The Farmers Home Administration (FmHA), after a storm of congressional protests, is revising proposed new rules that would have sharply curbed the agency's operating loans to thousands of farmers.

By some estimates, the new rules would have prevented about half of the FmHA's 275,000 borrowers -- farmers who cannot obtain credit elsewhere -- from obtaining federal assistance.

FmHA spokesman Joseph O'Neill said the proposals will be "modified" but could not provide a timetable for reissuance.

At congressional hearings this spring, FmHA Administrator Vance L. Clark said the new rules were meant to streamline procedures and improve loan servicing. Legislators protested that the proposals undermined FmHA's role as lender of last resort and ran counter to credit sections of the 1985 farm bill.

Sen. Kent Conrad (D-N.D.) and Rep. Byron L. Dorgan (D-N.D.), among others, have introduced legislation aimed at forcing the FmHA to offer overdue borrowers more forbearance and to clarify policy on the sale of surplus land from FmHA's foreclosure inventory.

These and other policy changes are expected to be added to a bill in the works to provide federal assistance to the beleaguered Farm Credit System, whose officials have testified that it will need a $6 billion line of credit this year to avoid collapse.

Meanwhile, FmHA's running battle with farmer-advocacy groups took another turn late last month as the agency's policies came under new assaults in federal courts in Nebraska and North Dakota.

In North Dakota, U.S. District Court Judge Bruce Van Sickle held that the FmHA acted unconstitutionally in attempting to liquidate about 14,000 long-delinquent borrowers. Van Sickle is considering a motion that would bar the agency from moving against these farmers.

In seeking the order, the Farmers' Legal Action Group of St. Paul, Minn., contended that the FmHA had sent out notices that farmers could not read or understand. The litigation group earlier had warned the FmHA that its new notices did not meet requirements set by Van Sickle in a 1983 lawsuit.

James T. Massey, the group's executive director, said that "the loans of 14,000 farmers have been accelerated, and another 65,000 who have received notices of action by the FmHA are at risk." As an account is "accelerated," the agency cuts off operating and family-expense money that other farmers receive.

"Congress is still saying loud and clear that we want to salvage these people. It has come down to a fundamental ideological and philosophical fiscal dispute -- Congress says 'yes' and the White House says 'no.' They {FmHA} are attempting to get a fourth of their borrowers off the rolls. And another 20 percent of the FmHA's clients are in distress. They'll be next," Massey said.

Lloyd Stewart, a Carson, N.D., farmer who works with the Dakota Resource Council, said, "If the judge rules for the farmers, they will have some time to work out of their difficulties. But if he allows the FmHA to continue as it is, there would be an astronomical impact -- 88,000 farmers affected since FmHA warned them of foreclosure actions in December of 1985."

In Nebraska, two young family-farm couples sued the agency over another issue -- its refusal to allow them to purchase land from the FmHA foreclosure inventory. The suit contended that the FmHA violated the 1985 farm law, which required it to give FmHA-eligible family farmers first preference on land sales.

In one case, the apparent high bidders on a 40-acre surplus parcel, which they intended to finance through FmHA, were turned down in favor of a cash buyer. In the other, a farming couple lost out in bidding on a parcel of north-central Nebraska farm land to a Washington, D.C., trustee for an unnamed buyer.

Gene Severens, an attorney for the Center for Rural Affairs at Walthill, Neb., which helped prepare the suit, charged that the FmHA "is flagrantly violating both congressional law and its own regulations . . . . This 'surplus' land is already owned by the FmHA. They just don't want to make a sale that they have to finance.

"FmHA has 1.5 million acres of farm land inventory," Severens said. "By law, that land should be used in the {farm} rebuilding process. Instead, the resource is being squandered by going to those who need it least."