[Federal Register Volume 68, Number 162 (Thursday, August 21, 2003)]
[Proposed Rules]
[Pages 50479-50481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21422]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 68, No. 162 / Thursday, August 21, 2003 / 
Proposed Rules  

[[Page 50479]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 1910, 1941 and 1965

RIN 0560-AH01


Revisions to Direct Farm Loan Programs Appraisal Regulations

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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

SUMMARY: This rule proposes to amend the Farm Service Agency's (FSA) 
regulations governing real estate and chattel appraisals. In the loan 
making process, the rule proposes to allow FSA to obtain appraisals 
after loan funds become available and the applicant is determined 
eligible. Also, the rule proposes to increase the dollar threshold that 
determines when a real estate appraisal is required. In loan servicing, 
the rule proposes to raise the dollar threshold for real estate 
appraisals in partial release situations, and allow the Agency to 
release real estate security without appraising the retained real 
estate in some cases. All these changes will reduce FSA's appraisal 
costs and enhance the timeliness of program delivery of certain loan 
making and servicing actions.

DATES: Comments on this rule must be received on or before October 20, 
2003 to be given full consideration.

ADDRESSES: Written comments may be mailed to the Farm Service Agency, 
U.S. Department of Agriculture, Farm Loan Programs, Loan Servicing and 
Property Management Division, Attention: Director, 1400 Independence 
Avenue, SW., STOP 0523, Washington, DC 20250-0523, or comments will be 
accepted when submitted at http://www.regulations.gov. 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 1250 Maryland Avenue, SW., Suite 500, Washington, DC 
20024-0523.

FOR FURTHER INFORMATION CONTACT: Michael Cumpton, Senior Loan Officer, 
Farm Service Agency; telephone: 202-690-4014; Facsimile: 202-690-0949; 
E-mail: [email protected].

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

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

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601, 
the Agency has determined that there will not be a significant economic 
impact on a substantial number of small entities. All Farm Service 
Agency direct loan borrowers and all entities affected by this rule are 
small businesses according to the North American Industry 
Classification System, and the United States Small Business 
Administration. There is no diversity in size of the entities affected 
by this rule and the costs to comply with it are the same for all 
entities.
    In this rule, FSA is proposing revisions to both loan making and 
loan servicing regulations. In loan making, the Agency will not require 
a real estate appraisal completed by a certified general appraiser when 
real estate is used to secure an operating loan (OL) of less than 
$50,000. This action will affect less than 5 percent of the OL's 
processed per year, or approximately 720 applicants. This would result 
in an annual savings to the Agency of approximately $540,000 ($750/
appraisal). In loan servicing, the Agency will increase the dollar 
threshold for requiring a certified real estate appraisal from $10,000 
to $25,000 when considering partial releases, subordinations, 
exchanges, or other real estate servicing actions. The Agency estimates 
that this will eliminate the need for approximately 150 certified real 
estate appraisals, for a savings to the Agency annually of 
approximately $112,500.
    The Agency does not expect these changes to impose any additional 
cost on the borrowers. In fact, the reduced need for appraisals should 
benefit borrowers with increased timeliness of loan decisions by the 
Agency. Therefore, the costs of compliance from this rule are deemed 
not significant. Accordingly, pursuant to section 605(b) of the 
Regulatory Flexibility Act, 5 U.S.C. 605(b), the Agency certifies that 
this rule will not have a significant economic impact on a substantial 
number of small entities.

Environmental Impact Statement

    The environmental impacts of this 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 part 799, and part 1940, 
subpart G. FSA has completed an environmental evaluation and concluded 
that the rule requires no further environmental review. 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 this 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 part 11 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.

[[Page 50480]]

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. This 
proposed 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 proposed 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, the relationship between the national 
government and the States, or the distribution of power and 
responsibilities among the various levels of government. Nor does this 
proposed rule impose substantial direct compliance costs on State and 
local governments. Therefore, consultation with the States is not 
required.

Paperwork Reduction Act

    The amendments to 7 CFR Chapter XVIII contain no new information 
collections that require approval under the Paperwork Burden Reduction 
Act of 1995 for OMB control numbers 0560-0158, 0560-0162, and 0560-
0178.

Federal Assistance Programs

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

10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans

Discussion of the Proposed Rule

    This rule proposes to amend the regulations that govern the 
requirement for appraisals for FSA Farm Loan Programs (FLP) direct 
loans.

Application Processing

    FSA proposes to remove the requirement for obtaining a real estate 
or chattel appraisal as part of the application process in 7 CFR 
1910.4(b)(21). Under existing regulations, when real estate is to be 
taken as security, FSA usually obtains the appraisal by contracting 
with a qualified appraiser, prior to approval of a loan. Chattel 
appraisals are completed by FSA employees who have been adequately 
trained and delegated chattel appraisal authority. The proposed rule 
will allow FSA to approve loans with the condition that an acceptable 
appraisal, which reflects at least adequate collateral for the loan, 
will be obtained before the loan is closed. Therefore, FSA will not be 
required to wait on a real estate appraisal and may conditionally 
approve the loan.
    The primary benefit to FSA is one of cost savings. As previously 
discussed, existing procedures require that an appraisal be obtained 
prior to loan approval. Because availability of loan funds is subject 
to Congressional appropriations, all FSA farm loans are approved 
subject to the availability of funds. When appropriation levels are 
inadequate to meet loan demand, approved applications are held until 
funding becomes available. Sometimes, a year or more may pass before 
loan funds become available for an applicant, particularly in the farm 
ownership (FO) loan program. In such cases, the real estate appraisal 
purchased prior to loan approval is outdated when funding becomes 
available, and FSA must purchase a new appraisal. Thus, FSA pays for 
two real estate appraisals for one loan. Under this proposed rule, FSA 
will not purchase an appraisal until funds are available for the loan, 
thus, eliminating the need for second appraisals and the costs 
associated with them. While delays in funding can occur, the appraisal 
requirement will not cause any additional delay in most loan closings 
as loan funds are usually available without delay. On the Agency's, 
``Request for Obligations of Funds,'' applicants will agree that the 
15-working day loan closing requirement may be exceeded to obtain the 
necessary appraisals. FSA will endeavor to minimize any delays. This 
change does not affect FSA's responsibility for ordering and funding 
the cost of real estate and chattel appraisals for loan making 
purposes.

Operating Loan Real Estate Appraisal Limits

    FSA proposes to amend 7 CFR 1941.25 to require that a real estate 
appraisal be obtained when real estate is taken as primary security for 
an operating loan (OL) and the amount of the loan to be secured by the 
real estate exceeds $50,000. The section currently provides no 
threshold dollar amount. FSA has determined that OL loans of $50,000 or 
less generally constitute less risk than larger loans due to the 
relatively small dollar amount involved. In addition, operations with 
credit needs in this range are normally not complex. Loan officials 
will no longer have to wait for an appraisal in such cases before 
conducting a loan analysis and making a credit decision. Therefore, 
applicants will receive loan funds on a more timely basis. This 
revision adds consistency with the existing Low Documentation policy 
for operating loans of $50,000 or less, reduces the number of real 
estate appraisals required, and reduces FSA's real estate appraisal 
expenses.

Real Estate Security Servicing

    FSA proposes to increase the transaction amount triggering the need 
for a real estate appraisal referenced in 7 CFR 1965.13(d), from 
$10,000 to $25,000. This will reduce the number of appraisals required 
by the Agency when borrowers wish to sell some portion of their real 
estate. Also, FSA is currently required to appraise the real property 
retained when processing a partial release. This measure ensures that 
the property retained by the borrower, after the sale, is not adversely 
affected by the loss of the tract sold (such as when the sale removes 
access to a paved road). The proposed rule would eliminate this 
requirement in most cases as this determination can usually be made 
without an appraisal. FSA may still obtain an appraisal on the property 
to be sold or retained when necessary to protect the government's 
financial interests.

List of Subjects

Part 1910

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

Part 1941

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

Part 1965

    Foreclosure, Credit, Loan programs--agriculture, Loan programs--
housing and community development, Rural areas.

    Accordingly, 7 CFR chapter XVIII is proposed to be 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.

[[Page 50481]]

Subpart A--Receiving and Processing Applications

    2. In Sec.  1910.4 revise paragraph (b) by removing paragraph 21 
and redesignating paragraph 22 as paragraph 21.
    3. In Sec.  1910.4 revise paragraph (j)(1)(i) to read as follows:


Sec.  1910.4  Processing applications.

* * * * *
    (j) * * *
    (1) * * *
    (i) Receipt by the applicant of a signed copy of the Agency's 
request for obligation of funds on the appropriate Agency form is 
written notice of loan approval and any conditions that must be met 
prior to loan closing. Loan approval conditions may include, but are 
not limited to, obtaining required real estate and chattel appraisals.
* * * * *

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 Sec.  1941.25 paragraph (a)(4) to read as follows:


Sec.  1941.25  Appraisals.

    (a) * * *
    (4) A real estate appraisal is required when real estate is taken 
as primary security, as defined in Sec.  1941.4, and the amount of the 
loan to be secured by the real estate exceeds $50,000.
* * * * *

PART 1965--REAL ESTATE

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

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

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

    7. In Sec.  1965.13 revise introductory paragraph (d) to read as 
follows:


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.

* * * * *
    (d) Appraisals. A new appraisal report for the security to be 
transferred or released will be obtained in accordance with Sec.  761.7 
of this title as necessary to protect the financial interests of the 
Government or when the transaction involves more than $25,000. A new 
appraisal report for the security to be retained will be obtained in 
accordance with that section as necessary to protect the financial 
interests of the Government. Appraisal reports under this section may 
show the present market value of the property being transferred or 
released and the property being retained on a single appraisal report 
or on separate appraisal reports. The value of rights to mining 
products, gravel, oil, gas, coal or other minerals will be specifically 
included as a part of the appraised value of the real estate security.
* * * * *

    Signed in Washington, DC, on August 14, 2003.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 03-21422 Filed 8-20-03; 8:45 am]
BILLING CODE 3410-05-P