[Federal Register Volume 64, Number 217 (Wednesday, November 10, 1999)]
[Proposed Rules]
[Pages 61221-61223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29396]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 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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 

  Federal Register / Vol. 64, No. 217 / Wednesday, November 10, 1999 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Part 1951

RIN 0560-AF78


Farm Loan Programs Account Servicing Policies--Servicing Shared 
Appreciation Agreements

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) is proposing to amend the Shared 
Appreciation Agreement and the servicing of Shared Appreciation 
Agreements. The Shared Appreciation Agreement ensures that FSA shares 
in any appreciation of real estate security when a farm borrower has 
received a writedown of a portion of his or her FSA debt. The amount 
due can be paid in full or amortized when the Shared Appreciation 
Agreement matures or is triggered during the term of the agreement. The 
changes will allow the value of some capital improvements made during 
the term of the Shared Appreciation Agreement to be deducted from 
recapture, change the maturity period of future Shared Appreciation 
Agreements from 10 years to 5 years, and reduce the interest rate on 
Shared Appreciation loans to the Farm Program Homestead Protection 
rate. These changes will give borrowers an opportunity to repay a 
portion of the FSA debt that was written off, while still ensuring that 
the Government promptly recaptures some appreciation of the collateral. 
This rule will also improve Agency security during the term covered by 
the Shared Appreciation Agreement.

DATES: Comments on this rule and on the information collections must be 
submitted by January 10, 2000 to be assured consideration.

ADDRESSES: Submit written comments to Director, Farm Loan Programs, 
Loan Servicing and Property Management Division, United States 
Department of Agriculture, Farm Service Agency, STOP 0523, 1400 
Independence Avenue, SW, Washington, DC 20250-0523.

FOR FURTHER INFORMATION CONTACT: Michael C. Cumpton, telephone (202) 
690-4014; electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and certified by signature of this 
document that this rule will not have a significant economic impact on 
a substantial number of small entities. New provisions included in this 
rule will not impact a substantial number of small entities to a 
greater extent than large entities. Therefore, a regulatory flexibility 
analysis was not performed.

Environmental Evaluation

    It is the determination of FSA that this action is not a major 
Federal action significantly affecting the environment. Therefore, in 
accordance with the National Environmental Policy Act of 1969, and 7 
CFR part 1940, subpart G, an Environmental Impact Statement is not 
required.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil 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) except as specifically stated in this rule, 
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 seeking 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 within this rule 
are excluded from the scope of E.O. 12372, which requires 
intergovernmental consultation with State and local officials.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 
requires Federal agencies to assess the effects of their regulatory 
actions on State, local, and tribal governments or the private sector 
of $100 million or more in any 1 year. When such a statement is needed 
for a rule, section 205 of the UMRA requires FSA to prepare a written 
statement, including a cost benefit assessment, for proposed and final 
rules with ``Federal mandates'' that may result in such expenditures 
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 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 rule is not subject to the requirements of sections 
202 and 205 of UMRA.

Paperwork Reduction Act

    The amendments to 7 CFR part 1951 set forth in this proposed rule 
require no revisions to the information collection requirements that 
were previously approved by OMB under the provisions of 44 U.S.C. 
chapter 35.
    Title: 7 CFR 1951-S, Farmer Program Account Servicing Policies.
    OMB Number: 0560-0161.
    Expiration Date of Approval: January 31, 2001.
    Type of Request: Revision of a currently approved information 
collection.
    Abstract: The information collected under OMB Number 0560-0161, as 
identified above, is needed in order for FSA to effectively administer 
the regulation relating to the servicing of delinquent direct FSA farm 
loans. The information is collected by the loan official in order to 
document the

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borrower's eligibility for specific loan servicing actions. The 
reporting requirements imposed on the public by the regulations set out 
in 7 CFR 1951-S are necessary to administer the loan program in 
accordance with statutory requirements, are consistent with commonly 
performed lending practices, and are necessary to protect the 
Government's financial interest.
    This proposed rule--to provide for the exclusion of the value of 
some capital improvements when determining the amount of shared 
appreciation recapture due, reduce the term of the Shared Appreciation 
Agreement, and reduce the interest rate on amortized shared 
appreciation amounts--is expected to result in no increase in the 
number of applicants for loan servicing nor increase the time required 
to apply. The other information collection requirements approved under 
this control number will not change. Therefore, no request for revision 
is being made.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 1.4 hours per response.
    Respondents: Individuals or households, businesses or other for 
profit and farms.
    Estimated Number of Respondents: 6,100.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 8,588 hours.
    Proposed topics for comment include: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of burden including 
the validity of the methodology and assumptions used; (c) ways to 
enhance the quality, utility and clarity of the information to be 
collected; (d) ways to minimize the burden of the collection of 
information on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. 
Comments should be sent to the, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: Desk Officer for 
Agriculture, Washington, DC 20503 and to Michael C. Cumpton, Senior 
Loan Officer, USDA, FSA, Farm Loan Programs Loan Servicing Division, 
Farm Service Agency, USDA, 1400 Independence Ave., SW, STOP 0523, 
Washington, DC 20250-0523: Comments regarding paperwork burden will be 
summarized and included in the request for OMB approval of the 
information collection. All comments will also become a matter of 
public record.

Federal Assistance Programs

    These changes affect the following FSA programs as listed in the 
Catalog of Federal Domestic Assistance:

10.407--Farm Ownership Loans

Discussion of the Proposed Rule

    The Shared Appreciation Agreement was first issued by the Farmers 
Home Administration (now the Farm Service Agency (FSA)) as an exhibit 
to 7 CFR part 1951, subpart S in accordance with the Agricultural 
Credit Act of 1987 to enable the Agency to recapture a portion of the 
government debt that was written down from farm loan programs that 
assisted delinquent or financially distressed family farmers. Writedown 
options include partial debt forgiveness if the borrower can show a 
positive cash flow on the ongoing farm operation and the action is in 
the best financial interest of the Government. In those instances where 
FSA forgives debt through a debt writedown and has real estate 
security, the borrower enters into a Shared Appreciation Agreement with 
the Government so FSA can share in any future appreciation of the real 
estate. Currently, over 11,900 Shared Appreciation Agreements have been 
executed on debt writedown of over $1.7 billion. Approximately 6,500 of 
these agreements are currently in effect and will become due over the 
next 10 years. The agreement states that if repayment is triggered 
within 4 years of entering into the agreement, the borrower owes the 
Agency 75 percent of any positive appreciation of the real estate 
security and 50 percent if the agreement is triggered after 4 years. In 
its present form, the Shared Appreciation Agreement states that 
repayment can be triggered if the Agency accelerates the promissory 
notes or the borrower pays in full, stops farming, or conveys the 
property. If none of these actions occurs in a 10 year period and the 
Shared Appreciation Agreement reaches maturity, then repayment is 
automatically due. The maximum amount to be recaptured cannot exceed 
the amount of the writedown received by the borrower. Currently under 
Sec. 1951.914(e) (63 FR 6627, 6629, February 10, 1998), if the Shared 
Appreciation Agreement is triggered by some action other than 
acceleration, satisfaction of the debt, or the cessation of farming, 
the amount due can be amortized for up to 25 years at nonprogram rates 
if the borrower can develop a farm business plan with a positive cash 
flow.
    FSA proposes three changes to 7 CFR part 1951, subpart S. The term 
of new Shared Appreciation Agreements will be reduced to 5 years. This 
will reduce the burden of the Agency in monitoring the Shared 
Appreciation Agreements and allow the farmer to plan for the future 
without a contingent liability in the distant future. Next, allowances 
will be made for certain capital improvements made to property covered 
by an existing or future Shared Appreciation Agreement. The 
contributory value of capital improvements will be deducted from the 
appraised value calculated at the time of the triggering event or at 
the end of the agreement and will reduce the amount due. The Agency 
proposes that this rule will allow a deduction for the value of certain 
improvements involved in all Shared Appreciation Agreements that have 
matured, provided that there has been no agreement or resolution to pay 
the amount due, and all future agreements. The proposal allows farmers 
to develop and better maintain their real estate. This proposed rule 
intends changes to FSA direct loans only. The term reduction and value 
of capital improvement exclusion may be considered in a separate 
rulemaking document involving the FSA Guaranteed Loan Program. However, 
any comments on this modification as it applies to the Guaranteed Loan 
Program will also be considered. Finally, the agency proposes that the 
interest rate charged on Shared Appreciation loans, which are approved 
when a borrower cannot pay the shared appreciation due, will be reduced 
from the current nonprogram rate to near the Federal borrowing rate. 
This will allow borrowers easier access to the amortization option and, 
in turn, allow greater government recapture on debt writedowns.

List of Subjects in 7 CFR Part 1951

    Account servicing, Credit, Debt restructuring, Loan programs--
agriculture, Loan programs--housing and community development.

    Accordingly, 7 CFR part 1951 is amended as follows:

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3716; 42 
U.S.C. 1480.

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Subpart S--Farm Loan Programs Account Servicing Policy

    2. Amend Sec. 1951.914 by revising paragraphs (b) introductory 
text, (c)(1), (e)(6) and (e)(9) to read as follows:


Sec. 1951.914  Servicing shared appreciation agreements.

* * * * *
    (b) When shared appreciation is due. Shared Appreciation is due at 
the end of the 5 year term of the Shared Appreciation Agreement, or 
sooner, if one of the following events occurs:
* * * * *
    (c) * * *
    (1) The current market value of the real estate property will be 
determined based on a current appraisal. If a dwelling, barn, grain 
storage bin, or silo was constructed on the property during the term of 
the Shared Appreciation Agreement, its contributory value, as 
determined by an FSA appraisal, will be deducted from the value of the 
property for calculation of appreciation. If the new item is a 
replacement for a like item that existed when the Shared Appreciation 
Agreement was executed or the original item was notably expanded, such 
as the addition of rooms to a home, only the value added by the new or 
expanded item that increases the value of the original item will be 
deducted from the current market value. If only a portion of the real 
estate is being sold, or has been sold, an appraisal will be done only 
on the real estate being considered for release. In the event of a 
partial sale, an appraisal may be required to determine the market 
value of the property at the time the Shared Appreciation Agreement was 
signed if such value cannot be obtained through another method.
* * * * *
    (e) * * *
    (6) The interest rate will be the Farm Program Homestead Protection 
rate contained in RD Instruction 440.1 (available in any FSA office.)
* * * * *
    (9) Unless serviced in accordance with this paragraph, the loan for 
the repayment of the shared appreciation amount will be closed and 
serviced in accordance with subpart J of this part. If the borrower has 
outstanding Farm Loan Programs loans, and becomes delinquent or 
financially distressed in accordance with Sec. 1951.906, the loan for 
the repayment of the Shared Appreciation Agreement may be considered 
for reamortization as set forth in Sec. 1951.909(e).

    Signed in Washington, DC, on October 31, 1999.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 99-29396 Filed 11-9-99; 8:45 am]
BILLING CODE 3410-05-P