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Revisions to Direct Farm Loan Programs Appraisal Regulations
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[Federal Register: June 2, 2004 (Volume 69, Number 106)]
[Rules and Regulations]
[Page 30997-30999]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn04-1]
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Rules and Regulations
Federal Register
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
7 CFR Parts 1910, 1941 and 1965
RIN 0560-AH01
Revisions to Direct Farm Loan Programs Appraisal Regulations
AGENCY: Farm Service Agency, USDA
ACTION: Final rule.
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SUMMARY: This rule amends the Farm Service Agency's (FSA) regulations
governing real estate and chattel appraisals. In loan making, the rule
allows FSA to obtain appraisals after loan funds become available and
the applicant is determined eligible. Also, the rule increases the
dollar threshold that determines when a real estate appraisal is
required. In loan servicing, the rule raises the dollar threshold for
real estate appraisals in partial release situations and allows the
Agency in some cases to release real estate security without appraising
the retained real estate. These changes will reduce FSA's appraisal
costs and enhance the timeliness of program delivery of certain loan
making and servicing actions.
DATES: This rule is effective July 2, 2004.
FOR FURTHER INFORMATION CONTACT: Michael Cumpton, Loan Servicing and
Property Management Division, United States Department of Agriculture,
Farm Service Agency, STOP 0523, 1400 Independence Avenue, SW.,
Washington, DC 20250-0523, telephone: 202-690-4014; e-mail:
mike_cumpton@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
Discussion of the Final Rule
This rule amends the regulations that govern the requirement for
appraisals for FSA Farm Loan Programs (FLP) direct loans. In response
to the proposed rule published August 21, 2003 (68 FR 50479-50481),
four comments were received. One comment was from a farm interest group
and the other comments were from private citizens. Most aspects of the
proposed rule received comments, with some respondents disagreeing with
all changes. Two of the four comments received were vague or presented
general observations that were not specific to the proposed rule. They
included statements that FSA appraisals should be done in a fair and
honest manner and that none of the proposals should be adopted. No
changes were made to the rule as a result of these general comments.
The remaining public comments are summarized as follows:
One respondent supported the proposal to allow FSA to approve loans
with the condition that an acceptable appraisal, which reflects at
least adequate collateral for the loan, will be obtained prior to loan
closing. The respondent agreed that this would result in cost savings
to the Government and provide better service to the applicant. The
respondent also requested that the Agency adopt clear regulatory
deadlines for completing the appraisal. The Agency believes that while
delays in funding can occur, the appraisal requirement will not cause
any additional delay in most loan closings. FSA will continue to
monitor all applications closely to minimize any delays in ordering and
funding appraisals, and this suggestion was not adopted.
One respondent stated that the FSA loan official should be given
the latitude to decide whether a chattel or real estate appraisal is
needed before loan approval. Currently, FSA's standard procedure allows
the loan official to decide at what point in the loan-approval process
appraisals will be completed. Therefore, no changes are being made to
FSA policy due to this comment.
Two respondents supported the proposal to require a real-estate
appraisal when real estate is taken as primary security for an
operating loan only when the amount of the loan to be secured by the
real estate exceeds $50,000. Previously, the regulation provided no set
threshold dollar amount. The respondents agreed with FSA that adoption
of the proposed rule will provide cost savings to the Government by
reducing appraisal expenses and also will be consistent with the Lo-Doc
requirements. As part of the Agency's streamlining project, Lo-Doc
regulations were designed to reduce the time from receipt of a loan
application to the disbursal of operating loan funds to a borrower. The
proposed rule is adopted on this issue without change.
Two respondents commented on the proposal to increase the
transaction amount triggering the need for a real-estate appraisal
referenced in 7 CFR 1965.13(d), from $10,000 to $25,000. One respondent
felt the limit should be changed from $10,000 to $50,000 because the
$25,000 limit is already exceeded by ``many small real-estate
transactions.'' The other respondent supported the change because they
felt it increased farmers' flexibility by eliminating some potential
delays in processing. The Agency believes that the $25,000 limit
strikes a reasonable balance between cost savings and convenience for
the borrower and local FSA personnel and the protection of the
Government's interest. Further, direct FLP loans are specifically
targeted to family farmers in need of supervised credit, and
transactions above the $25,000 limit should receive a higher level of
supervision. Therefore, the comment suggesting a $50,000 limit is not
adopted.
FSA is currently required to appraise the real property retained
when processing a partial release. This ensures that the property
retained by the borrower, after the sale, is not adversely affected by
the loss of the tract sold, such as where the sale removes access to a
paved road. The Agency proposed to eliminate this requirement, in most
cases, because this determination can usually be made without an
appraisal. FSA may still obtain an appraisal on the property to be sold
or retained when necessary to protect the Government's financial
interests.
FSA received two comments on this proposal. One respondent
supported the change, but indicated that language that allows the use
of an existing FSA appraisal, as long as it is less than one year old,
was removed. The respondent
[[Page 30998]]
is correct. However the rule refers to 7 CFR 761.7, which states that
an existing appraisal can be used if certain conditions are met and the
appraisal is less than 12 months old. Therefore, the proposed language
will be adopted.
The other respondent thought the rule was confusing and advocated a
policy that would allow local FSA officials to waive all appraisals if
there would be ``obvious value in the property being retained.'' This
comment suggests that the controlling factor in the Agency's decision
is the overall amount of remaining security, when, in fact, it is that
the remaining security is not harmed by the transaction. If the
borrower is receiving adequate compensation for the property sold and
all other regulatory requirements are met, the Agency may still grant
the release even if the value of the remaining security is inadequate.
The appraised value of the remaining security is not relevant to the
decision as long as the value of the retained property is not reduced
by the loss of the property released. The Agency also believes that the
policy suggested by the respondent is too subjective and could lead to
disparate treatment from office to office. Therefore, the comment is
not adopted and the proposed language remains unchanged.
Executive Order 12866
This rule has been determined to be not significant and has not
been reviewed by the Office of Management and Budget under Executive
Order 12866.
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601,
the Agency has determined that there will not be a significant economic
impact on a substantial number of small entities. All FSA direct loan
borrowers and all entities affected by this rule are small businesses
according to the North American Industry Classification System, and the
United States Small Business Administration. There is no diversity in
size of the entities affected by this rule, and the costs to comply
with it are the same for all entities.
In this rule, FSA revises both loan-making and loan-servicing
regulations. In loan making, the Agency will not require a real estate
appraisal completed by a certified general appraiser when real estate
is used to secure an operating loan (OL) of less than $50,000. This
action will affect less than 5 percent of OL's processed per year, or
approximately 720 applicants, and will result in annual savings to the
Agency of approximately $540,000 ($750/appraisal). In loan servicing,
the Agency will increase the dollar threshold for requiring a real
estate appraisal be completed by a certified general appraiser from
$10,000 to $25,000 when considering partial releases, subordinations,
exchanges, or other real estate servicing actions. The Agency estimates
that this will eliminate the need for approximately 150 real estate
appraisals, for annual savings to the Agency of approximately $112,500.
The Agency did not propose to impose any additional cost on the
borrowers. In fact, the reduced need for appraisals should benefit
borrowers with increased timeliness of loan decisions by the Agency.
Therefore, the costs of compliance from this rule are deemed not
significant. Accordingly, pursuant to section 605(b) of the Regulatory
Flexibility Act, 5 U.S.C. 605(b), the Agency certifies that this rule
will not have a significant economic impact on a substantial number of
small entities.
Environmental Impact Statement
The environmental impacts of this rule have been considered in
accordance with the provisions of the National Environmental Policy Act
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council
on Environmental Quality (40 CFR parts 1500-1508), and the FSA
regulations for compliance with NEPA, 7 CFR part 799, and part 1940,
subpart G. FSA has completed an environmental evaluation and concluded
that the rule requires no further environmental review. No
extraordinary circumstances or other unforeseeable factors exist which
would require preparation of an environmental assessment or
environmental impact statement. A copy of the environmental evaluation
is available for inspection and review upon request.
Executive Order 12988
This rule has been reviewed in accordance with E.O. 12988, Civil
Justice Reform. In accordance with this executive order: (1) All State
and local laws and regulations that are in conflict with this rule will
be preempted; (2) no retroactive effect will be given to this rule; and
(3) administrative proceedings in accordance with 7 CFR part 11 must be
exhausted before bringing suit in court challenging action taken under
this rule unless those regulations specifically allow bringing suit at
an earlier time.
Executive Order 12372
For reasons set forth in the Notice relating to 7 CFR part 3015,
subpart V published June 24, 1983 (48 FR 29115), the programs and
activities within this rule are excluded from the scope of Executive
Order 12372, which requires intergovernmental consultation with State
and local officials.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, requires Federal agencies to assess the effects of their
regulatory actions on state, local, and tribal governments or the
private sector. Agencies generally must prepare a written statement,
including a cost benefit analysis, for proposed and final rules with
Federal mandates that may result in expenditures of $100 million or
more in any 1 year for State, local, or tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule. This
final rule contains no Federal mandates, as defined under title II of
the UMRA, for State, local, and tribal governments or the private
sector. Thus, this final rule is not subject to the requirements of
sections 202 and 205 of UMRA.
Executive Order 13132
The policies contained in this rule do not have any substantial
direct effect on States, the relationship between the national
government and the States, or the distribution of power and
responsibilities among the various levels of government. Nor does this
final rule impose substantial direct compliance costs on State and
local governments. Therefore, consultation with the States is not
required.
Paperwork Reduction Act
This rule contains no new information collections that require
approval under the Paperwork Reduction Act of 1995 for information
collections previously approved by OMB under control numbers 0560-0158,
0560-0162, and 0560-0178.
Federal Assistance Programs
These changes affect the following FSA programs as listed in the
Catalog of Federal Domestic Assistance:
10.404B-Emergency Loans
10.406B-Farm Operating Loans
10.407B-Farm Ownership Loans
List of Subjects
7 CFR Part 1910
Agriculture, Credit, Loan programs--housing and community
development, Low and moderate income housing, Sex discrimination.
[[Page 30999]]
7 CFR Part 1941
Crops, Livestock, Loan programs--agriculture, Rural areas, Youth.
7 CFR Part 1965
Foreclosure, Credit, Loan programs--agriculture, Loan programs--
housing and community development, Rural areas.
? Accordingly, 7 CFR chapter XVIII is amended as follows:
PART 1910--GENERAL
? 1. The authority citation for part 1910 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Receiving and Processing Applications
? 2. Amend Sec. 1910.4 by removing paragraph (b)(21) and by
redesignating paragraph (b)(22) as new paragraph (b)(21).
? 3. In Sec. 1910.4, revise paragraph (j)(1)(i) to read as follows:
Sec. 1910.4 Processing applications.
* * * * *
(j) * * *
(1) * * *
(i) Receipt by the applicant of a signed copy of the Agency's
request for obligation of funds on the appropriate Agency form is
written notice of loan approval and any conditions that must be met
prior to loan closing. Loan approval conditions may include, but are
not limited to, obtaining required real estate and chattel appraisals.
* * * * *
PART 1941--OPERATING LOANS
? 4. The authority citation for part 1941 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Operating Loan Policies, Procedures, and Authorizations
? 5. Revise Sec. 1941.25(a)(4) to read as follows:
Sec. 1941.25 Appraisals.
(a) * * *
(4) A real estate appraisal is required when real estate is taken
as primary security, as defined in Sec. 1941.4, and the amount of the
loan to be secured by the real estate exceeds $50,000.
* * * * *
PART 1965--REAL PROPERTY
? 6. The authority citation for part 1965 continues to read as follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989 and 42 U.S.C. 1480.
Subpart A--Servicing of Real Estate Security for Farm Loan Programs
Loans and Certain Note-Only Cases
? 7. In Sec. 1965.13(d) revise the introductory paragraph to read as
follows:
Sec. 1965.13 Consent by partial release or otherwise to sale,
exchange or other disposition of a portion of or interest in security,
except leases.
* * * * *
(d) Appraisals. A new appraisal report for the security to be
transferred or released will be obtained in accordance with Sec. 761.7
of this title as necessary to protect the financial interests of the
Government or when the transaction involves more than $25,000. A new
appraisal report for the security to be retained will be obtained in
accordance with that section as necessary to protect the financial
interests of the Government. Appraisal reports under this section may
show the present market value of the property being transferred or
released and the property being retained on a single appraisal report
or on separate appraisal reports. The value of rights to mining
products, gravel, oil, gas, coal or other minerals will be specifically
included as a part of the appraised value of the real estate security.
* * * * *
Signed in Washington, DC, on May 19, 2004.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 04-12202 Filed 6-1-04; 8:45 am]
BILLING CODE 3410-05-P