[Federal Register Volume 68, Number 68 (Wednesday, April 9, 2003)]
[Proposed Rules]
[Pages 17320-17325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8597]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 772, 1901, and 1951

RIN 0560-AG67


Servicing Minor Program Loans

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to consolidate, clarify and revise the 
servicing regulations for the Minor Programs currently administered by 
the Farm Service Agency, Farm Loan Programs (FSA). Minor Program loans 
involve existing loans only since there is no longer funding for new 
loans in these programs. FSA Minor Programs consist of the following 
loan types: Grazing Association loans and Irrigation and Drainage 
Association loans previously administered by the U.S. Department of 
Agriculture's Rural Development (RD) mission area, and Non-Farm 
enterprise and Recreation Loans made to individuals which have 
previously been administered by FSA. Recreation loans to associations 
will continue to be serviced by RD.

DATES: Comments on the proposed rule must be received on or before June 
9, 2003 to be assured of consideration.

ADDRESSES: Mail comments on the proposed rule to: Veldon Hall, 
Director, Farm Loan Programs, Loan Servicing and Property Management 
Division, Farm Service Agency, USDA, 1400 Independence Avenue, SW. Stop 
0523, Washington, DC 20250-0523, or hand deliver to Suite 500, 1250 
Maryland Avenue, SW., Washington, DC 20024 during normal business 
hours. Comments and supporting documents may be viewed by contacting 
the information contact listed below. All comments, including names and 
addresses, will become part if the public record. Comments on the 
paperwork burden of this proposed rule must be sent to the addresses 
listed in the Paperwork Reduction Act section of this Rule.

FOR FURTHER INFORMATION CONTACT: Mel Thompson, Senior Loan Officer, 
Farm Service Agency; telephone: 202-720-7862; Facsimile: 202-690-1196; 
e-mail: [email protected]. Persons with disabilities who 
require alternative means for communication (Braille, large print, 
audio tape, etc.) should contact the USDA Target Center at (202) 720-
2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule was determined to be not significant under Executive 
Order 12866 and was not reviewed by the Office of Management and 
Budget.

Regulatory Flexibility Act

    The Agency certifies that this rule will not have a significant 
economic effect on a substantial number of small entities, because it 
does not require any action by the borrower who may be a small entity. 
The Agency, therefore, is not required to perform a Regulatory 
Flexibility Analysis as required by the Regulatory Flexibility Act, 
Pub. L. 96-534, as amended (5 U.S.C. 601). This rule does not impact 
small entities to a greater extent than large entities.

Environmental Evaluation

    The environmental impacts of this proposed rule have been 
considered in accordance with the provisions of the National 
Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the 
regulations of the Council on Environmental Quality (40 CFR parts 1500-
1508), and the FSA regulations for compliance with NEPA, 7 CFR parts 
799, and 1940, subpart G. FSA completed an environmental evaluation and 
concluded that this proposed rule, if enacted, requires no further 
environmental review because no new loans are authorized. Servicing 
existing loans in accordance with previously published rules containing 
environmental requirements is not a major Federal action significantly 
affecting the quality of the human environment. No extraordinary 
circumstances or other unforeseeable factors exist which would require 
preparation of an environmental assessment or environmental impact 
statement. A copy of the environmental evaluation is available for 
inspection and review upon request.

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; and 
(3) administrative proceedings in accordance with 7 CFR parts 11 and 
780 must be exhausted before requesting judicial review.

Executive Order 12372

    As stated in the Notice related to 7 CFR part 3015, subpart V (48 
FR 29115, June 24, 1983) the programs and activities within this rule 
do not require consultation with state and local officials under the 
scope of Executive Order 12372.

Unfunded Mandates Reform Act

    This rule contains no Federal mandates as defined in Title II of 
the Unfunded Mandates Reform Act of 1995 (UMRA). 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 any new significant loan servicing criteria on state and 
local governments. The proposed rule revises the citation references 
and consolidates the servicing regulations to streamline loan servicing 
criteria applicable to Minor Programs. Therefore, consultation with the 
states is not required.

Paperwork Reduction Act

    The amendments to 7 CFR parts 772, 1901, subpart E, and 1951, 
subparts E and F, contained in this rule only delete requirements and 
propose no new collections nor do they significantly affect the 
aggregate information collection burden of the Agencies. Certain forms 
and information collection are included and approved in the Information 
Collection Package for OMB control number 0560-0158 and are not 
impacted by this collection. Still, this rule transfers some of the 
information collections assigned OMB control numbers 0575-0118, 0575-
0093, and 0575-0066, to the proposed part 772. This will result in 
certain burden that is currently assigned by OMB to the

[[Page 17321]]

Rural Development Agencies of USDA being shifted to FSA. Consequently, 
FSA is requesting comments on the information collection requirements 
in this rule that are being moved from those currently in parts 1901, 
subpart E and 1951, subparts E and F as required by the Paperwork 
Burden Reduction Act. After publication of this rule in final, the 
Agency will submit documents to OMB to modify the currently approved 
burden to reflect this shift between control numbers. An estimate of 
the paperwork burden of the regulations as affected by this proposed 
rule are as follows:
    Title: 7 CFR part 772, Servicing Minor Program Loans.
    OMB Control Number: 0560-NEW.
    Type of request: Approval of new information collection.
    Abstract: This part contains FSA policies and procedures for 
servicing Minor Program loans which include: Grazing Associations, 
Irrigation and Drainage Associations, Non-Farm Enterprise loans and 
Recreation loans to individuals.
    Estimate of burden: Public reporting burden for this collection of 
information is estimated to average less than 1 hour per response.
    Respondents: Individuals and businesses.
    Estimated number of respondents: 338
    Estimated number of responses per respondent: 1
    Estimated total annual burden on respondents: 179 hours Comments 
are requested regarding (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 estimates 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; and (d) ways to 
minimize the burden of the collection of information on those who are 
to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology. Comments should be sent to Mel 
Thompson, Loan Servicing and Property Management Division, Farm Service 
Agency, United States Department of Agriculture, STOP 0523, 1400 
Independence Avenue, SW., Washington, DC 20250-0523; or e-mail: [email protected].

Federal Assistance Program

    These proposed changes affect no programs listed in the Catalog of 
Federal Domestic Assistance.

Discussion of the Proposed Rule

    This proposed rule consolidates and clarifies the servicing 
policies of the Farm Service Agency's Minor Loan Programs. The Minor 
Programs were administered by the former Farmers Home Administration 
(FmHA). Under the discretionary authority of the Department of 
Agriculture Reorganization Act of 1994, Pub. L. 103-354, on October 20, 
1994, the Individual-type loans (Non-Farm Enterprise and Recreation 
loans) were assigned to FSA. The Association-type loans (Grazing 
Associations and Irrigation and Drainage loans) were assigned to USDA's 
Rural Development mission area. Regulations for servicing the 
Association-type loans of these programs are currently found at 7 CFR 
part 1901, subpart E for Civil Rights Compliance; 7 CFR part 1951, 
subpart E for servicing; 7 CFR part 1951, subpart F for graduation; 7 
CFR part 1956, subpart C for debt settlement; and 7 CFR part 1962 
subpart A for bankruptcy. Individual-type Minor Program loans are the 
Non-Farm enterprise loans which are a subgroup of FSA, Farm Operating 
and Farm Ownership loans defined in 7 CFR 1941.4 and 1943.4 and 
Recreation loans, which are defined as Farm Loan Program (FLP) loans 
under 7 CFR 1951.906. Although these loans are no longer made by FSA, 
both categories are serviced as FLP loans in accordance with 7 CFR part 
1951, subpart S.
    Because the current delegation of these similar loan programs 
between FSA and the agencies of the Rural Development mission area is 
inefficient, this rule proposes to remove parts of regulations that are 
currently shared by FSA and the agencies of the Rural Development 
mission area and publish a consolidated FSA regulation governing these 
programs. Consolidating these scattered regulations will result in more 
efficient and proper administration of the servicing requirements for 
the Minor Programs. Information not specific to the Minor Programs will 
be eliminated and language will be improved for readability. Only 
requirements specific to the Minor Programs will be included. The 
result will be better service to the borrowers with these types of 
loans, and, at the same time, ease the agency officials' burden in 
administering these programs. The regulations for servicing bankruptcy 
(7 CFR part 1962, subpart A) and debt settlement (7 CFR part 1956, 
subparts B and C) previously applied to all Minor Program loans and 
will continue to apply under this rule. This proposed rule contains no 
new requirements, nor does it eliminate any provision currently 
contained in existing regulations. The intended effect of this rule is 
to transfer and consolidate authorities contained within separate 
Federal regulations into one part.

List of Subjects

Part 772

    Agriculture, Credit, Rural areas.

Part 1901

    Civil rights, Compliance reviews, Minority groups.

Part 1951

    Account servicing, Grant programs--housing and community 
development, Reporting requirements, Rural areas.

    Accordingly, for the reasons stated in the preamble, 7 CFR part 772 
is added and 7 CFR parts 1901 and 1951 are amended as follows:
    1. Add part 772 to read as follows:

PART 772--SERVICING MINOR PROGRAM LOANS

Sec.
772.1 Policy.
772.2 Abbreviations and definitions.
772.3 Compliance.
772.4 Environmental requirements.
772.5 Security maintenance.
772.6 Subordination of security.
772.7 Leasing Minor Program loan security.
772.8 Sale or exchange of security property.
772.9 Releases.
772.10 Transfer and assumption--AMP loans.
772.11 Transfer and assumption--IMP loans.
772.12 Graduation.
772.13 Delinquent account servicing.
772.14 Reamortization of AMP loans.
772.15 Protective advances.
772.16 Liquidation.
772.17 Equal opportunity and non-discrimination requirements.
772.18 Exception authority.

    Authority : 5 U.S.C. 301, 7 U.S.C. 1989, and 25 U.S.C. 490.


Sec.  772.1  Policy.

    (a) Purpose. This part contains the Agency's policies and 
procedures for servicing Minor Program loans which include: Grazing 
Associations, Irrigation and Drainage Associations, Non-Farm Enterprise 
loans and Recreation loans to individuals.
    (b) Appeals. The regulations at 7 CFR parts 11 and 780 apply to 
decisions made under this part.


Sec.  772.2  Abbreviations and definitions.

    (a) Abbreviations.


[[Page 17322]]


AMP Association-Type Minor Program loan
CFR Code of Federal Regulations
FO Farm Ownership Loan
FSA Farm Service Agency
IMP Individual-type Minor Program loan
OL Operating Loan
USDA United States Department of Agriculture

    (b) Definitions.
    Association-type Minor Program loans: Means Minor Program loans to 
Grazing Associations and Irrigation and Drainage Associations.
    Entity: Cooperatives, corporations, partnerships, joint operations, 
trusts, or limited liability companies.
    Graduation: The requirement contained in loan documents of a Minor 
Program borrower that they pay their FSA loan in full with funds 
received from a commercial lending source as a result of improvement in 
their financial condition.
    Individual-type Minor Program loans: Means Minor Program Non-Farm 
Enterprise or Individual Recreation loans that are serviced under 
existing regulations as program OL and FO loans. These loans were made 
to both entities and individuals.
    Member: Means any individual who has an ownership interest in the 
entity which has received the Minor Program loan.
    Minor Program: Non-Farm Enterprise, Individual Recreation, Grazing 
Association, or Irrigation and Drainage loan programs administered or 
to be administered by FSA that are subject to prescribed program loan 
servicing requirements, and, of which, each program has fewer than 500 
outstanding loans and less than $100 million in outstanding debt.
    Review official. An agency employee, contractor or designee who is 
authorized to conduct a compliance review of a Minor Program borrower.


Sec.  772.3  Compliance.

    (a) Requirements. No Minor Program borrower shall directly, or 
through contractual or other arrangement, subject any person or cause 
any person to be subjected to discrimination on the basis of race, 
color, national origin, or disability. Borrowers must comply with all 
applicable Federal laws and regulations regarding equal opportunity in 
hiring, procurement, and related matters. FSA's civil rights 
requirements applicable to Minor Program borrowers are contained in 
title 7, part 15, subpart A and part 15b.
    (b) Reviews. In accordance with Title VI of the Civil Rights Act of 
1964, the Agency will conduct a compliance review of all Minor Program 
borrowers, to determine if a borrower has directly, or through 
contractual or other arrangement, subjected any person or cause any 
person to be subjected to discrimination on the basis of race, color, 
or national origin. The borrower must allow the review official access 
to their premises and all records necessary to carry out the compliance 
review as determined by the review official.
    (c) Frequency and timing. Compliance reviews will be conducted no 
later than October 31 of every third year until the Minor Program loan 
is paid in full or otherwise satisfied.
    (d) Violations. If a borrower refuses to provide information or 
access to their premises as requested by a review official during a 
compliance review, or is determined by the Agency to be not in 
compliance in accordance with this section, the Agency will service the 
loan in accordance with the provisions of Sec.  772.14 of this part.


Sec.  772.4  Environmental requirements.

    Servicing activities such as transfers, assumptions, 
subordinations, sale or exchange of security property, and leasing of 
security will be reviewed for compliance with title 7, part 1940, 
subpart G of chapter XVIII of the Code of Regulations and the exhibits 
to that subpart.


Sec.  772.5  Security maintenance.

    (a) General. Borrowers are responsible for maintaining the 
collateral that is serving as security for their Minor Program loan in 
accordance with their lien instruments, security agreement and 
promissory note.
    (b) Security Inspection. The Agency will inspect real estate that 
is security for a Minor Program loan at least once every three years, 
and chattel security at least annually. More frequent security 
inspections may be made as determined necessary by the Agency. 
Borrowers will allow representatives of the Agency, or any agency of 
the U.S. Government, in accordance with statutes and regulations, such 
access to the security property as the agency determines is necessary 
to document compliance with the requirements of this section.
    (c) Violations. If the Agency determines that the borrower has 
failed to adequately maintain security, made unapproved dispositions of 
security, or otherwise has placed the repayment of the Minor Program 
loan in jeopardy, the Agency will:
    (1) For chattel security, service the account according to title 7, 
part 1962, subpart A of chapter XVIII of the Code of Federal 
Regulations. If any normal income security as defined in that subpart 
secures a Minor Program loan, the reporting, approval and release 
provisions in that subpart shall apply.
    (2) For real estate security for AMP loans, contact the Office of 
General Counsel for advice on the appropriate servicing including 
liquidation if warranted.
    (3) For real estate security for IMP loans, service the account 
according to title 7, part 1951, subpart S, of chapter XVIII of the 
Code of Federal Regulations.


Sec.  772.6  Subordination of security.

    (a) Eligibility. The Agency shall grant a subordination of Minor 
Program loan security when the transaction will further the purposes 
for which the loan was made, and:
    (1) The loan will still be adequately secured after the 
subordination or the value of the loan security will be increased by 
the amount of advances to be made under the terms of the subordination.
    (2) The borrower can document the ability to pay all debts 
including the new loan.
    (3) The action does not change the nature of the borrower's 
activities to the extent that they would no longer be eligible for a 
Minor Program loan.
    (4) The subordination is for a specific amount.
    (5) The borrower is unable, as determined by the Agency, to 
refinance its loan and graduate in accordance with this subpart.
    (6) The loan funds will not be used in such a way that will 
contribute to erosion of highly erodible land or conversion of wetlands 
for the production of an agricultural commodity according to title 7, 
part 1940, subpart G of chapter XVIII of the Code of Federal 
Regulations.
    (7) The borrower has not been convicted of planting, cultivating, 
growing, producing, harvesting or storing a controlled substance under 
Federal or state law. ``Borrower'', for purposes of this subparagraph, 
specifically includes an individual or entity borrower and any member, 
stockholder, partner, or joint operator, of an entity borrower. 
``Controlled substance'', for the purpose of this subparagraph, is 
defined at 21 CFR part 1308. The borrower will be ineligible for a 
subordination for the crop year in which the conviction occurred and 
the four succeeding crop years. An applicant must attest on the Agency 
application form that it and its members, if an entity, have not been 
convicted of such a crime.
    (b) Application. To request a subordination, a Minor Program

[[Page 17323]]

borrower must make the request in writing and provide the following:
    (1) The specific amount of debt for which a subordination is 
needed;
    (2) An appraisal in accordance with Sec.  761.7 of this chapter, if 
the request is for more than $10,000, unless an appraisal report that 
is sufficient, as determined by the Agency, that is less than one year 
old, is on file with the Agency; and
    (3) Consent and subordination, as necessary, of all other 
creditors' security interests.
    (c) Approval. SEDs are authorized to approve subordination 
requests.
    (1) If a subordination request does not meet the requirements of 
this part, the SED may reject it and offer appeal rights, or recommend 
it to the Administrator, FSA, pursuant to exception authority, for 
approval.
    (2) When the SED rejects a subordination request, the State Office 
will notify the borrower of the decision.
    (3) When recommending to the Administrator for an exception, the 
SED must provide documentation on how approval of the subordination is 
in the best interest of the Government.


Sec.  772.7  Leasing Minor Program loan security.

    (a) Eligibility. The Agency may consent to the borrower leasing all 
or a portion of security property for Minor Program loans to a third 
party when:
    (1) Leasing is the only feasible way to continue to operate the 
enterprise and is a customary practice;
    (2) The lease will not interfere with the purpose for which the 
loan was made;
    (3) The borrower retains ultimate responsibility for the operation, 
maintenance and management of the facility or service for its continued 
availability and use at reasonable rates and terms;
    (4) The lease prohibits amendments to the lease or subleasing 
arrangements without prior written approval from the Agency;
    (5) The lease terms provide that the Agency is a lien holder on the 
subject property and, as such, the lease is subordinate to the rights 
and claims of the Agency as lien holder; and
    (6) The lease is for less than three years and does not constitute 
a lease/purchase arrangement, unless the transfer and assumption 
provisions of this subpart are met.
    (b) Application. The borrower must submit a written request for 
Agency consent to lease the property.


Sec.  772.8  Sale or exchange of security property.

    (a) AMP loans. (1) Sale of all or a portion of security property 
for an AMP loan may be approved when:
    (i) The property is sold for market value based on a current 
appraisal in accordance with the standards at Sec.  761.7 of this 
chapter;
    (ii) The sale will not prevent carrying out the original purpose of 
the loan. The borrower must execute RD Form 400-4 ``Assurance 
Agreement'' or successor form. The covenant involved will remain in 
effect as long as the property continues to be used for the same or 
similar purposes for which the loan was made. The instrument of 
conveyance will contain the nondiscrimination covenants contained in 7 
CFR 1951.204;
    (iii) The remaining security for the loan is adequate or will not 
change after the transaction;
    (iv) Sale proceeds remaining after paying any reasonable and 
necessary selling expenses are applied to the Minor Program loan 
according to lien priority;
    (2) Exchange of all or a portion of security property for an AMP 
loan may be approved when:
    (i) The Agency will obtain a lien on the property acquired in the 
exchange.
    (ii) Property more suited to the borrower's needs related to the 
purposes of the loan is to be acquired in the exchange;
    (iii) The AMP loan will be as adequately secured after the 
transaction as before;
    (iv) It is necessary to develop or enlarge the facility, improve 
the borrower's debt-paying ability, place the operation on a more sound 
financial basis or otherwise further the loan objectives and purposes, 
as determined by the Agency.
    (b) IMP loans. (1) A sale or exchange of chattel that is serving as 
security for an IMP loan is governed by title 7, part 1962, subpart A 
of chapter XVIII of the Code of Federal Regulations.
    (2) A sale or exchange of real estate that is serving as security 
for an IMP loan is governed by title 7, part 1965, subpart A of chapter 
XVIII of the Code of Federal Regulations.


Sec.  772.9  Releases.

    (a) Security. Minor Program liens may be released when:
    (1) The debt is paid in full.
    (2) Security property is sold for market value and sale proceeds 
are received and applied to the borrower's creditors according to lien 
priority, or
    (3) An exchange in accordance with Sec.  772.7(b) of this subpart 
has been concluded.
    (b) Borrower liability. The Agency may release a borrower from 
liability when the Minor Program loan, plus all administrative 
collection costs and charges are paid in full. IMP borrowers who have 
had previous debt forgiveness on a farm loan program loan as defined in 
7 CFR 1951.906 cannot be released from liability by FSA until the 
previous loss to the Agency has been repaid with interest from the date 
of debt forgiveness.
    (c) Servicing of debt not satisfied through liquidation. Balances 
remaining after sale or liquidation will be subject to administrative 
offset in accordance with 7 CFR part 1951, subpart C, including 
internal agency administrative offset, Department of Treasury Offset 
and Treasury Cross-Servicing. Thereafter, the debt settlement 
provisions in part 1956, subpart B (for IMP loans) and subpart C (for 
AMP loans) of chapter XVIII of the Code of Federal Regulations apply.


Sec.  772.10  Transfer and assumption--AMP loans.

    (a) Eligibility. The Agency may approve transfers and assumptions 
of AMP loans when:
    (1) The present borrower is unable or unwilling to accomplish the 
objectives of the loan.
    (2) The transfer will not harm the Government or adversely affect 
the Agency's security position.
    (3) The transferee will continue with the original purpose of the 
loan.
    (4) The transferee will assume an amount at least equal to the 
present market value of the loan security.
    (5) The transferee documents the ability to pay the AMP loan debt 
as provided in the assumption agreement and has the legal capacity to 
enter into the contract.
    (6) If there is a lien or judgment against the Agency security 
being transferred, the transferee is subject to such claims. The 
transferee must document the ability to repay the claims against the 
land.
    (7) If the transfer is to one or more members of the borrower's 
organization and there is no new member, there must not be a loss to 
the Government.
    (b) Withdrawal. Withdrawal of a member and transfer of the 
withdrawing member's interest in the Association to a new eligible 
member may be approved by the Agency if all of the following conditions 
are met:
    (1) The entire unpaid balance of the withdrawing member's share of 
the AMP loan must be assumed;
    (2) In accordance with the Association's governing articles, the 
required number of remaining members

[[Page 17324]]

must agree to accept any new member; and
    (3) The transfer will not adversely affect collection of the AMP 
loan.
    (c) Requesting a transfer and assumption. The transferor borrower 
and transferee applicant must submit:
    (1) The written consent of any other lien holder, if applicable.
    (2) A current balance sheet and cash flow statement.
    (d) Terms. The interest rate and term of the assumed AMP loan will 
not be changed. Any delinquent principal and interest of the AMP loan 
must be paid current before the transfer of an assumption will be 
approved by the Agency.
    (e) Release of liability. Transferors may be released from 
liability with respect to an AMP loan by the Agency when:
    (1) The full amount of the loan is assumed.
    (2) Less than the full amount of the debt is assumed, and the 
balance remaining will be serviced in accordance with Sec.  772.9(c) of 
this subpart.


Sec.  772.11  Transfer and assumption--IMP loans.

    Transfers and assumptions for IMP loans are processed in accordance 
with title 7, part 1962, subpart A of chapter XVIII of the Code of 
Federal Regulations for chattel secured loans and part 1965, subpart A 
of chapter XVIII of the Code of Federal Regulations for real estate 
secured loans. Any remaining transferor liability will be serviced in 
accordance with Sec.  772.9(c) of this subpart.


Sec.  772.12  Graduation.

    (a) General. Agency loan programs do not supplant or compete with 
credit available to borrowers from non-Governmental credit sources. 
Agency credit is intended to be available for a temporary period of 
time until the borrower has made sufficient progress to obtain credit 
from commercial lenders. This section does not apply to Minor Program 
borrowers with promissory notes which do not contain provisions 
requiring graduation.
    (b) Graduation reviews. Borrowers shall provide current financial 
information when requested by the Agency or its representatives to 
conduct graduation reviews. After screening out the non-commercial and 
non-standard borrowers, the Agency will conduct a thorough review of 
the financial information provided by the borrower and request 
additional information as needed.
    (1) AMP loans shall be reviewed at least every two years. In the 
year to be reviewed, each borrower must submit, at a minimum, a year-
end balance sheet and cash flow projection for the current year.
    (2) All IMP borrowers classified as ``commercial'' or ``standard'' 
in accordance with title 7, part 1951, subpart F of chapter XVIII of 
the Code of Federal Regulations shall be reviewed at least every two 
years. In the year to be reviewed, each borrower must submit a year-end 
balance sheet, actual financial performance for the most recent year, 
and a projected budget for the current year.
    (c) Criteria. Borrowers will be requested to graduate from the 
Minor Programs as follows:
    (1) Borrowers with IMP loans that are classified as ``commercial'' 
or ``standard'' will be requested to apply for private financing within 
30 days from the date the borrower is notified of lender interest, if 
an application is required by the lender. For good cause, the Agency 
may grant the borrower a reasonable amount of additional time to apply 
for refinancing.
    (2) Borrowers with AMP loans will be considered for graduation at 
least every two years or as otherwise determined by the Agency that the 
borrower's financial condition has significantly improved.
    (d) Enforcement. The Agency shall take action to enforce 
graduation, when the Agency has evidence that commercial credit can be 
obtained at reasonable rates and terms.
    (1) The Agency will accelerate the loan of a Minor Program borrower 
who fails to provide requested documents, does not take positive steps 
to refinance the loan when commercial credit can be obtained at 
reasonable rates and terms, or refuses to cooperate in any way with the 
requirements of this section.
    (2) The Agency must inform the borrower in writing of the specific 
request of which the borrower failed or refused to cooperate and 
provide appeal rights in accordance with 7 CFR part 780 and 7 CFR part 
11.


Sec.  772.13  Delinquent account servicing.

    (a) AMP loans. The Agency will take the following actions on 
delinquent AMP borrowers:
    (1) First contact. The Agency will attempt to contact the borrower 
10 days after the payment due date, advise the borrower of the amount 
past due, and request that the payment be remitted immediately.
    (2) Second contact. If within 20 days the borrower has not 
responded to the initial contact, a delinquency letter will be sent 
notifying the borrower that if the account is not brought current 
within 30 days, the Agency will take action to protect the Government's 
interest.
    (3) Third contact. If within 30 days the borrower has not responded 
to the second contact delinquency letter or the borrower will not or 
cannot make satisfactory arrangements to bring the account current, the 
borrower will be notified by letter of the option of selling their 
security property to recover any equity, and advising that further 
collection action, including internal agency offset and referral to the 
Department of Treasury Offset Program and Treasury Cross-Servicing, 
will be taken if payment is not received or satisfactory arrangements 
are not made to bring the account current within 15 days.
    (4) Liquidation. If the borrower does not make arrangements to cure 
the default and is not eligible for reamortization in accordance with 
Sec.  772.14 of this subpart, liquidation action will be taken 
according to Sec.  772.16 of this subpart.
    (b) IMP loans. Delinquent IMP borrowers will be serviced according 
to part 1951, subpart S, of chapter XVIII of the Code of Federal 
Regulations and title 7 parts 3 and 1951, subpart C of chapter XVIII of 
the Code of Federal Regulations, concerning internal agency offset and 
referral to the Department of Treasury Offset Program and Treasury 
Cross-Servicing.


Sec.  772.14  Reamortization of AMP loans.

    (a) The Agency may approve reamortization of AMP loans when there 
is no extension of the final maturity date of the loan and no 
intervening lien exists on the security for the loan which would 
jeopardize the Government's security position, and when:
    (1)(i) The account is delinquent and cannot be brought current 
within one year; and
    (ii) The borrower has presented a cash flow budget which 
demonstrates the ability to meet the proposed new payment schedule; or
    (2) The account is current, but due to circumstances beyond the 
borrower's control, the borrower will be unable to meet the annual loan 
payments;
    (b) An exception may be provided by and at the discretion of the 
Agency Administrator to the conditions in paragraph (a) of this section 
in accordance with Sec.  772.18.


Sec.  772.15  Protective advances.

    (a) The Agency may approve, without regard to any loan or total 
indebtedness limitation, vouchers to pay costs, including insurance and 
real estate taxes, to preserve and protect the security, the lien, or 
the priority of the

[[Page 17325]]

lien securing the debt owed to the Agency if the debt instrument 
provides that the Agency may voucher the account to protect its lien or 
security.
    (b) The Agency may pay protective advances only when it determines 
it to be in the Government's best financial interest.
    (c) Protective advances are immediately due and payable.


Sec.  772.16  Liquidation.

    When the Agency determines that continued servicing will not 
accomplish the objectives of the loan and the delinquency or financial 
stress cannot be cured by the options in Sec.  772.13, the borrower 
will be encouraged to dispose of the Agency security voluntarily 
through sale or transfer and assumption. If a transfer or voluntary 
sale is not carried out, the loan will be liquidated according to title 
7, part 1955, subpart A of chapter XVIII of the Code of Federal 
Regulations.


Sec.  772.17  Equal opportunity and non-discrimination requirements.

    With respect to any aspect of a credit transaction, the Agency will 
comply with the requirements of the Equal Credit Opportunity Act as 
implemented in Sec.  1910.2 of title 7, part 1910, subpart A of chapter 
XVIII of the Code of Federal Regulations, and the Department's civil 
rights policy in 7 CFR part 15d.


Sec.  772.18  Exception authority.

    Exceptions to any requirement in this subpart can be approved in 
individual cases by the Administrator if application of any requirement 
or failure to take action would adversely affect the Government's 
interest. Any exception must be consistent with the authorizing statute 
and other applicable laws.

PART 1901--PROGRAM-RELATED INSTRUCTIONS

Subpart E--Civil Rights Compliance Requirements.

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

    Authority : 5 U.S.C. 301; 7 U.S.C. 1989; 40 U.S.C. 442; 42 
U.S.C. 1480.

    3. Amend Sec.  1901.204 by:
    a. Removing paragraphs (a)(1), (2), (4), and (10);
    b. Redesignating paragraph (a)(3) as paragraph (a)(1);
    c. Redesignating paragraphs (a)(5) through (9) as paragraphs (a)(2) 
through (6); and
    d. Redesignating paragraphs (a)(11) through (28) as paragraphs 
(a)(7) through (24).

PART 1951--SERVICING AND COLLECTIONS

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

    4. The authority citation for part 1951 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.

    5. Amend Sec.  1951.201 by removing the words ``loans for Grazing 
and other shift-in-land-use projects;'' and ``Association Irrigation 
and Drainage loans;''.


Sec.  1951.221  [Amended]

    6. Amend Sec.  1951.221 in paragraph (b) heading by removing the 
words ``Grazing Association Loans, Irrigation and Drainage and other''.

    Signed in Washington, DC, on April 2, 2003.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 03-8597 Filed 4-8-03; 8:45 am]
BILLING CODE 3410-05-U