[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Rules and Regulations]
[Pages 1570-1573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-101]



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DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 1910 and 1941

RIN 0560-AF71


Implementation of Low-Documentation Direct Operating Loan (Lo-
Doc) Regulations

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

ACTION: Interim rule with request for comments.

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SUMMARY: This rule amends the regulations governing the Farm Service 
Agency's direct operating loan (OL) program by simplifying the 
application process for certain farmers requesting assistance of 
$50,000 or less and for certain recurring OL applicants. By making 
FSA's direct OL program application process more consistent with 
standard industry practices, loan processing will be more efficient and 
less time consuming. This will decrease the time-frame for family-size 
farmers to receive their credit, thereby allowing them to conduct their 
farming operations in a more timely manner.

DATES: Effective January 9, 2001. Comments on this rule and the 
information collections must be received on or before March 12, 2001 to 
be given full consideration.

ADDRESSES: Submit written comments to the Farm Service Agency, U.S. 
Department of Agriculture, Farm Loan Programs Loan Making Division, 
Attention: Director, Room 5438-S, 1400 Independence Avenue, SW, STOP 
0522, Washington, DC 20250-0522. All written comments received in 
connection with this rule will be available for public inspection 8:15 
a.m.-4:45 p.m., Eastern Standard Time, except holidays, at 1400 
Independence Avenue, SW, Washington, DC 20250-0522.

FOR FURTHER INFORMATION CONTACT: Michael Hinton, Branch Chief, Farm 
Service Agency; telephone: 202-720-1472; Facsimile: 202-690-1117; E-
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

    This rule will not have a significant economic impact on a 
substantial number of small entities as defined in the Regulatory 
Flexibility Act, Public Law 96-534, as amended (5 U.S.C. 601) and does 
not impact small entities to a greater extent than large entities. 
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

    It is the determination of the issuing agency that this action is 
not a major Federal action significantly affecting the environment. 
Therefore, in accordance with the National Environmental Policy Act of 
1969, Public Law 91-190, 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 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 unless those regulations specifically allow 
bringing suit at an earlier time.

Executive Order 12372

    For reasons set forth in the Notice 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

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, requires Federal agencies to assess the effects of their 
regulatory actions on state, local, and tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures of $100 million or 
more in any 1 year 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.
    The 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.

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on 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

    This interim rule does not impose any new information collection or 
recordkeeping requirements; however, the provisions of the rule do 
eliminate the need for some information previously collected and result 
in a revision to the number of estimated respondents from whom 
information will be collected. Therefore, the Agency is revising the 
information collection currently approved in support of the Direct 
Operating Loan program under the Office of Management and Budget (OMB) 
control number 0560-0178. OMB emergency clearance has been obtained to 
allow continued use of the affected regulations and forms under OMB 
control number 0560-0178.

SUPPLEMENTARY INFORMATION:
    Title: Receiving and Processing Applications.
    OMB Control Number: 0560-0178.
    Expiration Date of Approval: April 30, 2000.
    Type of Request: Revision and Extension of Currently Approved 
Information Collection.
    Abstract: The information collected under OMB Control Number 0560-
0178 is used in processing applications for direct FLP loans. 
Specifically, the Agency uses the information in making eligibility and 
financial feasibility determinations for direct operating, farm 
ownership, and emergency loans, as authorized under the Consolidated 
Farm and Rural Development Act. The specific information collected is 
business and entity supporting documentation on organizational 
structure and financial information,

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documentation of farm experience and training, verification that the 
applicant is unable to obtain credit elsewhere, historical financial 
and production records, and copies of any lease agreements or legal 
descriptions of real estate they own. The Lo-Doc application process 
will decrease collections required from applicants requesting operating 
loans of $50,000 or less, or recurring annual operating loans. Lo-Doc 
will decrease the burden on both FSA employees and customers. 
Specifically, for Lo-Doc application processing only the entity 
supporting documentation information from this collection may be 
required.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 1.7 hours per response.
    Respondents: Individuals or households, businesses or other for 
profit, and farms.
    Estimated Number of Respondents: 34,970.
    Estimated Number of Responses: 73,708.
    Estimated Total Annual Burden on Respondents: 119,412.
    Comments are sought on these requirements including: (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 
collections techniques or other forms of information technology.
    These comments should be sent to the Desk Officer for Agriculture, 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503 and to Michael Hinton, USDA, FSA, Farm 
Loan Programs, Loan Making Division, 1400 Independence Avenue, SW, STOP 
0522, Washington DC 20250-0522. 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.

Discussion of the Interim Rule

    Stress in the farm economy has significantly increased demand for 
FSA farm loans. The Agency must take steps to focus resources on 
larger, more complex cases that pose the highest risk to the 
government. The changes in documentation requirements will reduce the 
time for loan officials to review application information and make the 
necessary determinations. Decreasing the time required for FSA 
employees to reach both eligibility and feasibility determinations on 
lower risk loans increases the time available to concentrate on larger, 
higher risk loan applicants.
    In fiscal year 1999, FSA made more than 16,000 direct OL's to 
farmers for a total of nearly $800 million. According to recent studies 
of FSA offices nationwide, the average FSA OL applicant expends 14.05 
hours to complete the application to be submitted to FSA. Once this 
complete application is submitted to FSA another 39.55 hours is 
expended by FSA employees to reach both eligibility and feasibility 
determinations on each OL application.
    Approximately 10,500, or 65 percent, of these applications are for 
loans of $50,000 or less. This group of applicants represents only 26 
percent of the total direct OL dollars loaned in fiscal year 1999 and 
only 20 percent of the total FSA direct OL delinquency in dollars. 
These figures reflect the substantially lower risk involved with FSA 
direct OL's under $50,000 as compared to those FSA loans above this 
amount. The Lo-Doc loan regulations will primarily affect this group of 
FSA current and potential customers.
    Reducing the application burden on both potential FSA customers and 
FSA employees will result in more timely assistance, so applicants will 
receive their FSA operating funds earlier in the production year. The 
most critical time period for farming operations nationwide is from 
pre-planting through planting seasons. This is also the peak demand 
period for operating capital in many types of farming operations. 
Without this proposed reduction in the application process many farmers 
would receive assistance so late in the year their production would be 
adversely affected, or they would otherwise go without credit for an 
extended period of time. For two years the farm economy has been in a 
continuing state of crisis due to excess supplies, weak foreign 
markets, and regional weather disasters. With the current financial 
difficulties facing agriculture, it is imperative that producers 
receive operating credit early in the spring season. Historical records 
reflect that the Agency approves the majority of OL's in the months of 
March and April. In order to meet the needs of farmers, the Agency is 
publishing this rule as an interim rule effective on date of 
publication. A delayed effective date, or publication of a proposed 
rule would adversely impact farmers as Lo-Doc OL's would not be 
available for the current operating season. Farmers eligible for FSA 
farm loans are unable to obtain credit elsewhere at reasonable rates 
and terms. Therefore, the Lo-Doc program needs to be effective upon 
publication. FSA, however, will accept comments for a 60 day comment 
period after publication to determine if the program should be 
subsequently modified.

General Changes

    FSA is revising its direct OL program regulations to reduce the 
application requirements for certain operating loan requests of $50,000 
or less and for certain annual OL requests from recurring applicants.
    Under current regulations, the application requirements are the 
same for all OL requests regardless of the amount of the loan or 
whether it is an initial or subsequent loan for the applicant. For 
example, an applicant requesting an OL of $5,000 is required to submit 
the same amount of information as an applicant requesting a $200,000 
OL. An FSA customer who has received several OL loans is required to 
submit the same information as a new applicant requesting an initial 
OL. This excess paperwork is time-consuming for both the farmer and the 
FSA employee, who could be helping less experienced farmers whose loans 
pose a higher risk to the Government. Less experienced farmers normally 
need more personal attention to make financial progress and be 
successful in graduating to commercial credit.
    Loan applicants and Agency field personnel have identified several 
application requirements that are repetitive or do not significantly 
contribute to the Agency's ability to make a credit decision, such as 
always requiring verifications of employment and verifying the same 
debt in numerous ways. The Agency is amending its regulation to 
eliminate requirements that are repetitive or do not contribute 
significantly to a sound credit decision in light of the financial risk 
involved.
    In addition, application requirements and loan purpose requirements 
are being amended as follows:

Application Requirements

    Certain loan applicants submitting requests for operating loans of 
$50,000 or less will only be required to submit the following: a signed 
and dated FSA 410-1, ``Request for Direct Loan

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Assistance,'' a check or money order for credit report and lien filing 
fees, a Farm and Home Plan for the next operating cycle, acreage and 
lease information, and conservation compliance information. 
Additionally, applicants which are entities will be required to submit 
a list of owners, personal financial statements from the owners, and 
copies of the entities legal documents.
    The FSA 440-32,``Statement of Debts and Collateral'' form will no 
longer be required because several weeks often pass before creditors 
return them to FSA, thereby increasing the time required for 
determination of feasibility. Most of the information supplied by 
creditors on this form can be obtained by FSA from credit reports. The 
required use of the verification of employment form will also be 
eliminated. Employment, salary, and wage information is quickly and 
easily verified by credit reports, current payroll statements or IRS 
Forms W-2.
    Certain recurring applicants requesting annual OL assistance will 
be required to submit a signed and dated FSA 410-1, a check or money 
order for credit report and lien filing fees, a Farm and Home Plan for 
the next operating cycle, and any information that has changed from the 
previous loan application, including acreage and lease information, and 
conservation compliance documentation.
    For all applicants who apply under the Lo-Doc process, the Agency 
reserves the right to request additional information that would be 
required of a loan applicant under the normal process. The Agency will 
not require information beyond Lo-Doc requirements as a matter of 
course, but will request supporting documentation when information 
submitted deviates from local norms, conflicts with other available 
information, or otherwise creates the need for further documentation.

Qualification Requirements

    Lo-Doc applicants requesting a loan of $50,000 or less must meet 
current eligibility requirements for FSA direct OL's listed in section 
1941.12. In addition, the applicant must be current on all loan 
payments to FSA and all other creditors, must not have received primary 
loan servicing or disaster set-aside on any FSA debt within the past 5 
years, and must owe FSA less than $100,000, including the new loan. 
These additional requirements are necessary to sufficiently lower the 
risk from an FSA credit standpoint to make a sound credit decision 
based on the reduced documentation.
    Lo-Doc applicants requesting a recurring annual OL assistance must 
meet all current eligibility requirements for FSA direct operating 
loans as listed in Sec. 1941.12 and, must have at least 2 years of 
annual OL history with FSA where the loans were timely repaid, be 
current on payments to all other creditors, and have not received 
primary loan servicing or disaster set-aside on any FSA debt within the 
past 5 years.
    Applicants who cannot meet the criteria for these new application 
procedures may receive a regular OL provided they meet the current 
requirements in Sec. 1941.12.

Loan Purposes

    Lo-Doc OL's for $50,000 or less can be used for any authorized 
operating expense allowed in Sec. 1941.16, except paragraph (i) for 
refinancing debts. This limitation is necessary because the need for 
refinancing is an indication of financial stress and, thus, a greater 
credit risk than other OL loan purposes. The Agency must perform 
additional analysis on those cases to help borrowers become successful 
and better understand the risk associated with each request.
    Lo-Doc OL's issued to recurring applicants requesting annual OL 
assistance can only be used for any authorized annual operating expense 
allowed in paragraphs (c) and (h) of Sec. 1941.16. Because these 
applicants have demonstrated that they are good operators who have 
repaid their annual operating loans, the Agency is reducing the 
paperwork requirements for them to obtain subsequent annual operating 
credit. Also, if they want operating credit for purposes other than 
annual operating they may qualify for the Lo-Doc OL under $50,000 loan 
purposes. For applicants that do not qualify under either of the Lo-Doc 
programs, the Agency feels that there is sufficient risk to warrant the 
Agency's continued collection of the same application materials 
currently required.

List of Subjects

7 CFR Part 1910

    Agriculture, Credit, Loan programs-housing and community 
development, Low and moderate income housing, Sex discrimination.

7 CFR Part 1941

    Agriculture, Crops, Livestock, Loan programs-rural areas, Youth.


    Accordingly, 7 CFR chapter XVIII is amended as follows:

PART 1910--GENERAL

    1. The authority citation for part 1910 continues to read as 
follows:

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

Subpart A--Receiving and Processing Applications

    2. Amend Sec. 1910.1 to add a new paragraph (f) to read as follows:


Sec. 1910.1  General.

* * * * *
    (f) As used in this subpart, the abbreviation ``Lo-Doc'' means Low-
Documentation and the abbreviation ``OL'' means Operating Loan.

    3. Amend Sec. 1910.4 as follows:
    a. Revise the third sentence from the end of paragraph (b);
    b. Redesignate paragraphs (c) through (k) as paragraphs (d) through 
(l); and
    c. Add a new paragraph (c).
    The addition and the revision read as follows:


Sec. 1910.4  Processing Applications.

* * * * *
    (b) * * * A complete Farm Loan Programs application requires 
fulfillment of both the applicant and FSA responsibilities, except as 
provided in paragraph (c) of this section. ***
    (c) Low-Documentation (Lo-Doc) Operating Loans:
    (1) To qualify for loan processing under Lo-Doc provisions, an 
applicant must:
    (i) Be current on all payments to all creditors including FSA (if 
an FSA borrower);
    (ii) Have not received primary loan servicing or disaster set-aside 
on any FSA debt within the past 5 years; and
    (iii) Meet one of the following criteria:
    (A) The loan requested is $50,000 or less and the total outstanding 
FSA operating loan debt at the time of loan closing will be less than 
$100,000; or
    (B) The loan is requested to pay annual operating expenses and the 
applicant is an existing FSA borrower who has received and repaid as 
scheduled, at least two previous annual operating loans from the 
agency.
    (2) A complete Lo-Doc OL application will consist of the items 
listed in paragraphs (b)(1), (b)(2), (b)(9), (b)(10), and (b)(16) of 
this section. The Agency may require a Lo-Doc applicant to submit any 
other information listed under paragraph (b) of this section as needed 
to make a determination on the loan application.
* * * * *

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PART 1941--OPERATING LOANS

    4. The authority citation for part 1941 continues to read as 
follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart A--Operating Loan Policies, Procedures, and Authorizations.

    5. Revise the introductory paragraph of Sec. 1941.16 to read as 
follows:


Sec. 1941.16  Loan purposes.

    An applicant who obtained a write-down under direct or guaranteed 
loan authorities is restricted to the purposes listed under paragraphs 
(c), (g), and (h) of this section. An applicant who qualifies for a 
Low-Documentation operating loan under Sec. 1910.4(c)(1)(iii)(A) of 
subpart A of part 1910 may use loan funds for all authorized loan 
purposes except paragraph (i) of this section. An applicant who 
qualifies for a Lo-Doc loan under Sec. 1910.4(c)(1)(iii)(B) 7 CFR may 
only use the loan funds for purposes listed under paragraphs (c) and 
(h) of this section. All other eligible applicants may request OL funds 
for any of the following purposes:
* * * * *

    Signed in Washington, D.C., on December 21, 2000.
August Schumacher,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 01-101 Filed 1-8-01; 8:45 am]
BILLING CODE 3410-05-U