[Federal Register Volume 66, Number 16 (Wednesday, January 24, 2001)]
[Rules and Regulations]
[Pages 7565-7568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1751]



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 Rules and Regulations
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  Federal Register / Vol. 66, No. 16 / Wednesday, January 24, 2001 / 
Rules and Regulations  

[[Page 7565]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Business-Cooperative Service

Rural Housing Service

Rural Utilities Service

7 CFR Parts 761, 762, 1901, 1941, 1943, 1945, 1955, and 1965

RIN 0560-AG15


Loan Limitations and Cash Flow Requirements for Farm Service 
Agency Guaranteed Loans

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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

SUMMARY: This rule amends the Farm Service Agency (FSA) guaranteed loan 
regulations to remove the requirement that the Agency consider the 
costs of replacing capital items when considering whether a guaranteed 
loan customer has adequate capacity for debt service. Also, this rule 
provides for the adjustment of maximum guaranteed loan limits annually 
based on an index of prices paid by farmers and moves all loan 
limitation provisions to part 761. Finally, this rule updates and 
clarifies provisions in the guaranteed loan regulation.

DATES: Effective on February 23, 2001.

FOR FURTHER INFORMATION CONTACT: For additional information contact 
Phillip Elder, Senior Loan Officer, FSA, USDA, Farm Loan Programs Loan 
Servicing Division, Room 6966-S, STOP 0523, 1400 Independence Avenue, 
SW, Washington, DC 20250-0523, telephone (202) 690-4012.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act, Public Law 96-
534, (5 U.S.C. 601), the undersigned has determined and certified by 
signature on this document that this rule will not have a significant 
economic impact on a substantial number of small entities. FSA program 
participants are predominantly family sized farmers and ranchers and, 
as defined by the U.S. Small Business Administration, approximately 98 
percent of all farmers are classified as small businesses. Still, this 
rule does not involve a new or expanded program and the provisions in 
this rule will not impact a substantial number of small entities to a 
greater extent than large entities. The intent of this rule is to 
reduce confusion and implement legislation. Program participation is 
voluntary and requires no direct action on the part of small 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

    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, 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 that Executive Order: (1) All State 
and local laws and regulations that are in conflict with this rule will 
be preempted; (2) no retroactive effect will be given to this rule 
except that these changes apply to loans guaranteed prior to the 
effective date of the rule; and (3) administrative proceedings in 
accordance with 7 CFR parts 11 and 780 must be exhausted before 
requesting judicial review.

Executive Order 12372

    The notice related to 7 CFR part 3015, subpart V (48 FR 29115, June 
24, 1983) found 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.

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.

Unfunded Mandates

    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. 
Agencies generally must prepare a written statement, including a cost/
benefit assessment, 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 by 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, chapters VII and XVIII, contained in this 
final rule require no revisions to the information collection 
requirements that were previously approved by OMB under control numbers 
0560-0155, 0560-0157, 0560-0158, and 0560-0162. This change will not 
affect the number of respondents or the burden hours approved under 
these or any other control numbers.

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


[[Page 7566]]



Discussion of the Final Rule

    This rule primarily amends the regulations under 7 CFR part 762 
``Guaranteed Farm Loans'' that govern the guaranteed farm loan programs 
of FSA. Part 762 was published as a final rule on February 12, 1999 (64 
FR 7358-7403), to replace the former regulations for FSA guaranteed 
farm loans and those of its predecessor Agency, the Farmers Home 
Administration (FmHA). FmHA was abolished by the Department of 
Agriculture Reorganization Act of 1994 (Public Law 103-154, October 13, 
1994). Since publication of part 762, legislation has deleted some of 
the regulation's requirements and changed how others are administered. 
Also, implementation of the regulation in USDA field offices has 
prompted the clarification of some provisions. For example, provisions 
that require the lender to execute a modification of the guarantee in 
certain instances are amended to state that any modification of the 
guarantee also must be executed by FSA. Another example is the removal 
of extraneous provisions in Sec. 762.150 that limit when a loan with 
interest assistance can be considered for restructuring.
    This rule removes the provision that requires an applicant to have 
a ``positive cash flow,'' with a 10-percent margin above debt service 
requirements in order to be eligible for a guaranteed loan. 
Consistently, this rule also removes the requirement for a cash flow 
margin in order to be approved for interest assistance and annual 
continuation of interest assistance subsidy. The 10-percent margin 
requirement is removed in accordance with Sec. 3019 of the 1999 
Emergency Supplemental Appropriations Act (Public Law 106-31, May 21, 
1999), which revised Sec. 339(b) of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1989 et seq.) (CONACT) to remove the words, 
``including expenses of replacing capital items (determined after 
taking into account depreciation of the items)'' from its debt service 
margin requirement. The Agency will instead require lenders to certify 
that guaranteed loan applicants demonstrate only a ``feasible plan,'' a 
term that is defined in Sec. 762.102 as the ability to cash flow (meet 
debts and other expenses), but requiring no capital replacement margin.
    Also, this rule amends the Agency regulations that govern the size 
of loan that may be guaranteed by the Agency. Section 806 of the 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act, 1999 (Public Law 105-277, October 
21, 1998) (1999 Act) amended the guaranteed loan limits of Secs. 305 
and 313 of the CONACT. The 1999 Act adjusted the limitations on the 
amount of farm ownership and farm operating loans based on the rate of 
inflation applicable to the fiscal year. This percentage change in the 
maximum loan size is determined by the percentage change in the Prices 
Paid by Farmers Index as compiled by the USDA, National Agricultural 
Statistics Service. The Agency is implementing this change by 
publishing a new section for all updated loan limitations at 7 CFR 
761.8 (General and Administrative) and deleting the dollar loan maximum 
provisions in 7 CFR 762.122, 1941.29, 1943.29, 1943.79, and 1945.163. 
The new section refers to direct and guaranteed Soil and Water loans, 
which are no longer being funded. However, a few such loans are 
outstanding.
    Other conforming changes are being made to provisions governing 
loan limitations, and Agency approval authorities are being removed as 
obsolete and unnecessary, in 7 CFR parts 1901, 1941, 1943, 1945, 1955, 
and 1965. Tables of loan approval authorities by official title and 
maximum loan amount will still be available at each local Agency 
office.
    In accordance with 5 U.S.C. 553, the Agency has determined that a 
notice or proposed rule is unnecessary for the clarifications and 
amendments made in this rule because they involve nondiscretionary 
statutory requirements and clarifications of current Agency policy, not 
substantive revisions to program requirements.

List of Subjects

7 CFR Part 761

    Accounting, Agriculture, Loan programs--agriculture, Rural areas.

7 CFR Part 762

    Agriculture, Loan programs--agriculture, Reporting and 
recordkeeping requirements.

7 CFR Part 1901

    Agriculture, Authority delegations, Grant programs--agriculture.

 7 CFR Part 1941

    Agriculture, Crops, Livestock, Loan programs--agriculture, Rural 
areas, Youth.

7 CFR Part 1943

    Agriculture, Crops, Loan programs--agriculture, Recreation, Water 
resources.

7 CFR Part 1945

    Agriculture, Disaster assistance, Loan programs--agriculture.

7 CFR Part 1955

    Agriculture, Foreclosure, Government property, Loan programs--
agriculture, Sale of government acquired property, Surplus government 
property.

7 CFR Part 1965

    Accounting, Foreclosure, Loan programs--agriculture, Rural areas.

    Accordingly, 7 CFR is amended as follows:

PART 761--GENERAL AND ADMINISTRATIVE

    1. The authority citation for part 761 is revised to read as 
follows:


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

Subpart A--General Provisions

    2. Section 761.8 is added to read as follows:


Sec. 761.8  Loan limitations.

    (a) Dollar limits. The outstanding principal balances for a farm 
loan applicant or anyone who will sign the promissory note cannot 
exceed the following:
    (1) Farm Ownership loans, Beginning Farmer Down payment loans and 
Soil and Water loans:
    (i) Direct--$200,000;
    (ii) Guaranteed--$731,000 (Fiscal Year 2001);
    (iii) Any combination of a direct Soil and Water loan, direct Farm 
Ownership loan, guaranteed Soil and Water loan, and guaranteed Farm 
Ownership loan--$731,000 (Fiscal Year 2001);
    (2) Operating loans:
    (i) Direct--$200,000
    (ii) Guaranteed--$731,000 (Fiscal Year 2001)
    (iii) Any combination of a direct Operating loan and guaranteed 
Operating loan--$731,000 (Fiscal Year 2001);
    (3) Any combination of guaranteed Farm Ownership loan, guaranteed 
Soil and Water loan, and guaranteed Operating loan--$731,000 (Fiscal 
Year 2001);
    (4) Any combination of direct Farm Ownership loan, direct Soil and 
Water loan, direct Operating loan, guaranteed Farm Ownership loan, 
guaranteed Soil and Water loan, and guaranteed Operating loan--$931,000 
(Fiscal Year 2001);
    (5) Emergency loans--$500,000;
    (6) Any combination of direct Farm Ownership loan, direct Soil and 
Water loan, direct Operating loan, guaranteed Farm Ownership loan, 
guaranteed Soil and Water loan, guaranteed Operating loan, and 
Emergency loan--$1,431,000 (Fiscal Year 2001).

[[Page 7567]]

    (b) Adjustment. The dollar limits of guaranteed loans will be 
adjusted each fiscal year based on the percentage change in the Prices 
Paid by Farmers Index as compiled by the USDA, National Agricultural 
Statistics Service (NASS).
    (c) Line of credit advances. The total dollar amount of guaranteed 
line of credit advances and income releases cannot exceed the total 
estimated expenses, less interest expense, as indicated on the 
borrower's cash flow budget, unless the cash flow budget is revised and 
continues to reflect a feasible plan.

PART 762--GUARANTEED FARM LOANS

    3. The authority citation for part 762 is revised to read as 
follows:

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


    4. In Sec. 762.102 the definition of ``Positive cash flow'' is 
removed and the definition of ``Feasible plan'' is revised to read as 
follows:


Sec. 762.102  Abbreviations and definitions.

* * * * *
    (b) * * *
    Feasible plan. A plan is feasible when a borrower or applicant's 
cash flow budget indicates that there is sufficient cash inflow to pay 
all cash outflow each year during the term of the loan. If a loan 
approval or restructuring action exceeds one production cycle and the 
planned cash flow budget is atypical due to cash or inventory on hand, 
new enterprises, carryover debt, atypical planned purchases, important 
operating changes, or other reasons, a cash flow budget must be 
prepared that reflects a typical cycle. If the request is for only one 
cycle, a feasible plan for only one cycle is required for approval.
* * * * *

    5. Section 762.105 is amended by removing and reserving paragraph 
(c)(2)(iii) and revising paragraph (c)(1) to read as follows:


Sec. 762.105  Eligibility and substitution of lenders.

* * * * *
    (c) * * *
    (1) The Agency approves of the substitution in writing by executing 
a modification of the guarantee to identify the new lender, the amount 
of debt at the time of the substitution and any new loan terms if 
applicable.
* * * * *


Sec. 762.122  [Amended]

    6. In Sec. 762.122, paragraphs (a) and (b) are removed and 
paragraphs (c), (d), (e), and (f) are redesignated as (a), (b), (c), 
and (d) respectively.
    7. Sections 762.125(a)(2), (a)(3), (a)(6) and (a)(8) are revised to 
read as follows:


Sec. 762.125  Financial feasibility.

    (a) * * *
    (2) The loan applicant's proposed operation must project a feasible 
plan as defined in Sec. 762.102(b).
    (3) For standard eligible lenders, the projected income and 
expenses of the borrower and operation used to determine a feasible 
plan must be based on the loan applicant's proven record of production 
and financial management.
* * * * *
    (6) The cash flow budget analyzed to determine a feasible plan must 
represent the predicted cash flow of the operating cycle.
* * * * *
    (8) When a feasible plan depends on income from other sources in 
addition to income from owned land, the income must be dependable and 
likely to continue.
* * * * *

    8. Section 762.142(d)(8) is revised to read as follows:


Sec. 762.142  Servicing related to collateral.

* * * * *
    (d) * * *
    (8) The Agency approves the transfer and assumption by executing a 
modification of the guarantee to designate the party that assumed the 
guaranteed debt, the amount of debt at the time of the assumption, 
including interest that is being capitalized, and any new loan terms, 
if applicable.
* * * * *

    9. Section 762.145(b)(6)(iv) is revised to read as follows:


Sec. 762.145  Restructuring guaranteed loans.

* * * * *
    (b) * * *
    (6) * * *
    (iv) The Agency will execute a modification of guarantee form to 
identify the new loan principal and the guaranteed portion if greater 
than the original loan amounts, and to waive the restriction on 
capitalization of interest, if applicable, to the existing guarantee 
documents. The modification form will be attached to the original 
guarantee as an addendum.
* * * * *

    10. Section 762.146(e)(9) is revised to read as follows:


Sec. 762.146  Other servicing procedures.

* * * * *
    (e) * * *
    (9) The Agency approves the consolidation by executing a 
modification of guarantee. The modification will indicate the 
consolidated loan amount, new terms, and percentage of guarantee, and 
will be attached to the originals of the guarantees being consolidated. 
If loans with a different guarantee percentage are consolidated, the 
new guarantee will be at the lowest percentage of guarantee being 
consolidated.
* * * * *

    11. Section 762.150(a)(1), (a)(1)(i), (b)(2), (b)(3), (b)(4) and 
(g)(2) are revised to read as follows:


Sec. 762.150  Interest assistance program.

    (a) Requests for interest assistance. (1) To apply for interest 
assistance in conjunction with a new request for guarantee, the lender 
will submit the following:
    (i) A completed cash flow budget and interest assistance needs 
analysis portion of the application form. Interest assistance can be 
applied to each loan, only to one loan or any distribution the lender 
selects; however, interest assistance is only available on as many 
loans as necessary to achieve a feasible plan.
* * * * *
    (b) * * *
    (2) The lender must document that a feasible plan, as defined in 
Sec. 762.102(b), is not possible without reducing the interest rate on 
the borrower's loan and with the debt restructured over the term of 
repayment.
    (3) The lender must determine whether the borrower, including 
members of an entity, owns any significant assets that do not 
contribute directly to essential family living or farm operations. The 
lender must determine the market value of these assets and prepare a 
cash flow budget based on the assumption that the value of these assets 
will be used for debt reduction. If a feasible plan can then be 
achieved, the borrower is not eligible for interest assistance. All 
interest assistance calculations will be based on the cash flow budget 
which assumes that the assets will be sold.
    (4) A borrower's new guaranteed loan is eligible for interest 
assistance if all the following conditions are met:
    (i) The applicant needs interest assistance in order to achieve a 
feasible plan.
    (ii) If significant changes in the borrower's cash flow budget are 
anticipated after the initial 12 months, then the typical cash flow 
budget must demonstrate that the borrower will still have a feasible 
plan, following the anticipated changes, with or without interest 
assistance.

[[Page 7568]]

    (iii) If a feasible plan cannot be achieved, even with other 
creditors voluntarily adjusting their debts and with the interest 
assistance, the interest assistance request will not be approved.
* * * * *
    (g) * * *
    (2) The loan will be transferred with the interest assistance 
agreement only in cases where the transferee was liable for the debt at 
the time interest assistance was granted. Under no other circumstances 
will the interest assistance be transferred. If interest assistance is 
necessary for the transferee to achieve a feasible plan, the lender may 
request such assistance, which may be approved if interest assistance 
funds are available and the applicant is eligible. The maximum length 
of the agreement will be 10 years from the date of the first agreement 
covering a loan for which the transferee was liable. If interest 
assistance is necessary for a feasible plan and funds are not 
available, the request for assumption of the Agency guaranteed debt 
will be denied.
* * * * *

PART 1901--PROGRAM RELATED INSTRUCTIONS

    12. The authority citation for part 1901 is revised to read as 
follows:


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

Subpart A--[Reserved]

    13. Subpart A is removed and reserved.

PART 1941-OPERATING LOANS

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


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

Subpart A--Operating Loan Policies, Procedures and Authorizations

    15. Section 1941.29 is amended by revising the section heading, 
removing paragraph (d), and revising paragraph (b) to read as follows:


Sec. 1941.29  Relationship between FSA loans, direct and guaranteed.

* * * * *
    (b) A direct OL may be made to a guaranteed loan borrower provided 
the requirements of 7 CFR 761.8 and all other loan requirements are 
met.
* * * * *

PART 1943--FARM OWNERSHIP, SOIL AND WATER AND RECREATION

    16. The authority citation for part 1943 continues to read as 
follows:

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

Subpart A--Direct Farm Ownership Loan Policies, Procedures and 
Authorizations

    17. Section 1943.29 is amended by revising the section heading, 
removing paragraph (c), redesignating paragraph (d) as paragraph (c), 
and revising paragraph (b) to read as follows:


Sec. 1943.29  Relationship between FSA loans, direct and guaranteed.

* * * * *
    (b) A direct FO may be made to a guaranteed loan borrower provided 
the requirements of 7 CFR 761.8 and all other loan requirements are 
met.
* * * * *

    18. Section 1943.79 is removed and reserved.


Sec. 1943.79  [Reserved]

PART 1945--EMERGENCY

    19. The authority citation for part 1945 is revised to read as 
follows:


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

Subpart D--Emergency Loan Policies, Procedures and Authorizations

    20. In Sec. 1945.154 paragraph (a) is amended by revising the 
definition of ``Approval official'' to read as follows:


Sec. 1945.154  Definitions and abbreviations.

* * * * *
    Approval official. An Agency official who has been delegated farm 
loan program loan approval authority in accordance with the title of 
the employee and the dollar amount of the loan as set out in tables 
available in any local Agency office.
* * * * *

    21. Section 1945.163(e) is amended by removing the last sentence.

PART 1955--PROPERTY MANAGEMENT

    22. The authority citation for part 1955 continues to read as 
follows:

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

Subpart A--Liquidation of Loans Secured by Real Estate and 
Acquisition of Real and Chattel Property


Sec. 1955.10  Voluntary conveyance of real property by the borrower to 
the Government.

    23. Section 1955.10(a)(1)(ii) is removed and reserved.

Subpart C--Disposal of Inventory Property


Sec. 1955.104  Authorities and responsibilities.

    24. Section 1955.104(c) is removed.

PART 1965--REAL PROPERTY

    25. The authority citation for part 1965 continues to read as 
follows:

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

Subpart A--Servicing of Real Estate Security for Farm Loan Programs 
Loans and Certain Note-Only Cases


Sec. 1965.13  Consent by partial release or otherwise to sale, exchange 
or other disposition of a portion of or interest in security, except 
leases.

    26. Section 1965.13 is amended by removing paragraph (e)(1) and 
redesignating paragraphs (e)(2) and (3) as (e)(1) and (2) respectively.


Sec. 1965.27  Transfer of real estate security.

    27. Section 1965.27(a) is removed and reserved.

    Dated: January 12, 2001.
Jill Long Thompson,
Under Secretary for Rural Development.
    Dated: January 12, 2001.
August Schumacher,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 01-1751 Filed 1-23-01; 8:45 am]
BILLING CODE 3410-05-P