[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Rules and Regulations]
[Pages 1563-1569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-100]



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  Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Rules 
and Regulations  

[[Page 1563]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 770

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1823, 1902, 1951, and 1956

RIN 0560-AF43


Loans to Indian Tribes and Tribal Corporations

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule consolidates and revises the Indian Tribal Land 
Acquisition Program (ITLAP) regulations. The rule eliminates the 
reserve requirement and the waiver of sovereign immunity for all new 
loans; allows borrowers to use the loan reserve accounts as either an 
extra payment on their loans to the Farm Service Agency (FSA) or for 
other tribal needs; provides borrowers additional servicing options; 
allows ITLAP funds to be used for certain refinancing activities; 
expands the uses borrowers may make of land purchased with ITLAP funds; 
requires ITLAP loan applications, in most cases, to include a copy of 
the borrower's option to purchase the land; and provides for subsequent 
loans to be made to ITLAP borrowers.

EFFECTIVE DATE: February 8, 2001.

FOR FURTHER INFORMATION CONTACT: Gary West, Senior Loan Officer, Farm 
Loan Programs, Loan Servicing and Property Management Division, Farm 
Service Agency, USDA, 1400 Independence Avenue, SW., STOP 0523, 
Washington, DC 20250-0523, telephone (202) 690-4008, facsimile (202) 
690-0949, electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant under E.O. 12866 
and has been reviewed by the Office of Management and Budget.

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. Thus, large entities are subject to 
these rules to the same extent as small entities. Therefore, a 
regulatory flexibility analysis was not performed.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' The issuing agency has determined 
that this action does not affect the quality of 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 12988

    This rule has been reviewed in accordance with E.O. 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) 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.

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 within this rule 
are excluded from the scope of E.O. 12372, which requires 
intergovernmental consultation with State and local officials.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, or on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among various levels of 
government. The rule does not add any new significant loan making 
criteria, but changes the format of the regulation in compliance with 
efforts to streamline our loan making and loan servicing criteria.

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 a rule contains such 
mandates, section 205 of the UMRA requires agencies 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 of 1995

    The Agency announced its intent to obtain Office of Management and 
Budget (OMB) approval of the information collections established under 
7 CFR part 770 under a new OMB control number in the notice of proposed 
rule (64 FR 59131). No comments were received from the public regarding 
the proposed

[[Page 1564]]

information collections and the Agency has requested OMB approval.

Federal Assistance Programs

    These changes affect the following FSA programs as listed in the 
Catalog of Federal Domestic Assistance.
    10.421--Indian Tribes and Tribal Corporation Loans.

Discussion of the Comments on the Proposed Rule

    On November 2, 1999, the Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and the Farm Service 
Agency published a Proposed Rule (64 FR 59131) requesting comments 
regarding proposed changes to ITLAP. On March 31, 2000, an extension to 
the comment period was published. In response to the request for public 
comment, 29 comments were received. The breakdown of the five groups 
and or individuals who commented were: Three Native American tribes, 
one individual and one Federal Government agency.
    Four comments were received regarding the cancellation of ITLAP 
debt. One comment opposed reducing or canceling any ITLAP debt that is 
fully secured and collectable because (1) The Federal Government has an 
affirmative responsibility to collect such debt and to not take that 
action turns the loans into grants and (2) it would violate the 
appropriations process. Three comments supported the cancellation of 
debt in some unspecified form, or supported a broad based cancellation 
of the debt. In response to the comment that the Agency not reduce any 
ITLAP debt that is fully secured and collectable, these loans are based 
upon the value of the land purchased and not the general assignment of 
income that is generally subordinated by the tribe to the Agency to 
secure repayment. The general assignment of funds comes from all tribal 
sources and not just the income generated from the land. So while the 
repayment is secured by the assignment, many loans are in fact not 
fully collateralized based upon the value of the land. It is the intent 
of the Agency in the final rule in situations where certain tribal 
economic impact factors are extreme to provide a mechanism for debt 
reduction, thereby reducing tribal payments to be more in line with the 
value of the lands purchased with these loan funds.
    Also, while we agree that the Federal Government has an affirmative 
responsibility to collect its legitimate debts in accordance with 
various statutes, the Federal Government also has an affirmative 
responsibility to manage its loan programs in a manner that takes into 
consideration economic realities and circumstances beyond the control 
of participants in its loan programs. The Agency is not turning loans 
into grants but simply providing options for loan restructuring and 
debt relief for those who qualify. Providing such measures is 
consistent with actions taken to provide assistance to all program 
applicants in other Federal loan programs. However, the Agency has 
determined that it will limit the term of restructured loans to remain 
within the maximum 40-year term to help balance the needs of tribes for 
relief from economic hardship with the need to protect the financial 
integrity of government loan programs.
    In response to the comments that suggested the Agency adopt a 
policy of canceling ITLAP debt, the Agency cannot justify the simple 
cancellation of ITLAP debt with respect to the program's current 
borrowers or future borrowers. Such an action would be inconsistent 
with the intent of the program, which is to provide credit to Native 
American tribes for the purchase of reservation land. When Congress 
amended the ITLAP legislation in 1989 (sec. 303 of Pub. L. 101-82) to 
authorize debt relief, it tied such relief to changes in the value of 
the land. In this amendment, Congress did not suggest or encourage the 
Agency to use its debt settlement authorities to provide broad debt 
relief. While comments to the proposed regulations did suggest new 
eligibility criteria and specifics on debt reduction, which are 
addressed here, none of the comments provided specific criteria to 
support when complete cancellation of debt should take place. Also, 
providing such relief could jeopardize the future of ITLAP because, at 
a minimum, if such relief is not clearly limited, it could 
substantially increase the projected costs for future ITLAP loans. The 
increased loan losses would mean that under the Credit Reform Act of 
1990, the cost of loans would increase which would result in the Agency 
having less program loan funding available for such loans, even if the 
appropriation level of the program remains unchanged. The decreased 
funding would have a negative impact on ITLAP applicants. Therefore, 
the Agency has concluded at this point that the proposal of broadly 
canceling ITLAP debts will not be implemented.
    Three respondents submitted comments regarding the methodology and 
eligibility for reducing the principal amount of the outstanding ITLAP 
debt to the present value of expected future annual rental value of the 
land purchased with ITLAP loan funds and setting the annual ITLAP loan 
payment at the annual rent received or that could be received from this 
land. Two of these comments stated that the principal balance of such 
loans should be reduced to the present value of future annual rents 
that could be generated on the land purchased with loan funds. Two 
comments supported the concept that loan payments should be adjusted to 
equal rental income received from land purchased with loan funds. In 
addition, one comment suggested that eligibility for debt relief be 
tied to the unusually high rates of unemployment encountered on Native 
American reservations. Three comments supported eligibility criteria 
based upon socio-economic factors but indicated that the proposed rule 
criteria was too complicated and terms such as unfunded mandates and 
quantifying public health and safety needs could never be accurately 
measured. These comments are indicative that many tribes are having or 
have experienced severe socio-economic problems and are finding it 
difficult to meet the basic needs of their members. As a result, the 
Agency has determined that debt relief to an ITLAP borrower could be 
extended to those who face extreme poverty and unemployment.
    The final rule contains a provision that would allow an ITLAP loan 
to be written down to a level where annual loan payments are based upon 
the previous 5-year average annual rental payment received for the land 
purchased with loan funds projected over the remaining term of the 
loan. The rental rate information will be obtained from the Native 
American tribe or tribal corporation and verified with the Department 
of Interior. This would occur if the Native American tribe is facing 
extreme socio-economic problems, which are a part of the eligibility 
criteria for debt relief. In further response to the comments the 
Agency has changed the eligibility criteria to include socio-economic 
factors that are more easily measured, such as per capita income and 
tribal unemployment. However, a Native American tribe's loan could 
receive the benefit of such a write-down regarding its ITLAP loans only 
once, provided it has not received a land value write-down in the last 
5 years. Such a write-down could involve as many ITLAP loans of the 
tribe as meet the criteria under this regulation at the time of the 
write-down application.
    Two comments were received with regard to the number of years used 
to determine the average rental value of the land purchased under the 
rental value write-down option. The

[[Page 1565]]

commenters believed that the Agency did not go far enough in using the 
preceding 5 years to determine the average rental value of the land 
purchased with loan funds. The commenters contended that the entire 
history of the rental value of the land should be considered because 
there have been several periods over the life of the existing loans 
during which tribes have suffered financial hardships. The Agency 
considered these comments but any write-down must be based upon an 
accurate representation of the value of the land. To go back more than 
5 years could result in a misstatement of the current land value. It is 
not the purpose of the rental value write-down option to compensate the 
borrower for financial hardship that it may have suffered in the past. 
The purpose of the new write-down servicing option is to provide a 
measure of relief, if necessary based upon the most recent indicators 
of land value.
    One comment was received regarding the restructuring of a loan by 
lowering the interest rate and reamortizing the balance of the loan 
over the remaining loan term. The comments were not opposed to lowering 
the interest rate but were opposed to reamortizing over the remaining 
term. They felt that keeping within the remaining term when no debt 
relief is proposed simply increases a payment that already cannot be 
met. This comment also referred to year 40 of the note as the balloon 
payment date. In response, the Agency feels that routine loan 
restructuring should take place when necessitated by temporary 
circumstances and should be reamortized within the original note terms 
in order to stay within the budgetary confines of program allocations 
and to project a realistic repayment schedule for the loan. Also, the 
Agency is publishing a deferral option in the final rule that will 
further provide for temporary relief. If long-term problems are 
encountered the debt-relief provisions of this rule should be explored. 
In response to the balloon payment reference, the Agency believes that 
40 years is a more than adequate repayment period for any note. Under 
the equal amortization schedule the note is set up or restructured 
under, year 40 is the final due date of the last installment and not a 
balloon payment.
    Two comments suggested that ITLAP borrowers should be eligible for 
servicing options, such as reamortizations and deferrals (codified at 7 
CFR part 1951, subpart S), and debt settlement options (codified at 7 
CFR part 1956) that are available to Farm Loan Program (FLP) borrowers. 
Based on a review of the FLP loan-making and servicing procedures, we 
have determined that loan-making and servicing procedures for FLP are 
not consistent with the statutorily established purposes of ITLAP. The 
purpose of FLP loans is to assist family farming and ranching 
operations in becoming economically successful. Conversely, the 
statutory purpose of ITLAP loans is to assist Native American tribes in 
the purchase of land and interests in land for the purpose of 
consolidating their ownership of land within their reservations, 
regardless of the economic use such tribe may make of the land. Thus, 
FLP loans made to farmers and ranchers versus ITLAP loans made to 
Native American tribes are substantially different in the types of 
borrowers being targeted, the importance of how the borrower's 
operation is structured, and the importance of the economic viability 
of the project being funded. In order to accomplish the purpose of 
these respective loan programs, the servicing options offered to 
borrowers under each program must be different and tailored to the 
distinct purposes of these programs. With respect to debt settlement, 
for individual loans the security must be liquidated in order to debt 
settle. In many cases, even when the security is liquidated a debt 
settlement is not granted until a borrower makes a compromise offer to 
settle the remaining indebtedness even though all the collateral has 
been liquidated. The comments received considered this but felt that 
land holdings on the reservation are unique because they are generally 
secured by payment assignments, so collateral liquidation provisions 
should not apply. To the extent that a final debt settlement procedure 
is necessary, the Agency will use the general government procedures at 
(4 CFR parts 101-105). The final rule implements loan servicing and 
debt write-down provisions that are specially tailored and unique to 
ITLAP and will maintain the economic viability of tribal lands 
purchased with ITLAP funds.
    Three comments were received regarding releasing assignments of 
income and substituting real estate mortgages on the land purchased 
with ITLAP funds. The comments suggest that the Agency take mortgages 
as security for these existing loans in exchange for the release of the 
general assignments of income that currently secure many of these 
loans. The Agency does not agree with these comments. The assignment 
guarantees repayment and since the ITLAP program is a credit program 
the Agency is responsible for providing the best possible method of 
collecting taxpayer dollars loaned. Also, in many of these cases taking 
security in the form of a mortgage is not practical because the ITLAP 
funds are being used to purchase fractional interests in land. A 
mortgage on such fractional interests may not provide the Agency with 
adequate security for the loan. However, the Agency is eliminating the 
reserve account requirement for all new loans and providing reserve 
account release criteria for existing loans in this rule. The reserve 
is set up for tribes to pay and deposit one-tenth of their regularly 
scheduled payment in the account until one full payment is in reserve. 
The release may help to free funds for borrowers to use in other areas 
rather than have them tied up in the reserve account.
    One comment was received regarding granting of deferrals of annual 
payments if the income loss is temporary. The comment recommended that 
debt relief should be provided when a producer who rents land from the 
borrower suffers a reduction in commodity prices. The Agency agrees and 
has provided specific deferral criteria in Sec. 770.10(c) of the final 
rule.
    One comment suggested that debt relief should be provided if the 
making of the loan payments by the borrower will impede the borrower's 
ability to resolve fractional land interests on the reservation. One 
comment stated that debt relief should be provided if the making of 
loan payments impedes the borrower's ability to repay other loans or 
meet other tribal needs. In response, the ITLAP program that provides 
credit for a tribe to purchase land is not a program designed to solve 
all tribal needs, nor could it possibly be designed to do so. If tribes 
have other payment obligations, they may also approach those creditors 
for relief. ITLAP is a loan program in which tribes recognize their 
repayment responsibilities when entering into the loan. The Agency 
cannot promulgate regulations that simply allow a borrower to not make 
payments because it has decided that purchasing additional lands is a 
priority.
    Two comments indicated that the Agency should take action regarding 
debt relief without promulgating new regulations, since such 
regulations are not necessary and would violate Executive Order (E.O.) 
13084. These comments indicated that the E.O. obligates the Secretary 
of Agriculture to take actions to assist Native American tribes while 
waiving the normal regulatory requirements to take such actions. The 
Agency agrees that the E.O. does place an obligation on the Secretary 
of Agriculture to take steps

[[Page 1566]]

wherever possible to assist Native American tribes. As indicated in the 
Proposed Rule the Agency re-examined ITLAP to determine if there are 
ways in which the Agency can provide more debt relief options to 
borrowers. The Agency, however, does not agree that the E.O. would 
allow the Agency to implement such policy changes in violation of the 
requirements of notice and comment rulemaking requirements in section 
553 of Title 5, United States Code and the Statement of Policy of the 
Secretary of Agriculture relating to notices of proposed rulemaking and 
public participation (36 FR 13804). Further, while the public 
notification and subsequent comment periods of the informal rulemaking 
process has taken additional time, this process has given all 
interested parties, including affected Native American tribes, the 
opportunity to participate in the development of this final rule, thus 
ensuring that their interests and concerns have been heard. Therefore, 
the Agency proceeded with the consideration and development of ITLAP 
debt relief changes through the notice and comment rulemaking process.
    One comment indicated that the Agency's concerns regarding the 
budgetary impacts of providing debt relief to borrowers were misplaced 
because such relief would enable borrowers to purchase more fractional 
interests and thus reduce the overall Federal Government's costs in 
tracking these fractional interests. The comment indicated that any 
additional costs to the Federal Government would be offset by the 
reduction in costs to administer programs on Native American 
reservations. The comment indicated that this information is readily 
available from the Department of the Interior's Bureau of Indian 
Affairs and that a reduction in debt would have a corollary effect of 
reducing the costs incurred by the Federal Government of managing 
fractional interests within the confines of Federally Recognized Indian 
Reservations. Only authorizing legislation could allow for 
consideration of such a proposal. In addition, these comments ignore 
the Agency's concerns expressed in the Proposed Rule of the impact on 
the Federal budget that any ITLAP debt relief will have on the Agency 
and the reality of the Federal budgeting process.
    One comment indicated that funding for the loan program should be 
provided to the full program authorization level of $50 million and 
that such a change would be in the best interests of the program. The 
Agency has no comment as the Congressional appropriation process 
establishes program funding levels, not the Agency.
    One comment requested clarification on the definition of 
Reservation to include the former reservations in Oklahoma. While 
inclusion of these lands would be consistent with other FSA loan 
programs, the statute authorizing ITLAP, 25 U.S.C. 488, limits ITLAP 
loans to ``interests * * * within the tribe's reservation as determined 
by the Secretary of the Interior or within a community in Alaska 
incorporated by the Secretary * * *'' Former reservations lands are not 
covered by the ITLAP authorizing statute and thus the comment was not 
adopted.
    One comment indicated that under the proposed land value or rental 
value write-down criteria the appraisal that would be necessary would 
be cost prohibitive because of fractionated interests in land. The 
Agency maintains that a value must be established prior to any write-
down just as it was when the loans were originally made. If the 
appraisal cost is viewed as being excessive, then, as with any loan, 
the borrower will have to make a decision on what is in its best 
interest.
    Two comments requested that any requirement for the tribe to waive 
its sovereign immunity be removed. The Agency agrees and will no longer 
require the waiver. The lack of a waiver does not prevent the Federal 
Government from bringing suit against the borrower.
    One comment suggested that the Agency is not equipped to handle 
loans to tribes and that the ITLAP program should be transferred to an 
Agency that is better suited to understanding and working with tribal 
programs, such as the Department of the Interior. This type of a loan 
program transfer between departments of the Federal Government would 
require enacting legislation.
    There were other comments relating to specifics of the Agency's 
internal administrative processing of various loan making or servicing 
actions. These comments and recommended actions are solely 
administrative in nature and will be covered in the Agency handbook.

Discussion of the Final Rule

    Public Law 91-229 (25 U.S.C. 488-494) authorized the Secretary of 
Agriculture to establish ITLAP to make loans to Native American tribes 
and tribal corporations to acquire land and fractional interests in 
land on the tribes' reservations. This program was administered by the 
former Farmers Home Administration (FmHA). Under the authority of the 
Department of Agriculture Reorganization Act of 1994, Pub. L. 103-354, 
on October 20, 1994, FmHA's ITLAP functions were transferred to FSA. 
Regulations for implementing this program are found at 7 CFR part 1823, 
subpart N for loan making; 7 CFR part 1951, subpart E for loan 
servicing; and 7 CFR part 1956, subpart C, for debt settlement. The 
final rule will consolidate the ITLAP regulations into one part and 
clarify that this program is exclusively administered by FSA.
    The final rule will eliminate the reserve account. With respect to 
loans that are not delinquent and that are presently adequately secured 
by a general assignment of tribal income, the Agency will release its 
interest in existing reserve accounts and allow them to be returned to 
the Native American tribe or tribal corporation. During the review of 
ITLAP in preparation of the proposed rule and the final rule, the 
Agency determined that a general assignment of tribal income provides 
the Agency sufficient security for ITLAP loans. The additional security 
provided by the reserve account is unnecessary. ITLAP loans secured by 
an assignment of income have a very low delinquency rate. The release 
of the reserve would allow Native American tribes and tribal 
corporations to use these funds towards an extra payment or for other 
tribal operations. Also, with this change, the borrowers could use the 
reserve account funds to purchase additional land that could increase 
its future income or for other pressing tribal needs. The Agency 
believes that these changes are consistent with the intent of ITLAP to 
assist Native American tribes and tribal corporations to consolidate 
their ownership in reservation lands.
    The final rule also adopts the use of unemployment rates and tribal 
per capita income for enrolled tribal members as an eligibility 
criteria more easily obtainable than calculating the percentage or 
tribal shortfall to meet unfunded State or Federal mandates.
    The final rule expands the use of ITLAP loan funds to include: 
Refinancing of an existing debt incurred by the Native American tribe 
or tribal corporation to purchase land, provided the loan application 
and land purchase proposal was received by the Agency and approved 
prior to the purchase of the land; the Native American tribe or tribal 
corporation was not able to obtain an option on the land; the debt to 
be refinanced is short term debt with a balloon payment that cannot 
otherwise be refinanced with the creditor; and the debt secured by the 
land subject to the refinancing must otherwise meet the requirements of 
ITLAP.

[[Page 1567]]

    The final rule allows certain ITLAP loans to be written down to a 
value where the annual loan payment would equal the 5-year average 
rental value for the land purchased with such loan funds if the 
borrower could establish that the Native American tribe was facing 
economic hardships based on a combination of certain eligibility 
criteria. Such a write-down could involve as many ITLAP loans of the 
tribe as meet the criteria under this regulation at the time of the 
write-down application.
    The final rule clarifies the process under which the Agency will 
reduce the interest rate of an ITLAP loan to the interest in effect at 
the time of application for such a reduction. Such a reduction will 
take place if the ITLAP loan has been in effect for more than 5 years. 
This change is being made to allow borrowers who have extreme 
impoverished circumstances to benefit from any program interest rate 
changes. Borrowers could qualify if the tribe has a per capita income 
for enrolled tribal members which is less than the Federally 
established poverty income rate by more than 50 percent and the tribal 
unemployment rate exceeds 50 percent.
    The final rule clarifies the approved uses of land that are the 
subject of an ITLAP loan to ensure that the Agency's mortgage or income 
assignment on the land is protected by requiring Agency approval prior 
to such land being either leased, sold, or exchanged. The final rule 
clarifies that a subsequent ITLAP loan may be made to a borrower for 
the same purposes and under the same conditions as a prior loan. The 
final rule requires that prior to obtaining an ITLAP loan, the Native 
American tribe or tribal corporation must obtain an option or other 
acceptable purchase agreement to purchase the land at issue and that a 
copy of such agreement accompany the ITLAP loan application. The 
purpose for this change is to allow the Agency to have all relevant 
information regarding the land purchase for which ITLAP loan funds are 
being sought. The final rule will also eliminate the need for the tribe 
to waive their right to sovereign immunity as the Government will 
receive an assignment of income that has been approved by Department of 
Interior, Bureau of Indian Affairs, which serves to guarantee the 
repayment of the loan, negating the need for the waiver of sovereign 
immunity.

List of Subjects

7 CFR Part 770

    Credit, Indians, Loan programs--agriculture.

7 CFR Part 1823

    Credit, Grazing lands, Indians, Loan programs--agriculture, Rural 
areas, Soil conservation.

7 CFR Part 1902

    Accounting, Banks, banking, Grant programs--Housing and community 
development, Loan programs--Agriculture, Loan programs--Housing and 
community development.

7 CFR Part 1951

    Accounting, Grant programs--Housing and community development; 
Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1956

    Accounting, Loan programs--Agriculture, Rural areas.

    Accordingly, for the reasons stated in the preamble, 7 CFR part 770 
is added and 7 CFR parts 1823, 1902, 1951, and 1956 are amended as 
follows:

    1. Part 770 is added to read as follows:

PART 770--INDIAN TRIBAL LAND ACQUISITION LOANS

Sec.
770.1   Purpose.
770.2   Abbreviations and definitions.
770.3   Eligibility requirements.
770.4   Authorized loan uses.
770.5   Loan limitations.
770.6   Rates and terms.
770.7   Security requirements.
770.8   Use of acquired land.
770.9   Appraisals.
770.10   Servicing.

    Authority: 5 U.S.C. 301, 25 U.S.C. 490.


Sec. 770.1  Purpose.

    This part contains the Agency's policies and procedures for making 
and servicing loans to assist a Native American tribe or tribal 
corporation with the acquisition of land interests within the tribal 
reservation or Alaskan community.


Sec. 770.2  Abbreviations and definitions.

    (a) Abbreviations.
    FSA Farm Service Agency, an Agency of the United States Department 
of Agriculture, including its personnel and any successor Agency.
    ITLAP Indian Tribal Land Acquisition Program.
    (b) Definitions.
    Administrator is the head of the Farm Service Agency.
    Agency is Farm Service Agency (FSA).
    Appraisal is an appraisal for the purposes of determining the 
market value of land (less value of any existing improvements that pass 
with the land) that meets the requirements of part 761 of this chapter.
    Applicant is a Native American tribe or tribal corporation 
established pursuant to the Indian Reorganization Act seeking a loan 
under this part.
    Loan funds refers to money loaned under this part.
    Native American tribe is:
    (1) An Indian tribe recognized by the Department of the Interior; 
or
    (2) A community in Alaska incorporated by the Department of the 
Interior pursuant to the Indian Reorganization Act.
    Reservation is lands or interests in land within:
    (1) The Native American tribe's reservation as determined by the 
Department of the Interior; or
    (2) A community in Alaska incorporated by the Department of the 
Interior pursuant to the Indian Reorganization Act.
    Reserve is an account established for loans approved in accordance 
with regulations in effect prior to February 8, 2001 which required 
that an amount equal to 10 percent of the annual payment be set aside 
each year until at least one full payment is available.
    Tribal corporation is a corporation established pursuant to the 
Indian Reorganization Act.


Sec. 770.3  Eligibility requirements.

    An applicant must:
    (a) Submit a completed Agency application form;
    (b) Except for refinancing activities authorized in Sec. 770.4(c), 
obtain an option or other acceptable purchase agreement for land to be 
purchased with loan funds;
    (c) Be a Native American tribe or a tribal corporation of a Native 
American tribe without adequate uncommitted funds, based on Generally 
Accepted Accounting Principles, or another financial accounting method 
acceptable to Secretary of Interior to acquire lands or interests 
therein within the Native American tribe's reservation for the use of 
the Native American tribe or tribal corporation or the members of 
either;
    (d) Be unable to obtain sufficient credit elsewhere at reasonable 
rates and terms for purposes established in Sec. 770.4;
    (e) Demonstrate reasonable prospects of success in the proposed 
operation of the land to be purchased with funds provided under this 
part by providing:
    (1) A feasibility plan for the use of the Native American tribe's 
land and other

[[Page 1568]]

enterprises and funds from any other source from which payment will be 
made;
    (2) A satisfactory management and repayment plan; and
    (3) A satisfactory record for paying obligations.
    (f) Unless waived by the FSA Administrator, not have any 
outstanding debt with any Federal Agency (other than debt under the 
Internal Revenue Code of 1986) which is in a delinquent status.
    (g) Not be subject to a judgment lien against the tribe's property 
arising out of a debt to the United States.


Sec. 770.4  Authorized loan uses.

    Loan funds may only be used to:
    (a) Acquire land and interests therein (including fractional 
interests, rights-of-way, water rights, easements, and other 
appurtenances (excluding improvements) that would normally pass with 
the land or are necessary for the proposed operation of the land) 
located within the Native American tribe's reservation which will be 
used for the benefit of the tribe or its members.
    (b) Pay costs incidental to land acquisition, including but not 
limited to, title clearance, legal services, land surveys, and loan 
closing.
    (c) Refinance non-United States Department of Agriculture 
preexisting debts the applicant incurred to purchase the land provided 
the following conditions exist:
    (1) Prior to the acquisition of such land, the applicant filed a 
loan application regarding the purchase of such land and received the 
Agency's approval for the land purchase;
    (2) The applicant could not acquire an option on such land;
    (3) The debt for such land is a short term debt with a balloon 
payment that cannot be paid by the applicant and that cannot be 
extended or modified to enable the applicant to satisfy the obligation; 
and
    (4) The purchase of such land is consistent with all other 
applicable requirements of this part.
    (d) Pay for the costs of any appraisal conducted pursuant to this 
part.


Sec. 770.5  Loan limitations.

    (a) Loan funds may not be used for any land improvement or 
development purposes, acquisition or repair of buildings or personal 
property, payment of operating costs, payment of finder's fees, or 
similar costs, or for any purpose that will contribute to excessive 
erosion of highly erodible land or to the conversion of wetlands to 
produce an agriculture commodity as further established in exhibit M to 
subpart G of part 1940 of this title.
    (b) The amount of loan funds used to acquire land may not exceed 
the market value of the land (excluding the value of any improvements) 
as determined by a current appraisal.
    (c) Loan funds for a land purchase must be disbursed over a period 
not to exceed 24 months from the date of loan approval.
    (d) The sale of assets that are not renewable within the life of 
the loan will require a reduction in loan principal equal to the value 
of the assets sold.


Sec. 770.6  Rates and terms.

    (a) Term. Each loan will be scheduled for repayment over a period 
not to exceed 40 years from the date of the note.
    (b) Interest rate. The interest rate charged by the Agency will be 
the lower of the interest rate in effect at the time of the loan 
approval or loan closing, which is the current rate available in any 
FSA office. Except as provided in Sec. 770.10(b) the interest rate will 
be fixed for the life of the loan.


Sec. 770.7  Security requirements.

    (a) The applicant will take appropriate action to obtain and 
provide security for the loan.
    (b) A mortgage or deed of trust on the land to be purchased by the 
applicant will be taken as security for a loan, except as provided in 
paragraph (c) of this section.
    (1) If a mortgage or deed of trust is to be obtained on trust or 
restricted land and the applicant's constitution or charter does not 
specifically authorize mortgage of such land, the mortgage must be 
authorized by tribal referendum.
    (2) All mortgages or deeds of trust on trust or restricted land 
must be approved by the Department of the Interior.
    (c) The Agency may take an assignment of income in lieu of a 
mortgage or deed of trust provided:
    (1) The Agency determines that an assignment of income provides as 
good or better security; and
    (2) Prior approval of the Administrator has been obtained.


Sec. 770.8  Use of acquired land.

    (a) General. Subject to Sec. 770.5(d) land acquired with loan 
funds, or other property serving as the security for a loan under this 
part, may be leased, sold, exchanged, or subject to a subordination of 
the Agency's interests, provided:
    (1) The Agency provides prior written approval of the action;
    (2) The Agency determines that the borrower's loan obligations to 
the Agency are adequately secured; and
    (3) The borrower's ability to repay the loan is not impaired.
    (b) Title. Title to land acquired with a loan made under this part 
may, with the approval of the Secretary of the Interior, be taken by 
the United States in trust for the tribe or tribal corporation.


Sec. 770.9  Appraisals.

    (a) The applicant or the borrower, as appropriate, will pay the 
cost of any appraisal required under this part.
    (b) Appraisals must be completed in accordance with Sec. 761.7 of 
this chapter.


Sec. 770.10  Servicing.

    (a) Reamortization.
    (1) Eligibility. The Agency may consider reamortization of a loan 
provided:
    (i) The borrower submits a completed Agency application form; and
    (ii) The account is delinquent due to circumstances beyond the 
borrower's control and cannot be brought current within 1 year; or
    (iii) The account is current, but due to circumstances beyond the 
borrower's control, the borrower will be unable to meet the annual loan 
payments.
    (2) Terms. The term of a loan may not be extended beyond 40 years 
from the date of the original note.
    (i) Reamortization within the remaining term of the loan will be 
predicated on a projection of the tribe's operating expenses indicating 
the ability to meet the new payment schedule; and
    (ii) No intervening lien exists on the security for the loan which 
would jeopardize the Government's security priority.
    (3) Consolidation of notes. If one or more notes are to be 
reamortized, consolidation of the notes is authorized.
    (b) Interest rate reduction. The Agency may consider a reduction of 
the interest rate for an existing loan to the current interest rate as 
available from any Agency office provided:
    (1) The borrower submits a completed Agency application form;
    (2) The loan was made more than 5 years prior to the application 
for the interest reduction; and
    (3) The Department of the Interior and the borrower certify that 
the borrower meets at least one of the criteria contained in paragraph 
(e)(2) of this section.
    (c) Deferral. The Agency may consider a full or partial deferral 
for a period not to exceed 5 years provided:
    (1) The borrower submits a completed Agency application form;

[[Page 1569]]

    (2) The borrower presents a plan which demonstrates that due to 
circumstances beyond their control, they will be unable to meet all 
financial commitments unless the Agency payment is deferred; and
    (3) The borrower will be able to meet all financial commitments, 
including the Agency payments, after the deferral period has ended.
    (d) Land exchanges. In the cases where a borrower proposes to 
exchange any portion of land securing a loan for other land, title 
clearance and a new mortgage on the land received by the borrower in 
exchange, which adequately secures the unpaid principal balance of the 
loan, will be required unless the Agency determines any remaining land 
or other loan security is adequate security for the loan.
    (e) Debt write-down.
    (1) Application. The Agency will consider debt write-down under 
either the land value option or rental value option, as requested by 
the borrower.
    (i) The borrower must submit a completed Agency application form;
    (ii) If the borrower applies and is determined eligible for a land 
value and a rental value write-down, the borrower will receive a write-
down based on the write-down option that provides the greatest debt 
reduction.
    (2) Eligibility. To be eligible for debt write-down, the borrower 
(in the case of a tribal corporation, the Native American tribe of the 
borrower) must:
    (i) Be located in a county which is identified as a persistent 
poverty county by the United States Department of Agriculture, Economic 
Research Service pursuant to the most recent data from the Bureau of 
the Census; and
    (ii) Have a socio-economic condition over the immediately preceding 
5 year period that meets the following two factors as certified by the 
Native American tribe and the Department of the Interior:
    (A) The Native American tribe has a per capita income for 
individual enrolled tribal members which is less than 50 percent of the 
Federally established poverty income rate established by the Department 
of Health and Human Services;
    (B) The tribal unemployment rate exceeds 50 percent;
    (3) Land value write-down. The Agency may reduce the unpaid 
principal and interest balance on any loan made to the current market 
value of the land that was purchased with loan funds provided:
    (i) The market value of such land has declined by at least 25 
percent since the land was purchased as established by a current 
appraisal;
    (ii) Land value decrease is not attributed to the depletion of 
resources contained on or under the land;
    (iii) The loan was made more than 5 years prior to the application 
for land value writedown; and
    (iv) The loan has not previously been written down under paragraph 
(d)(4) of this section and has not been written down within the last 5 
years under this paragraph.
    (4) Rental value write-down. The Agency may reduce the unpaid 
principal and interest on any loan, so the annual loan payment for the 
remaining term of each loan equals the average of annual rental value 
of the land purchased by each such loan for the immediately preceding 
5-year period provided:
    (i) The loan was made more than 5 years prior to the rental value 
writedown;
    (ii) The description of the land purchased with the loan funds and 
the rental values used to calculate the 5 year average annual rental 
value of the land have been certified by the Department of the 
Interior;
    (iii) The borrower provides a current appraisal of the land; and
    (iv) The loan has not been previously written down under this 
paragraph and has not been written down within the last 5 years under 
paragraph (d)(3) of this section.
    (e) Release of reserve. Existing reserve accounts may be released 
for the purpose of making ITLAP loan payments or to purchase additional 
lands, subject to the following:
    (1) A written request is received providing details of the use of 
the funds;
    (2) The loan is not delinquent;
    (3) The loan adequately secured by a general assignment of tribal 
income.

PART 1823--[Reserved]

    2. Remove and reserve part 1823.

PART 1902--SUPERVISED BANK ACCOUNTS

    3. The authority citation is revised to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; 7 CFR 
2.16 and 2.42.


Sec. 1902.15  [Amended]

    4. Amend the first sentence of paragraph (c) of Sec. 1902.15 by 
removing the words ``Indian Land Acquisition,'.

PART 1951--SERVICING AND COLLECTIONS

    5. The authority citation continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note, 7 U.S.C. 1989, 42 
U.S.C. 1480.

Subpart E--Servicing of Community and Direct Business Programs 
Loans and Grants


Sec. 1951.201  [Amended]

    6. Amend the first sentence of Sec. 1951.201 by removing the words 
``loans to Indian Tribes and Tribal Corporations;'.


Sec. 1951.221  [Amended]

    7. Amend the heading of Sec. 1951.221(b) by removing the words 
``and Indian Tribes and Tribal Corporation Loans''.


Sec. 1951.222  [Amended]

    8. Remove Sec. 1951.222(a)(11).


Sec. 1951.230  [Amended]

    9. Amend Sec. 1951.230 as follows:
    a. Add the word ``and'' at the end of paragraph (b)(5);
    b. Remove the word ``; and'' and add in its place ``.'' at the end 
of paragraph (b)(6); and
    c. Remove paragraph (b)(7).

PART 1956--DEBT SETTLEMENT

    10. The authority citation for part 1956 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42 
U.S.C. 1480.

Subpart C--Debt Settlement--Community and Business Programs

    11. Amend Sec. 1956.101 by removing the phrase ``and Indian Tribal 
Land
    Acquisition loans;''


Sec. 1956.105  [Amended]

    12. Amend Sec. 1956.105 by removing paragraph (k).


Sec. 1956.137  [Removed and reserved]

    13. Remove and reserve Sec. 1956.137.

    Signed at Washington, DC, on December 22, 2000.
August Schumacher,
Under Secretary for Farm and Foreign Agricultural Services.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 01-100 Filed 1-8-01; 8:45 am]
BILLING CODE 3410-05-P