not prevent a qualified lender from proposing a restructuring plan for an individual borrower in the absence of an application for restructuring from the borrower. “(e) Restructuring.— “(1) In general.— If a qualified lender determines that the potential cost to a qualified lender of restructuring the loan in accordance with a proposed restructuring plan is less than or equal to the potential cost of foreclosure, the qualified lender shall restructure the loan in accordance with the plan. “(2) Computation of cost of restructuring.— In determining whether the potential cost to the qualified lender of restructuring a distressed loan is less than or equal to the potential cost of foreclosure, a qualified lender shall consider all relevant factors, including— “(A) the present value of interest income and principal forgone by the lender in carrying out the restructuring plan; “(B) reasonable and necessary administrative expenses involved in working with the borrower to finalize and implement the restructuring plan; “(C) whether the borrower has presented a preliminary restructuring plan and cash-flow analysis taking into account income from all sources to be applied to the debt and all assets to be pledged, showing a reasonable probability that orderly debt retirement will occur as a result of the proposed restructuring; and “(D) whether the borrower has furnished or is willing to furnish complete and current financial statements in a form acceptable to the institution. “(f) Least Cost Alternative.— If two or more restructuring alternatives are available to a qualified lender under this section with respect to a distressed loan, the lender shall restructure the loan in conformity with the alternative that results in the least cost to the lender. “(g) Restructuring Policy.— “(1) Establishment.— Each farm credit district board of directors shall develop a policy within 60 days after the date of the enactment of this section, that is consistent with this section, to govern the restructuring of distressed loans. Such policy shall 101 STAT. 1577constitute the restructuring policy of each qualified lender within the district. “(2) Contents of policy.— The policy established under paragraph (1) shall include an explanation of— “(A) the procedure for submitting an application for restructuring; and “(B) the right of borrowers with distressed loans to seek review by a credit review committee in accordance with section 4.14 of a denial of an application for restructuring. “(3) Submission of policy to fca.— Each district board shall submit the policy of the district governing the treatment of distressed loans under this section to the Farm Credit Administration. Notwithstanding the duty imposed by the preceding sentence, the other duties imposed by this section shall take effect on the date of the enactment of this section. “(h) Reports.— During the 5-year period beginning on the date of the enactment of this section, each qualified lender shall submit semiannual reports to the Farm Credit Administration containing— “(1) the results of the review of distressed loans of the lender; and “(2) the financial effect of loan restructurings and liquidations on the lender. “(i) Compliance.— The Farm Credit Administration may issue a directive requiring compliance with any provision of this section to any qualified lender that fails to comply with such provision. “(j) Permitted Foreclosures.— This section shall not be construed to prevent any qualified lender from enforcing any contractual provision that allows the lender to foreclose a loan, or from taking such other lawful action as the lender deems appropriate, if the lender has reasonable grounds to believe that the loan collateral will be destroyed, dissipated, consumed, concealed, or permanently removed from the State in which the collateral is located. “(k) Application of Section.— The time limitation prescribed in subsection (b)(2), and the requirements of subsection (c), shall not apply to a loan that became a distressed loan before the date of the enactment of this section if the borrower and lender of the loan are in the process of negotiating loan restructuring with respect to the loan. “(l) Assistance in Restructuring.— Each Federal intermediate credit bank, on request of any production credit association, may assist the association in restructuring loans under this section. “SEC. 4.14B. EFFECT OF RESTRUCTURING ON BORROWER STOCK. “(a) Federal Land Bank.— If a Federal land bank forgives and writes off, under section 4.14A, any of the principal outstanding on a loan made to any borrower, the Federal land bank association of which the borrower is a member and stockholder shall cancel the same dollar amount of borrower stock held by the borrower in respect of the loan, up to the total amount of such stock, and the Federal land bank shall retire an equal amount of stock owned by the Federal land bank association. “(b) Production Credit Association.— If a production credit association forgives and writes off, under section 4.14A, any of the principal outstanding on a loan made to any borrower, the association snail cancel the same dollar amount of borrower stock held by the borrower in respect of the loan, up to the total amount of such stock. 101 STAT. 1578 “(c) Retention of Stock.— Notwithstanding subsections (a) and (b), the borrower shall be entitled to retain at least one share of stock to maintain the borrower’s membership and voting interest in the association. “SEC. 4.14C. REVIEW OF RESTRUCTURING DENIALS. “(a) Requirements for Restructuring by System Institutions.— “(1) Existing nonaccrual loans.— Within 9 months after a qualified lender is certified under section 6.4, such lender shall review each loan that has not been previously restructured and that is in nonaccrual status on the date the lender is certified, and determine whether to restructure the loan. “(2) New nonaccrual loans.— Within 6 months after a loan made by a certified lender is placed in nonaccrual status, the lender shall determine whether to restructure the loan. “(b) Special Asset Groups.— “(1) Establishment.— Within 30 days after a qualified lender in a district is certified to issue preferred stock under section 6.27, the district board of such district shall establish a special asset group that shall review each determination by the lender not to restructure a loan. “(2) Restructuring plan.— If a special asset group determines under paragraph (1) that a loan under review should be restructured, the group shall prescribe a restructuring plan for the loan that the qualified lender shall implement. “(c) National Special Asset Council.— “(1) Establishment.— A National Special Asset Council shall be established by the Assistance Board to— “(A) monitor compliance with the restructuring requirements of this section by qualified lenders certified to issue preferred stock under section 6.27, and by special asset groups established under subsection (b); and “(B) review a sample of determinations made by each special asset group that a loan will not be restructured. “(2) Review of determination.— The National Special Asset Council shall review a sufficient number of determinations made by each special asset group to foreclose on any loan to assure the Council that such group is complying with this section. With regard to each determination reviewed, the Council shall make an independent judgment on the merits of the decision to foreclose rather than restructure the loan. “(3) Noncompliance.— If the National Special Asset Council determines that any special asset group is not in substantial compliance with this section, the Council shall notify the group of the determination, and may take such other action as the Council considers necessary to ensure that such group complies with this section. “(d) Report.— With respect to determinations by a special asset group that a loan will not be restructured, the special asset group shall submit to the National Special Asset Council a report evaluating the loan and the basis for the determination that the loan should not be restructured. “(e) Restructuring Factors.— In determining whether a loan is to be restructured, the National Special Asset Council, each special asset group, and each qualified lender certified under section 6.4 101 STAT. 1579shall take into consideration the factors specified in section 4.14A(d)(1).”. (b) Sense of Congress.— It is the sense of Congress that the banks and associations (except banks for cooperatives) operating under the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.) should administer distressed loans to farmers with the objective of using the loan guarantee programs of the Farmers Home Administration and other loan restructuring measures, including participation in interest rate buy-down programs that are Federally or State funded, and other Federal and State sponsored financial assistance programs that offer relief to financially distressed farmers, as alternatives to foreclosure, considering the availability and appropriateness of such programs on a case-by-case basis.