Guaranteed Loan Fees
[Federal Register: May 15, 2006 (Volume 71, Number 93)]
[Proposed Rules]
[Page 27978-27980]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15my06-13]
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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-AH41
Guaranteed Loan Fees
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) proposes to amend the
regulations for guaranteed loans to change the amount charged and
collected in order for the FSA to provide a guarantee. Except in
certain limited cases, FSA currently charges a fee of one percent (1%)
of the guaranteed amount on all guaranteed Farm Ownership (FO) loans,
and guaranteed Operating Loans (OL). The rule change is necessary for
the Agency to be able to offset the cost of the guaranteed loan program
so as to maintain program funding at levels that will best service
farmers and ranchers.
DATES: Written comments must be received on or before July 14, 2006 in
order to be assured of consideration.
ADDRESSES: FSA invites interested persons to submit comments on this
proposed final rule. Comments may be submitted by any of the following
methods:
? E-mail: Galen.VanVleet@wdc.usda.gov. Include ``Guarantee
Fees'' in the subject line of the message.
? Fax: Submit comments by facsimile transmission to: 202-690-6797.
? Mail: Send comments to: Galen VanVleet, USDA/FSA, Loan
Making Division, 1400 Independence Avenue, SW., Stop 0522, Washington,
DC 20250-0522;
? Hand Delivery or Courier: Deliver comments to: FSA, Loan
Making Division, 1280 Maryland Ave., SW., Suite 240, Washington, DC 20024.
? Federal eRulemaking Portal: Go to http://www.regulations.gov. 
Follow the online instructions for submitting comments.
All written comments will be available for public inspection at the
above address during business hours from 8 a.m. to 5 p.m., Monday
through Friday.
FOR FURTHER INFORMATION CONTACT: Galen VanVleet at the above address or
at (202) 720-3889.
SUPPLEMENTARY INFORMATION:
Discussion of the Proposed Rule
FSA guaranteed loans, administered under 7 CFR part 762, provide
eligible lenders (e.g., banks, Farm Credit System institutions, credit
unions) with a guarantee of up to 95 percent of the loss of principal
and interest on a loan. Farmers and ranchers apply to an agricultural
lender, which then arranges for the guarantee. The FSA guarantee
permits lenders to make agricultural credit available to farmers who do
not meet the lender's normal underwriting standards. FSA guaranteed
loans may be made for farm ownership and operating purposes. Guaranteed
farm ownership (FO) loans generally may be made to purchase farmland,
construct or repair buildings and other fixtures, develop farmland to
promote soil and water conservation, or refinance debt. Guaranteed
operating (OL) loans generally may be used to purchase livestock, farm
equipment, feed, seed, fuel, farm chemicals, insurance, and other
operating expenses. Operating loans can also be used to pay for minor
improvements to buildings, costs associated with land and water
development, family living expenses, and to refinance debts under
certain conditions. A percentage of guaranteed loan funds is targeted
to beginning farmers and ranchers and minority and female applicants.
FSA proposes to amend its regulations governing fees on guaranteed
loans. These fees have not been changed since the inception of the
program in the early 1980's. Such fees are authorized by 7 U.S.C.
1927(b) and 31 U.S.C. 9701. With a few exceptions, FSA currently
charges a one-time, one (1.0) percent fee on guaranteed loans when the
loan is made in accordance with 7 CFR 762.130. The fee is charged to
and collected from the lender by FSA. However, FSA allows the fee to be
passed on to the applicant and, in practice, the expense is almost
always passed on to the applicant or borrower. FSA limits fees to loan
origination and currently does not charge any fees for annual renewal,
loan servicing, or restructuring actions.
The proposal to revise fees on farm loans is intended to reduce the
subsidy cost for such loans, which is reflected in the budget authority
needed to support a given loan level. The President's 2007 budget
proposes to maintain approximately the same level of farm loans as
expected to be made in 2006, and to increase fees so that less budget
authority would be needed to support the proposed loan level. This
proposal is based on the expectation that there will be sufficient
demand to maintain the loan level, which means that borrowers are
likely to be willing to pay higher fees to obtain the loans at less
cost to the Government.
It is proposed that beginning with fiscal year 2007 (October 1,
2006), the one-time origination fee for a guaranteed farm ownership
loan will be increased to 1.5 percent of the loan amount guaranteed
(Loan Amount x percent guaranteed x .015). This fee structure will
cover the subsidy cost of the program. The fee on non-subsidized
guaranteed operating loans will be increased to 1.5 percent of the loan
amount guaranteed (Loan Amount x percent guaranteed x .015). In
addition, beginning with fiscal year 2007 on October 1, 2006, an annual
continuation fee of 0.75 percent of the loan will be charged on lines
of credit (Line of Credit Ceiling Amount x percent guaranteed x .0075).
This fee structure on operating loans will cover the budgetary
shortfall anticipated in the fiscal year 2007 budget preparations. The
Agency determined an annual fee was appropriate for lines of credit
because additional funds are extended to the borrower annually; loan
funds could be made available to pay the continuation fee; and the
losses on lines of credit have been higher than on term loans. The
continuation fee will be based upon the ceiling amount because this
best reflects the amount of credit a borrower will have available.
Fees will not be imposed on loans where imposition is statutorily
prohibited, including where the loans are to beginning farmers or
ranchers involved in the direct beginning farmer downpayment program or
made through a qualified State Beginning Farmer Program under 7 U.S.C.
309. To encourage refinancing, FSA will
[[Page 27979]]
continue its policy of not charging fees where a majority of the
guaranteed loan funds are used to refinance an Agency direct loan. In
addition, fees on loans under the interest assistance program will be
addressed under separate rulemaking and are not included in this rule.
This proposed rule provides that the level of fees charged for a
guarantee may change in the future without promulgation of a rule to
amend the guaranteed loan regulations. The fee schedule, however, will
be published as a Notice in the Federal Register. It is not possible to
accurately predict future fee requirements, and the change in fee may
be required quickly after adoption of a budget. When making adjustments
in the guarantee origination or continuation fees, the Agency will
consider a number of economic and budgetary factors in accordance with
OMB Circular No. A-25, including guaranteed loan portfolio performance,
the economic outlook of agriculture, the costs of the program, and
Federal budget rules and requirements. A fee schedule will apply to all
loans obligated during a particular fiscal year or budget cycle and
will not apply retroactively to loans made before the increase was
effective. Guarantee fee schedules will be available from any FSA
office as well as on the Internet at
http://www.fsa.usda.gov/dafl/guaranteed.htm.
Notice and Comment
This rule is issued as a proposed rule. Upon completion of the
public comment period and consideration of the comments received, FSA
will issue a final rule addressing the comments, announcing the final
determinations, and making the provisions effective.
Executive Order 12866
The Office of Management and Budget (OMB) has determined this rule
is not significant for the purposes of Executive Order 12866;
therefore, this rule has not been reviewed by OMB.
Paperwork Reduction Act of 1995
The information collections to which this rule applies have
reviewed by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C.
chapter 35), approved, and assigned OMB control number 0560-0155. This rule
involves no change to the collection of information currently approved.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
establishes requirements for Federal agencies to assess the effects of
their regulatory actions on State, local, and tribal governments and
the private sector. This rule contains no Federal mandates (under the
regulatory provisions of title II of the UMRA) 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 the UMRA.
Executive Order 12612
It has been determined under section 6(a) of Executive Order 12612,
Federalism, that this rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment. The
provisions contained in this rule will not have a substantial direct
effect on States or their political subdivisions or on the distribution
of power and responsibilities among the various levels of government.
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601,
FSA has determined that there will not be a significant economic impact
on a substantial number of small entities. This rule may make a few
individuals ineligible for FSA guaranteed loans and it will increase
the costs of compliance with program regulations for all participants
who must pay a guarantee fee. However, the number of applicants who
will be severely impacted due to increased fees is expected to be
minimal. Further, all persons or entities affected by this change are
small. The agency will continue to waive fees for those applicants who
have the greatest needs--those who need interest assistance subsidy,
those graduating from FSA direct credit, and those who are beginning
farmers in need of a downpayment loan or a State Beginning Farmer
Program loan. Otherwise, changes will be applied to all applicants
equally without regard to their size. 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.
Executive Order 12372
These regulations are not subject to the provisions of Executive
Order 12372, which require intergovernmental consultation with State
and local officials. See the notice related to 7 CFR part 3015, subpart
V, published at 48 FR 29115, June 24, 1983.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, on Civil
Justice Reform. The provisions of this rule are not retroactive. The
provisions of this rule preempt State and local laws to the extent such
State and local laws are inconsistent. Generally, all administrative
appeal provisions, including those published at 7 CFR part 11, must be
exhausted before any action for judicial review may be brought in
connection with the matters that are the subject of this rule.
Environmental Evaluation
The environmental impacts of this rule have been considered
consistently 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 is categorically excluded in accordance with 7
CFR 1940.310(e)(3) and does not require preparation of an environmental
assessment or environmental impact statement.
List of Subjects in Part 762
Agriculture, Loan programs--Agriculture.
Accordingly, 7 CFR chapter VII is proposed to 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.
2. Amend Sec. 762.130 by revising paragraphs (d)(4)(ii) and
(d)(4)(iii)(C) to read as follows:
Sec. 762.130 Loan approval and issuing the guarantee.
* * * * *
(d) * * *
(4) * * *
(ii) Guaranteed fees are established by the Agency at the time the
guarantee is obligated. The current fee schedule is available at any
FSA office and will be published periodically as a Notice in the
Federal Register. Loan guarantee fees may be adjusted annually, based
on factors which affect program costs. The nonrefundable fee is paid to
the Agency by the lender. The fee may be passed on to the borrower and
included in loan funds. The origination fee for the loan type will be
calculated as follows:
(A) FO: Loan Amount x % guaranteed x (FO factor established by FSA).
(B) OL: Loan Amount x % guaranteed x (OL factor established by FSA).
(iii) * * *
(C) Loans to beginning farmers or ranchers involved in the direct
[[Page 27980]]
beginning farmer downpayment program or a qualified State Beginning
Farmer Program.
* * * * *
3. Amend Sec. 762.140 by adding a new paragraph (e) as follows:
Sec. 762.140 General servicing responsibilities.
* * * * *
(e) Continuation fee. For lines of credit with a year or more
remaining on their term that will be continued, the lender will remit a
continuation fee to FSA as follows:
(1) The fee will be due on the anniversary date of the issuance of
the guarantee on a line of credit. Fees will be accepted within 60 days
of the anniversary date. Any fee received after 60 days but within 90
days of the anniversary date may be accepted by FSA provided the lender
has documented that circumstances existed that were beyond their
control to be able to remit the fee in a timely manner. If the annual
fee is not received within this time, all advances made after the
anniversary date will not be covered by the guarantee.
(2) The fee amount will be established by the Agency at the time
the guarantee is obligated.
(3) Fees are nonrefundable and are paid to the Agency by the
lender. The fee may be passed on to the borrower and included in loan
funds.
(4) The continuation fee will be calculated as follows: Fee = Line
of Credit Ceiling Amount x % guaranteed x (continuation factor
established by FSA). The current fee schedule is available at any FSA
office and will be published periodically as a Notice in the Federal
Register. The continuation fee may be adjusted annually based on
factors which affect program costs.
(5) Loans with interest assistance or loans to beginning farmers or
ranchers in the direct beginning farmer downpayment program or a
qualified State Beginning Farmer Program will not be charged an annual
continuation fee.
Signed at Washington, DC, on April 24, 2006.
Teresa Lasseter,
Administrator, Farm Service Agency.
[FR Doc. E6-7326 Filed 5-12-06; 8:45 am]
BILLING CODE 3410-05-P
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