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Guaranteed Farm Ownership and Operating Loan Requirements
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[Federal Register: May 4, 2004 (Volume 69, Number 86)]
[Proposed Rules]
[Page 24537-24539]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04my04-10]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 762
RIN 0560-AG65
Guaranteed Farm Ownership and Operating Loan Requirements
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) proposes to revise its
regulations governing guaranteed loans to allow lenders to use
guaranteed loans as security for loans to the lenders. The Agency also
proposes to remove certain unnecessary documentation and security
requirements, correct errors, and clarify its procedures for applying
for, making, and servicing FSA guaranteed loans.
DATES: Comments on this proposed rule must be received on or before
July 6, 2004, to be given full consideration. Comments received after
that date will be considered to the extent possible.
ADDRESSES: The Farm Service Agency invites interested persons to submit
comments on this proposed rule. Comments may be submitted by any of the
following methods:
? E-Mail: Send comments to Galen.VanVleet@usda.gov.
? Fax: Submit comments by facsimile transmission to: (202) 720-6797.
? Mail: Send comments to Director, Loan Making
Division, Farm Service Agency, U.S. Department of Agriculture, 1400
Independence Avenue, SW., STOP 0522, Washington, DC 20250-0522;
? Hand Delivery or Courier: Deliver comments to
Office of the Director, Loan Making Division, Farm Service Agency, U.S.
Department of Agriculture, Suite 240, 1280 Maryland Ave., SW.,
Washington, DC 20250-0522.
? Federal eRulemaking Portal: Go to http://www.regulations.gov.
Follow the online instructions for submitting comments.
Comments may be inspected in the Office of the Director, Loan
Making Division, Farm Service Agency, U.S. Department of Agriculture,
Suite 240, 1280 Maryland Ave., SW., Washington, DC 20250-0522, between
8 a.m. and 4:30 p.m., Monday through Friday, except holidays.
FOR FURTHER INFORMATION CONTACT: Galen VanVleet, Senior Loan Officer,
Loan Making Division, Farm Service Agency; telephone: (202) 720-3889;
facsimile: (202) 720-6797; e-mail: Galen.VanVleet@usda.gov.
SUPPLEMENTARY INFORMATION:
Discussion of the Proposed Rule
Definition of ``Financially Viable Operation''
Section 762.102(b) defines the term ``financially viable
operation.'' However, the term is not used in the regulation. To avoid
confusion, the term and definition are removed.
Preferred and Certified Lender Programs
Section 762.106(b)(8) requires that lenders applying for Certified
Lender Program (CLP) status submit copies of forms to be used for farm
loan program processing and servicing, such as financial statements,
cash flow plans, and budgets. This requirement is unnecessary and will
be removed. FSA field offices are already familiar with forms that are
used by lenders applying for CLP status. To qualify for CLP, lenders
must have first made a certain number of guaranteed loans as Standard
Eligible Lenders (SEL's), and the forms relative to those loans are
reviewed by FSA.
Section 762.106(c)(8) requires that Preferred Lender Program (PLP)
lenders designate a person or persons, approved by FSA, to process and
service PLP loans. The existing regulation has been confusing and
somewhat contrary to the intent of the PLP program, in that it
unnecessarily involves FSA in lender decisions. Therefore, the proposed
rule removes the requirement that the Agency approve the designee(s)
and modifies the regulation to allow the lender to designate the
responsible party by name, title, or position.
Interest Rates and Fees
Section 762.124(e)(1) provides that lenders may charge fees
provided they are no greater than those charged to customers without an
FSA guarantee for similar transactions. There has been some confusion
as to whether third-party processing fees are included in this
restriction. The proposed rule clarifies that lenders may not charge,
or cause to be charged, any processing, servicing, or packaging fees
that are not charged to non-guaranteed customers for similar transactions.
Security Requirements
Section 762.126(e) generally provides that all guaranteed loans be
secured by the best lien obtainable. In addition, the regulation
establishes restrictions on acceptable lien positions for security on
guaranteed loans. One restriction is that when a loan is made for
refinancing purposes the guaranteed loan must hold a security position
no lower than on the refinanced loan. When lenders refinance chattel
secured loans with a loan secured by real estate, this restriction
requires them to obtain or maintain a lien on the chattels. This
unnecessarily restricts flexibility and may impair the lender's ability
to provide the best terms and rates. The proposed rule removes this
restriction.
Another restriction, under section 762.126(e) limits junior lien
positions to situations where equity position is strong. This
restriction has been difficult to implement equitably because of
varying interpretations of ``strong.'' It is proposed that the junior
liens instead be limited to situations where the amount of debt,
including the proposed junior lien, is less than or equal to 75 percent
of the value of the security. This would equate to an equity position
of 25 percent and is consistent with the existing requirement in
section 762.142(b), which permits partial releases based, in part, on a
75-percent debt to security requirement.
Restructuring Guaranteed Loans
Section 762.145 (b)(6)(i) contains an incorrect citation to the
loan limits. The proposed rule corrects that citation.
Sale, Assignment, and Participation
A new section, 762.159, is proposed to address the use of Agency
guaranteed loans as security for lender funding. Many lenders routinely
borrow money from a Federal Home Loan Bank or a Federal Reserve Bank to
meet funding or liquidity needs. Lenders are usually required to pledge
loan assets, which may include Agency guaranteed loans, as security for
the loans. The existing regulation's restrictions on assignments has
led to confusion as to how or
[[Page 24538]]
whether a lender can pledge guaranteed loans. The proposed new section
would explicitly allow pledging Agency guaranteed loans to Federal Home
Loan Banks or Federal Reserve Banks. The regulation provides that, in
the event that a Federal Home Loan Bank or Federal Reserve Bank
acquires a guaranteed loan as a result of enforcing a pledge, the
guarantee is unenforceable until a new, eligible lender is substituted
in accordance with existing procedures. This provision is included to
assure that there is no increase in risk to the Agency as a result of
servicing lapses or negligent servicing until an eligible lender who
assumes all servicing responsibilities is substituted.
Section 762.160 deals with the sale, assignment, and participation
of guarantees. This rule proposes to revise this section to clarify
confusing portions and remove unnecessarily restrictive provisions. As
used in the existing section and as defined in section 762.102(2),
``sale of guaranteed portion'' and ``assignment of guaranteed portion''
are synonymous. To reduce confusion, references to ``sale of guaranteed
portion'' are removed, including the definition in section 762.102(b).
The existing section requires Agency concurrence for participation in a
guarantee. A participation is where a person or organization buys an
interest in a loan in which the originating lender keeps the note, the
collateral securing the note, and all responsibility for loan
servicing. The Agency has determined that the use of participation does
not affect the risk to the Agency because the originating lender
retains the note and all servicing responsibility, and a participant
has no claim to the guarantee in case of default. Because the risk to
the Agency is not affected, the unnecessary requirement of Agency
concurrence for participation is removed in the proposed rule. Because
the term ``participation'' will no longer be used, the proposed rule
also will remove the term and definition in section 762.102(b).
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866 and, therefore, was not reviewed by the Office of
Management and Budget.
Regulatory Flexibility Act
FSA certifies that this rule will not have a significant economic
effect on a substantial number of small entities and, therefore, is not
required to perform a Regulatory Flexibility Analysis as required by
the Regulatory Flexibility Act, Pub. L. 96-534, as amended (5 U.S.C.
601). In any case, none of the lenders using the guaranteed loan
program are small entities, and this rule does not impact the smaller
entities to a greater extent than the larger entities.
Environmental Assessment
The environmental impacts of this proposed 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
1940, Subpart G. FSA concluded that the rule requires no further
environmental review because it is categorically excluded. No
extraordinary circumstances or other unforeseeable factors exist which
would require preparation of an environmental assessment or
environmental impact statement.
Executive Order 12988
This rule has been reviewed in accordance with E.O. 12988, Civil
Justice Reform. All State and local laws and regulations that are in
conflict with this rule will be preempted. No retroactive effect will
be given to this rule. It will not affect agreements entered into
before the effective date of the rule to the extent the rule is
inconsistent with those agreements. The administrative appeal
provisions published at 7 CFR part 11 must be exhausted before bringing
any action for judicial review.
Executive Order 12372
For reasons set forth in the notice related to 7 CFR part 3015,
subpart V (48 FR 29115, June 24, 1983) the programs and activities in
this rule are excluded from the scope of Executive Order 12372, which
requires intergovernmental consultation with state and local officials.
Unfunded Mandates
This rule contains no Federal mandates, as defined by Title II of
the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4), for
State, local, and tribal governments or the private sector. Therefore,
this rule is not subject to the requirements of sections 202 and 205 of
UMRA.
Paperwork Reduction Act
The amendments to 7 CFR part 762 contained in this proposed rule
require no revisions to the information collection requirements that
were approved by OMB under control number 0560-0155.
Federal Assistance Programs
These changes affect the following FSA programs as listed in the
Catalog of Federal Domestic Assistance:
10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.
List of Subjects in 7 CFR Part 762
Agriculture, Loan programs--Agriculture.
Accordingly, it is proposed that 7 CFR chapter VII be amended as
follows:
PART 762--GUARANTEED FARM LOANS
1. The authority citation for part 762 continues to read as follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989.
Sec. 762.102 [Amended]
2. In Sec. 762.102(b), remove the definitions of ``Financially
viable operation,'' ``Participation,'' and ``Sale of guaranteed portion''.
3. Amend Sec. 762.106 by removing paragraph (b)(8) and revising
paragraph (c)(8) to read as follows:
Sec. 762.106 Preferred and certified lender programs.
* * * * *
(c) * * *
(8) Designate a person or persons, either by name, title, or
position within the organization, to process and service PLP loans for
the Agency.
* * * * *
4. Revise Sec. 762.124(e)(1) to read as follows:
Sec. 762.124 Interest rates, terms, charges, and fees.
* * * * *
(e) * * *
(1) The lender may charge the loan applicant and borrower fees for
the loan provided they are no greater than those charged to
unguaranteed customers for similar transactions. The lender may not
charge, or cause to be charged, any processing, servicing, or packaging
fee not charged to unguaranteed customers for similar transactions.
Similar transactions are those involving the same type of loan
requested (for example, operating loans or farm real estate loans).
* * * * *
5. In Sec. 762.126, remove paragraph (e)(1), redesignate
paragraphs (e)(2), (e)(3), and (e)(4) as (e)(1), (e)(2), and (e)(3),
respectively, and revise newly designated paragraph (e)(2) to read as
follows:
[[Page 24539]]
Sec. 762.126 Security requirements.
* * * * *
(e) * * *
(2) Junior lien positions are acceptable only if the total amount
of debt with liens on the security, including the debt in junior lien
position, is less than or equal to 75 percent of the value of the
security. Junior liens on crops or livestock products will not be
relied upon for security unless the lender is involved in multiple
guaranteed loans to the same borrower and also has the first lien on
the crops or livestock products.
* * * * *
6. Revise Sec. 762.145(b)(6)(i) to read as follows:
Sec. 762.145 Restructuring guaranteed loans.
* * * * *
(b) * * *
(6) * * *
(i) As a result of the capitalization of interest, a rescheduled
promissory note may increase the amount of principal which the borrower
is required to pay. However, in no case will such principal amount
exceed the statutory loan limits contained in Sec. 761.8 of this chapter.
* * * * *
7. Add Sec. 762.159, to read as follows:
Sec. 762.159 Pledging of guarantee.
A lender may pledge all or part of the guaranteed portion of the
loan as security to a Federal Home Loan Bank or Federal Reserve Bank.
In the event that a Federal Home Loan Bank or Federal Reserve Bank
acquires a guaranteed loan as a result of enforcing its security
interest, the guarantee will be unenforceable until a new eligible
lender is substituted in accordance with Sec. 762.105. The guarantee
will not cover a loss that results from negligent servicing during any
period when the loan is held by an ineligible lender, including the
Federal Home Loan Bank or Federal Reserve Bank.
8. Revise Sec. 762.160 to read as follows:
Sec. 762.160 Assignment of guaranteed portion.
(a) The following general requirements apply to assigning
guaranteed loans.
(1) Subject to Agency concurrence, the lender may assign all or
part of the guaranteed portion of the loan to one or more holders at or
after loan closing, if the loan is not in default. However, a line of
credit cannot be assigned.
(2) The Agency may refuse to execute the Assignment of Guarantee in
case of the following:
(i) The Agency purchased and is holder of a loan that was assigned
by the lender that is requesting the assignment.
(ii) The lender has not complied with the reimbursement
requirements of Sec. 762.144(c)(7), except when the 180-day
reimbursement or liquidation requirement has been waived by the Agency.
(3) The lender will provide the Agency with copies of all
appropriate executed forms used in the assignment.
(4) The guaranteed portion of the loan may not be assigned by the
lender until the loan has been fully disbursed to the borrower.
(5) The lender is not permitted to assign any amount of the
guaranteed or unguaranteed portion of the loan to the loan applicant or
borrower, or members of their immediate families, their officers,
directors, stockholders, other owners, or any parent, subsidiary, or
affiliate.
(6) Upon the lender's assignment of the guaranteed portion of the
loan, the lender will remain bound to all obligations indicated in the
Guarantee, the Lender's Agreement, the Agency program regulations, and
to future program regulations not inconsistent with the provisions of
the Lender's Agreement. The lender retains all rights under the
security instruments for the protection of the lender and the United
States.
(b) The following will occur upon the lender's assignment of the
guaranteed portion of the loan:
(1) The holder will succeed to all rights of the Guarantee
pertaining to the portion of the loan assigned.
(2) The lender will send the holder the borrower's executed note
attached to the Guarantee.
(3) The holder, upon written notice to the lender and the Agency,
may assign the unpaid guaranteed portion of the loan. The holder must
assign the guaranteed portion back to the original lender if requested
by the lender for servicing or liquidation of the account.
(4) The guarantee or assignment of guarantee in the holder's
possession does not cover:
(i) Interest accruing 90 days after the holder has demanded
repurchase by the lender, except as provided in the assignment of
guarantee and Sec. 762.144(c)(3)(iii).
(ii) Interest accruing 90 days after the lender or the Agency has
requested the holder to surrender evidence of debt repurchase, if the
holder has not previously demanded repurchase.
(c) Negotiations concerning premiums, fees, and additional payments
for loans are to take place between the holder and the lender. The
Agency will participate in such negotiations only as a provider of
information.
Signed in Washington, DC on April 12, 2004.
Verle E. Lanier,
Acting Administrator, Farm Service Agency.
[FR Doc. 04-10068 Filed 5-3-04; 8:45 am]
BILLING CODE 3410-05-P