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Guaranteed Loans--Number of Days of Interest Paid on Loss Claims
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[Federal Register: March 27, 2007 (Volume 72, Number 58)]
[Proposed Rules]
[Page 14244-14246]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr07-8]
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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-AH55
Guaranteed Loans--Number of Days of Interest Paid on Loss Claims
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: This action proposes to clarify and simplify the number of
days' interest that may be paid on loss claims. The liquidation
provisions currently provides a timeframe for the interest payment
based upon ``the date of the decision to liquidate'' which is often
difficult to determine. In addition, the Agency is clarifying the
application for payment after liquidation and the guaranteed lender's
responsibility for future recoveries.
DATES: Comments concerning this proposed rule must be submitted by May
29, 2007 to be assured of consideration.
ADDRESSES: Interested persons are invited to submit written comments
concerning this rule. Comments should reference the volume, date and
page number of this issue of the Federal Register. Comments may be
submitted by any of the following methods:
E-mail: Send comments to Marilyn.Meese@wdc.usda.gov.
Fax: Submit comments by facsimile transmission to (202) 690-1196.
Mail: Submit comments to Branch Chief, Guaranteed Loan Servicing
and Inventory Property Branch, Loan Servicing and Property Management
Division, FSA, USDA, 1400 Independence Avenue, STOP 0523, Washington,
DC 20250-0523.
Hand Delivery or Courier: USDA FSA DAFLP LSPMD Suite 500, 1250
Maryland Avenue, SW., Washington, DC 20024.
Federal eRulemaking Portal: Go to http://www.regulations.gov.
Follow the online instructions for submitting comments.
FOR FURTHER INFORMATION CONTACT: Marilyn Z. Meese, Senior Loan Officer,
Farm Service Agency; telephone: (202) 690-4002; Facsimile: (202) 690-
1196; E-mail; Marilyn.Meese@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
Discussion of the Proposed Rule
This rule proposes changes to the FSA guaranteed farm loan program.
FSA guaranteed loans provide conventional agricultural lenders with up
to a 95 percent guarantee of the principal loan amount, and accrued
interest. The lender is responsible for servicing a borrower's account
for the life of the loan. When a borrower cannot fully repay the
guaranteed loan, the lender submits a loss claim request to the Agency
for payment of the guaranteed percentage of the unpaid debt, if any,
after liquidation of the collateral. There has been confusion for both
lenders and FSA personnel on how to compute the number of days'
interest that may be paid on loss claims. The number of days should not
exceed 210 days from the payment due date. As originally envisioned and
stated in paragraph 355 of FSA Handbook 2-FLP, Guaranteed Loan Making
and Servicing, the lender was to reach a decision to either restructure
the loan or liquidate it within 120 days after the payment due date. It
is common for bank regulators to require lenders to place a loan on a
non-accrual basis if it is 90 days in default. A decision regarding the
credit is typically made during this time period. The loan defaults at
30 days past due and 90 additional days equals 120 days. FSA then pays
interest an additional 90 days from this decision to liquidate. As a
result FSA can pay the lender interest for up to 210 days from the
payment due date. If liquidation is estimated to take more than 90
days, the lender is to submit an estimated loss claim. Whether or not
an estimated loss claim is filed, however, interest will only be paid
for another 90 days, for a maximum of 210 days. The proposed changes
incorporate these timeframes into the regulation. As a result,
determinations of the maximum interest payable will be made consistently.
In order to both clarify and simplify this issue the proposed rule
will allow for a maximum of 210 days of accrued interest from the
payment due date as a general rule. The proposed rule places renewed
emphasis on the expected actions of the lenders and FSA personnel. All
lenders within 150 days of the payment due date must prepare a
liquidation plan under proposed Sec. 762.149(b). Preferred (PLP)
lenders currently prepare the plan under their FSA-approved Credit
Management Systems, but need not submit them. The reference to 150 days
will replace the current language, ``within 30 days of the decision to
liquidate,'' for consistency with other changes being proposed in this
rule. Lenders also must file estimated and final loss claims on all
accounts in a timely manner.
The new rule will require a zero dollar estimated loss claim to be
filed if the lender expects no loss. This will effectively establish in
the Agency's financial records that a loss is not expected but the
account is in liquidation. This change would allow better monitoring
and record-keeping by FSA. The estimated loss claim need not be filed
if the account has already been completely liquidated within the 150
days. In that case, the lender would file only the final loss claim. A
final loss claim also needs to be completed for any loan. This will
close out the loan on the Agency's financial records as to any
remaining liability to the lender. In some cases it is possible that
the final loss claim could be for zero dollars. In addition, if the
loss claim processing exceeds 40 days as a result of the Agency's
failure to take action on the claim the Agency will pay additional
interest to the lender after the 40 days. This change is intended as an
incentive to Agency personnel to promptly process claims and avoid
extra cost to the lender.
The Agency is providing clarification that the payment of a loss
claim to the lender does not automatically relieve the borrower from
any liability for the debt owed the lender or the lender of
responsibility for any future recoveries. After payment of a loss claim
by the Agency, the lender will continue to have the responsibility to
collect the entire loan balance. The lender will pursue aggressive
collection of the debt after payment of the final loss claim unless the
Agency has approved of a lender's request for release of liability of
the borrower pursuant to 7 CFR part 762. FSA also will continue to seek
reimbursement for its payment from the
[[Page 14245]]
borrower under Sec. 762.149(m), but the borrower will never pay more
than its outstanding debt. In Sec. 762.148(d), the Agency is proposing
to remove the provision that the date the borrower files for Chapter 7
bankruptcy is the date of the decision to liquidate for purposes of
calculating liquidation time frames. These cases will follow the same
maximum interest policy as other cases. If the loan account has been
past due prior to the Chapter 7 bankruptcy filing those days will count
towards the liquidation timeframes.
Finally, the Agency is amending Sec. 762.149(i)(1) by stating that
as long as a loan is accruing interest, the sale proceeds from the
liquidation of assets will be applied to principal first. This practice
reduces the interest accrual on the defaulted loan, resulting in a
smaller loss payment. Since principal was advanced for the collateral
it is consistent practice to first reduce the principal when the
collateral is sold.
Executive Order 12866
This rule has been determined to be not significant and was not
reviewed by the Office of Management and Budget under Executive Order
12866.
Regulatory Flexibility Act
The Agency certifies that this rule will not have a significant
economic effect on a substantial number of small entities. This rule
does require actions on the part of the subject program's borrowers or
lenders. Borrowers may be individuals or entities. No distinction is
made between small and large entities. The Agency will bear most of the
burden under the proposed regulations. The Agency anticipates that the
proposed rule will require submission of no additional information,
further justifying the conclusion that a Regulatory Flexibility
Analysis is not required. The Agency, therefore, concludes that it is
not required to perform a Regulatory Flexibility Analysis as required
by the Regulatory Flexibility Act, Public Law 96-535, as amended (5
U.S.C. 601).
Environmental Evaluation
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 parts
799, and 1940, subpart G. FSA 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 that 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
except that lender servicing under this rule will apply to loans
guaranteed prior to the effective date of the rule to the extent
permitted by existing contracts; and (3) administrative proceedings in
accordance with 7 CFR part 11 must be exhausted before requesting
judicial review.
Executive Order 12372
For reasons contained in the Notice related to 7 CFR part 3015,
subpart V (48 FR 29115, June 24, 1983), 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
This rule contains no Federal mandates, as defined by title II of
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.
Executive Order 13132
The policies contained in this rule do not have any substantial
direct effect on the states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on state and local
governments. Therefore, consultation with the states is not required.
Paperwork Reduction Act
The amendments to 7 CFR part 762 contained in this 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 listed in the
Catalog of Federal Domestic Assistance:
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
List of Subject in 7 CFR part 762
Agriculture, Banks, Credit, Loan Programs--agriculture.
Accordingly, 7 CFR part 762 is 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. 762.148 [Amended]
2. Amend Sec. 762.148(d)(1) by removing the second sentence.
3. In Sec. 762.149, revise paragraphs (b)(1) introductory text,
(b)(1)(v), (d) introductory text, (d)(2), (i)(1) and (i)(5), to read as
follows:
Sec. 762.149 Liquidation.
* * * * *
(b) * * *
(1) Within 150 days after the payment due date, all lenders will
prepare a liquidation plan. Standard eligible and CLP lenders will
submit a written liquidation plan to the Agency which includes:
* * * * *
(v) An estimated loss claim must be filed no later than 150 days
past the payment due date unless the account has been completely
liquidated and then a final loss claim must be filed.
* * * * *
(d) Estimated loss claims. An estimated loss claim must be
submitted by all lenders no later than 150 days after the payment due date
unless the account has been completely liquidated and then a final loss
claim must be filed. The estimated loss will be based on the following:
* * * * *
(2) The lender will discontinue interest accrual on the defaulted
loan at the time the estimated loss claim is paid by the Agency. The
Agency will not pay interest beyond 210 days from the payment due date.
If the lender estimates that there will be no loss after considering
the costs of liquidation, an estimated loss of zero will be submitted
and interest accrual will cease upon the approval of the estimated loss
and never later than 210 days from the payment due date. The following
exceptions apply:
(i) In the case of a Chapter 7 bankruptcy, in cases where the
lender filed an estimated loss claim, the Agency will pay the lender
interest which accrues during and up to 45 days after the discharge on
the portion of the
[[Page 14246]]
chattel only secured debt that was estimated to be secured but upon
final liquidation was found to be unsecured, and up to 90 days after
the date of discharge on the portion of real estate secured debt that
was estimated to be secured but was found to be unsecured upon final
disposition.
(ii) The Agency will pay the lender interest which accrues during
and up to 90 days after the time period the lender in unable to dispose
of acquired property due to state imposed redemption rights on any
unsecured portion of the loan during the redemption period, if an
estimated loss claim was paid by the Agency during the liquidation action.
* * * * *
(i) Final loss claims. (1) Lenders must submit a final loss claim
when the security has been liquidated and all proceeds have been
received and applied to the account. All proceeds shall be applied to
principal first and then toward accrued interest if the interest is
still accruing. The application of the loss claim payment to the
account does not automatically release the borrower of liability for
any portion of the borrower's debt to the lender. The lender will
continue to be responsible for collecting the full amount of the debt
and sharing these future recoveries with the Agency in accordance with
paragraph (j) of this section.
* * * * *
(5) The Agency will notify the lender of any discrepancies in the
final loss claim or, approve or reject the claim within 40 days.
Failure to do so will result in additional interest being paid to the
lender for the number of days over 40 taken to process the claim.
* * * * *
Signed at Washington, DC, on March 9, 2007.
Teresa C. Lasseter,
Administrator, Farm Service Agency.
[FR Doc. E7-5511 Filed 3-26-07; 8:45 am]
BILLING CODE 3410-05-P