HR6779-119

What This Bill Does

The USDA Loan Modernization Act updates eligibility rules in the Consolidated Farm and Rural Development Act for three USDA farm credit pathways: real estate loans, operating loans, and emergency loans. Across those programs, it changes several owner-operator thresholds from a majority to at least 50 percent. It lets qualified operators, as defined by the Secretary of Agriculture, satisfy operator requirements. For real estate and emergency loans, it allows operating-only entities to satisfy owner-operator requirements when one or more individuals owning the real estate owns at least 50 percent of the applicant, or another percentage the Secretary determines appropriate. For real estate, operating, and emergency loans, it also recognizes embedded ownership structures, allowing an entity owned in whole or in part by other entities to meet direct ownership requirements when at least 75 percent of total ownership interests are owned directly or indirectly by qualified operators of the farm. The bill is aimed at farm businesses organized through partnerships, LLCs, family entities, layered entities, or operating entities that do not fit older majority-ownership tests.

Who Benefits and How

Farm operators with exactly 50 percent ownership benefit because they can qualify where a majority threshold would have excluded them. Qualified operators benefit because USDA can treat their operating role as satisfying operator requirements. Operating-only farm entities benefit because they can access real estate or emergency loan pathways when tied to real estate owners that meet the ownership test. Embedded farm entities and modern family farm structures benefit from a 75 percent qualified-operator ownership pathway. Rural lenders, farm advisers, and borrowers benefit from clearer USDA eligibility rules for complex farm ownership structures.

Who Bears the Burden and How

USDA Farm Service Agency loan staff must define qualified operators, apply new 50 percent and 75 percent tests, evaluate operating-only entities, and review embedded entity ownership. Applicants with complex ownership must document direct and indirect ownership interests and operator status. Borrowers who do not meet the revised ownership tests remain excluded. Federal taxpayers bear the credit risk and administrative cost of any expanded loan eligibility.

Key Provisions

• Expands real estate loan eligibility by replacing majority ownership with at least 50 percent ownership.
• Provides qualified-operator and operating-only entity pathways for real estate loans.
• Expands operating loan eligibility for qualified operators and embedded entities.
• Expands emergency loan eligibility by applying 50 percent ownership, qualified-operator, operating-only entity, and embedded-entity rules.
• Requires USDA loan staff to administer direct and indirect ownership tests for modern farm business structures.