[Federal Register Volume 61, Number 163 (Wednesday, August 21, 1996)]
[Rules and Regulations]
[Pages 43147-43149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21236]


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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Part 1980

RIN 0575-AB29


Future Recovery of Losses Paid on Liquidated Guaranteed Loans

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Agency is amending its guaranteed farm credit program 
regulations to establish new policies and procedures on the release of 
guaranteed loan borrowers and cosigners from liability. This action 
will define guaranteed lenders' release authorities and standardize 
procedures for reporting post loss claim collection results to the 
Agency. The intended effect is to maximize collections from unsatisfied 
guaranteed accounts and to minimize the financial loss to the 
Government.

EFFECTIVE DATE: September 20, 1996.

FOR FURTHER INFORMATION CONTACT: Phillip Elder, Senior Loan Officer, 
Farm Service Agency (FSA), Farm Credit Programs Loan Servicing 
Division, U.S. Department of Agriculture, P.O. Box 2415, Ag Box Code 
0523, Washington, D.C. 20013-2415, or at (202) 720-9053.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been reviewed under E.O. 12866 and has been 
determined to be a significant regulatory action.

Executive Order 12372

    1. For the reasons set forth in the final rule related to Notice 7 
CFR Part 3015, Subpart V (48 FR 29115, June 24, 1983) and FmHA 
Instruction 1940-J, Farm Ownership Loans, Farm Operating Loans, and 
Emergency Loans are excluded from the scope of E.O. 12372, which 
requires intergovernmental consultation with state and local officials.
    2. The Soil and Water Loan Program is subject to and has met the 
provisions of E.O. 12372 and FmHA Instruction 1940-J.

Federal Assistance Program

    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
10.416--Soil and Water Loans

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR Part 1940, 
Subpart G, ``Environmental Program.'' It is the determination of the 
issuing agencies that this action does not constitute a major Federal 
action significantly affecting the quality of the human environment, 
and in accordance with the National Environmental Policy Act of 1969, 
Pub.L. 91-190, an Environmental Impact Statement is not required.

Executive Order 12778

    This final rule has been reviewed in accordance with E.O. 12778, 
Civil

[[Page 43148]]

Justice Reform. In accordance with this rule: (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 parts 11 and 
780 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.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (Pub. L. 
104-13), a notice and request for comments (61 FR 11183, March 19, 
1996) was published announcing the Agency's request for an addendum to 
an approved information collection for the farm credit programs 
guaranteed loan regulations required by the amendments to 7 CFR part 
1980 set forth in this rule. No comments were received. The existing 
information collection requirements were previously approved by OMB 
under the provisions of 44 U.S.C. 35 and assigned OMB control number 
0575-0079, which was later renumbered 0560-0155. A revised information 
collection submission will be submitted to OMB for their approval.

Unfunded Mandates

    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. Thus today's rule is not subject to 
the requirements of sections 202 and 205 of the UMRA.

Discussion of Final Rule

    This final rule establishes standardized procedures for following 
up with lenders for future collections on loans that resulted in a loss 
to the Government. These policy changes will strengthen Agency 
regulations on monitoring loan accounts and will maximize recoveries on 
liquidated accounts. The proposed rule was published on May 5, 1994, 
(59 FR 23173-74) with a comment period ending July 5, 1994.
    This change is being made in response to recommendations from the 
USDA, Office of Inspector General (OIG). OIG found that the Farmers 
Home Administration (FmHA) had no procedures to monitor subsequent 
recoveries by lenders from defaulted guaranteed loan borrowers (OIG 
Audit Number 04099-118-Te, June 11, 1987). The audit recommendations 
involved guaranteed farmer programs loans of FmHA. The FmHA Farmer 
Programs loans are now administered as Farm Credit Programs by FSA. The 
other guaranteed loan programs of FmHA are now administered by various 
agencies. Water and Waste disposal facility loans are administered by 
the Rural Utilities Service (RUS), Housing and Community Programs loans 
are administered by the Rural Housing Service (RHS) and Business and 
Industrial loans and Nonprofit National Corporations loans are 
administered by the Rural Business-Cooperative Service (RBS). This 
reorganization was authorized by the Federal Crop Insurance Reform and 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354). 
The proposed rule contained changes to 7 CFR part 1980 subpart A, in 
addition to subpart B. Since USDA has been reorganized, the rule has 
been revised to delete the proposed changes to subpart A. FSA, RUS, 
RHS, and RBS are jointly issuing this rule due to joint ownership of 
chapter XVIII, title 7, Code of Federal Regulations, although FSA will 
be affected only. RUS, RHS, and RBS are in the process of revising the 
regulations for their respective agencies.
    Five comment letters were received by the close of business on July 
5, 1994. Comments were received from several groups representing the 
farming and lending community, including a State Commissioner of 
Agriculture, FSA employees, the American Bankers Association and the 
Farm Credit Council.
    One commenter suggested that the reporting requirements would place 
additional burdens upon the County Office and that the FSA St. Louis 
KCMO Finance Office (formerly FmHA National Finance Office) has the 
capability to generate these reports. However, the County Office is 
currently required to follow up with lenders for a 5-year period. This 
regulation simply provides a specific method of reporting. Requiring 
the County Supervisor to perform the follow-up contact assures that a 
response will be provided and direct contact is assured. This commenter 
also stated that the regulation should address what happens after the 
3-year period of follow-up with the lender is completed. Consequently, 
the Agency has clarified the rule. Also, the Agency plans to use 
internal Administrative directives and instructions to address 
additional issues concerning actions after the 3-year follow-up is 
complete.
    One commenter was concerned about the additional reporting burden 
that this rule will place on lenders. However, the regulation simply 
provides for a standardized method of reporting; information lenders 
are already responsible for gathering. Lenders are currently required 
to monitor liquidated guaranteed loan accounts for a 5-year period. 
This regulation simply provides a format for reporting their findings, 
where none existed previously. The internal use forms are not 
published, but are available for public viewing by contacting the FSA 
Management Services Division, Information Management Branch, PO Box 
2415, Washington, D.C. 20013-2415.
    A commenter suggested that ``Adequate Compensation/Consideration'' 
in the proposed rule be removed and replaced with a reference to FmHA 
Instruction 1956-B, ``Debt Settlement--Farmer Programs and Housing.'' 
This same commenter stated that the Agency would save a considerable 
amount of cost and time if the borrower was encouraged to apply for 
debt settlement at the time the loss claim is submitted. FmHA 
Instruction 1956-B applies to debts owed the Federal Government for 
certain USDA loan programs. However, under a Loan Note Guarantee or 
Contract of Guarantee, the debt is owed to the lender and guaranteed 
debts are settled by the lender. FSA as guarantor only reviews 
information provided by the lender to determine whether or not a 
release request will be concurred with. FSA, in its role as loan 
guarantor, does not work directly with the borrower. After a loss claim 
is paid, the Government does not become a creditor of the farmer or 
rancher. If the debt is not released, the lender has the responsibility 
to follow up with the borrower after a loss claim is paid and remit the 
correct percentage back to the Government in accordance with their 
guarantee. Success with recoveries after liquidation and findings of 
OIG audits discourage a simultaneous loss claim payment, settlement and 
release. Therefore, this suggestion was not adopted.
    Another commenter noted that the proposed rule stated in part ``A 
lender may, with FmHA's concurrence, release a borrower and/or cosigner 
from liability only when adequate compensation/consideration is 
received.'' This commenter recommended that this statement be changed 
to the following: ``A lender may, with FSA's concurrence, release a 
borrower or cosigner from liability only when adequate compensation is 
received or it is mutually agreed that there is very little probability 
of recovery from the borrower or cosigner.'' We have adopted this 
comment in the final rule. This same commenter stated that the intended 
effect of the proposed rule is a positive move to minimize losses 
incurred by

[[Page 43149]]

FSA and ensure lenders continue collection efforts on those loans in 
which the borrower has not been released from liability.
    Another interested party commented that the annual audit rules are 
an expense and a burden to them. This respondent indicated a desire for 
removal of all loss claim follow-up requirements from guaranteed loan 
regulations. The Agency has determined that current requirements will 
be reduced by this rule and the requirements of this rule are justified 
by the benefits of program participation.
    As discussed above, administrative procedures in the proposed rule 
will be included in internal Agency instructions. Also, as part of this 
final rule, the agencies are removing some administrative provisions 
from the Federal Register and are changing references from ``FmHA or 
its successor agency under Public Law 103-354'' to ``the Agency.'' 
Other minor wording changes are also being made.

List of Subjects in 7 CFR Part 1980

    Administrative practice and procedures, Agriculture, Business and 
Industry, Community Facilities, credit, Loan programs--Agriculture, 
Loan Programs--Business and industry, Loan programs--Housing and 
community development, low and moderate income housing, reporting and 
recordkeeping requirements, rural areas.
    Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:

PART 1980--GENERAL

    1. The authority citation for part 1980 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; 7 CFR 
2.23 and 2.70.

Subpart B--Farmer Programs Loans

    2. Section 1980.146 is amended by:
    a. removing the words ``FmHA or its successor agency under Public 
Law 103-354'' wherever it appears in paragraphs (e)(2)(iv)(B) and 
(e)(4) and adding the words ``the Agency'' in its place;
    b. removing the words ``FmHA or its successor agency under Public 
Law 103-354'' in the title, second sentence, and the last place it 
appears in the last sentence of paragraph (e)(5) and adding the words 
``the Agency'' in its place;
    c. removing the words ``Form FmHA or its successor agency under 
Public Law 103-354'' in the first place it appears in the last sentence 
of paragraph (e)(5) and adding the words ``Form FmHA'' in its place;
    d. removing the words ``FmHA or its successor agency under Public 
Law 103-354'' wherever it appears in paragraphs (e)(7) and (e)(8) and 
adding the words ``the Agency'' in its place; and
    e. revising paragraphs (e)(2)(iv)(A) and (e)(3) to read as follows:


Sec. 1980.146  Liquidation.

* * * * *
    (e) * * *
    (2) * * *
    (iv) * * *
    (A) If the loss is greater than the estimated loss, the Agency will 
pay the additional amount owed to the lender.
    (B) * * *
    (3) Future Recovery. The lender will remit any future recoveries to 
the Agency in proportion to the percentage of guarantee in accordance 
with the Lender's Agreement until the account is paid in full or 
otherwise satisfied. A lender may, with Agency concurrence, release a 
borrower or cosigner from liability when adequate compensation is 
received or it is mutually agreed that there is very little probability 
of future recovery from the borrower or cosigner.
* * * * *


Sec. 1980.174  [Removed and Reserved.]

    3. In part 1980 Sec. 1980.147 is removed and reserved.

    Signed in Washington, DC, on August 12, 1996.
Eugene Moos,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 96-21236 Filed 8-20-96; 8:45 am]
BILLING CODE 3410-05-P