                             ___________

                             No. 95-2435
                             ___________

In re: Ralph C. Roso,             *
                                  *
          Debtor.                 *
                                  *   Appeal from the United States
------------------------------    *   District Court for the
                                  *   District of North Dakota.
United States of America,         *
                                  *
          Appellant,              *
                                  *
     v.                           *
                                  *
Ralph C. Roso,                    *
                                  *
          Appellee.               *


                             ___________

                    Submitted:   December 11, 1995

                        Filed: January 30, 1996
                             ___________

Before BOWMAN and LOKEN, Circuit Judges, and SCHWARZER,* District
     Judge.
                           ___________

BOWMAN, Circuit Judge.


     Chapter 13 of the Bankruptcy Code requires that, before
approving a debtor's plan, a bankruptcy court must find that "with
respect to each allowed secured claim . . . the value, as of the
effective date of the plan, of property to be distributed under the
plan on account of such claim is not less than the allowed amount
of such claim." 11 U.S.C. § 1325(a)(5)(B)(ii) (1994). We have


     *THE HONORABLE WILLIAM W. SCHWARZER, United States
     District Judge for the Northern District of California,
     sitting by designation.
interpreted this statutory language to require that such claims be
"valued under the `market rate' approach" and receive a "`market
rate' of interest." USDA v. Fisher (In re Fisher), 930 F.2d 1361,
1363 (8th Cir. 1991) (Chapter 12).      This case requires us to
examine the meaning of a "market rate of interest."


     Ralph C. Roso filed for bankruptcy under Chapter 13.      The
United States, through the Farmers Home Administration (FmHA), is
a secured creditor.     In his plan, Roso proposed to retain
possession of his property and repay his debt to the FmHA (as
reduced under his proposed plan) at an interest rate of 6.5%. The
FmHA objected to the plan, arguing that 6.5% is below the market
rate of interest. The Bankruptcy Court confirmed the plan over the
government's objection, and the District Court affirmed the
Bankruptcy Court's decision.


     In the hearing before the Bankruptcy Court, which was held on
July 18, 1994, the government offered the testimony of Rodney
Hogan, a farm loan specialist employed by the FmHA.          Hogan
testified that the FmHA has two rates for real estate and secured
chattel loans:    a subsidized rate for beginning farmers and a
regular rate. Hogan testified that as of July 1, 1994, the two
rates were 5% and 8% respectively.     He also testified that the
interest rates offered by commercial lenders varied between 8% and
11% depending on the length of the repayment term and the
collateral securing the loan.        On cross-examination, Hogan
explained that the FmHA makes the subsidized loans to new farmers
under a special program. Under that program, the FmHA first offers
real estate in its inventory to new farmers at a subsidized
interest rate before allowing the general public to bid on the
land. Hogan further explained that the FmHA would earn 5% interest
on a loan if the FmHA foreclosed on Roso's land and sold it with a
mortgage to a new farmer, but would earn 8% interest if, after
first offering the land to new farmers, the FmHA sold the land to
a buyer who was not eligible for the special program.

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     Roso, splitting the difference between the 5% and 8% FmHA
interest rates, argued that 6.5% is a reasonable market rate of
interest. The Bankruptcy Court and the District Court agreed with
Roso. The District Court rejected the government's contention that
a market rate of interest under Fisher is the same as the rate that
would be available from commercial lenders. The court held "that
the bankruptcy court was authorized to consider the unique
statutory position of the FMhA [sic] in determining `market
value.'" United States v. Roso (In re Roso), No. A1-94-120, Mem.
& Order at 3 (D.N.D. Apr. 6, 1995). The government timely appeals.
We have jurisdiction over this appeal pursuant to 28 U.S.C.
§ 158(d) (1994), and we now reverse.


     "In bankruptcy proceedings, this Court sits as a second court
of review, applying the same standards of review as the District
Court." Jones Truck Lines, Inc., v. Foster's Truck & Equip. Sales,
Inc. (In re Jones Truck Lines, Inc.), 63 F.3d 685, 686 (8th Cir.
1995). "We review the findings of fact of a bankruptcy court for
clear error and its conclusions of law de novo."        Id.   The
determination of the factors that appropriately may be considered
when calculating the market rate of interest is an issue of law,
while the final determination of the market rate is an issue of
fact.


     We conclude that the Bankruptcy Court should not have
considered the subsidized interest rate available to new farmers.
By definition, a subsidized rate of interest is not a market rate
of interest. It is a rate of interest below the market rate. The
government administers a program, designed to assist new farmers,
in which the new farmer pays only 5% interest on his or her FmHA
loan.   The 5% rate is below the market rate of interest.     The
difference between the 5% rate and the market rate is a subsidy
provided by the government to the subsidized borrower. Roso does
not argue that he would be entitled to the 5% subsidized rate of
interest; to the contrary, it is undisputed that Roso cannot

                               -3-
qualify for the FmHA's special new-farmer program.    It    is also
undisputed that Roso could not obtain a loan at a 5%        rate of
interest were he to seek a loan in the market. The best     rate of
interest that Roso could hope to obtain, as shown by this   record,
is 8%.


     In sum, we conclude that the Bankruptcy Court's finding that
the market rate of interest is 6.5% is clearly erroneous because it
is based on an error of law. The market rate of interest within
the meaning of Fisher cannot be determined by reference to a
subsidized rate of interest offered by the FmHA to new farmers.
The judgment of the District Court affirming the judgment of the
Bankruptcy Court is reversed, and the case is remanded to the
District Court with instructions to remand the case to the
Bankruptcy Court to decide in the first instance the market rate of
interest without considering the subsidized 5% rate available to
new farmers through the FmHA.



     A true copy.


          Attest:


               CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.




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