[Federal Register Volume 69, Number 86 (Tuesday, May 4, 2004)]
[Proposed Rules]
[Pages 24537-24539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10068]


 ========================================================================
 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.
 
 ========================================================================
 

  Federal Register / Vol. 69, No. 86 / Tuesday, May 4, 2004 / Proposed 
Rules  

[[Page 24537]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 762

RIN 0560-AG65


Guaranteed Farm Ownership and Operating Loan Requirements

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) proposes to revise its 
regulations governing guaranteed loans to allow lenders to use 
guaranteed loans as security for loans to the lenders. The Agency also 
proposes to remove certain unnecessary documentation and security 
requirements, correct errors, and clarify its procedures for applying 
for, making, and servicing FSA guaranteed loans.

DATES: Comments on this proposed rule must be received on or before 
July 6, 2004, to be given full consideration. Comments received after 
that date will be considered to the extent possible.

ADDRESSES: The Farm Service Agency invites interested persons to submit 
comments on this proposed rule. Comments may be submitted by any of the 
following methods:
     E-Mail: Send comments to 
[email protected].
     Fax: Submit comments by facsimile transmission 
to: (202) 720-6797.
     Mail: Send comments to Director, Loan Making 
Division, Farm Service Agency, U.S. Department of Agriculture, 1400 
Independence Avenue, SW., STOP 0522, Washington, DC 20250-0522;
     Hand Delivery or Courier: Deliver comments to 
Office of the Director, Loan Making Division, Farm Service Agency, U.S. 
Department of Agriculture, Suite 240, 1280 Maryland Ave., SW., 
Washington, DC 20250-0522.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Comments may be inspected in the Office of the Director, Loan 
Making Division, Farm Service Agency, U.S. Department of Agriculture, 
Suite 240, 1280 Maryland Ave., SW., Washington, DC 20250-0522, between 
8 a.m. and 4:30 p.m., Monday through Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: Galen VanVleet, Senior Loan Officer, 
Loan Making Division, Farm Service Agency; telephone: (202) 720-3889; 
facsimile: (202) 720-6797; e-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Discussion of the Proposed Rule

Definition of ``Financially Viable Operation''

    Section 762.102(b) defines the term ``financially viable 
operation.'' However, the term is not used in the regulation. To avoid 
confusion, the term and definition are removed.

Preferred and Certified Lender Programs

    Section 762.106(b)(8) requires that lenders applying for Certified 
Lender Program (CLP) status submit copies of forms to be used for farm 
loan program processing and servicing, such as financial statements, 
cash flow plans, and budgets. This requirement is unnecessary and will 
be removed. FSA field offices are already familiar with forms that are 
used by lenders applying for CLP status. To qualify for CLP, lenders 
must have first made a certain number of guaranteed loans as Standard 
Eligible Lenders (SEL's), and the forms relative to those loans are 
reviewed by FSA.
    Section 762.106(c)(8) requires that Preferred Lender Program (PLP) 
lenders designate a person or persons, approved by FSA, to process and 
service PLP loans. The existing regulation has been confusing and 
somewhat contrary to the intent of the PLP program, in that it 
unnecessarily involves FSA in lender decisions. Therefore, the proposed 
rule removes the requirement that the Agency approve the designee(s) 
and modifies the regulation to allow the lender to designate the 
responsible party by name, title, or position.

Interest Rates and Fees

    Section 762.124(e)(1) provides that lenders may charge fees 
provided they are no greater than those charged to customers without an 
FSA guarantee for similar transactions. There has been some confusion 
as to whether third-party processing fees are included in this 
restriction. The proposed rule clarifies that lenders may not charge, 
or cause to be charged, any processing, servicing, or packaging fees 
that are not charged to non-guaranteed customers for similar 
transactions.

Security Requirements

    Section 762.126(e) generally provides that all guaranteed loans be 
secured by the best lien obtainable. In addition, the regulation 
establishes restrictions on acceptable lien positions for security on 
guaranteed loans. One restriction is that when a loan is made for 
refinancing purposes the guaranteed loan must hold a security position 
no lower than on the refinanced loan. When lenders refinance chattel 
secured loans with a loan secured by real estate, this restriction 
requires them to obtain or maintain a lien on the chattels. This 
unnecessarily restricts flexibility and may impair the lender's ability 
to provide the best terms and rates. The proposed rule removes this 
restriction.
    Another restriction, under section 762.126(e) limits junior lien 
positions to situations where equity position is strong. This 
restriction has been difficult to implement equitably because of 
varying interpretations of ``strong.'' It is proposed that the junior 
liens instead be limited to situations where the amount of debt, 
including the proposed junior lien, is less than or equal to 75 percent 
of the value of the security. This would equate to an equity position 
of 25 percent and is consistent with the existing requirement in 
section 762.142(b), which permits partial releases based, in part, on a 
75-percent debt to security requirement.

Restructuring Guaranteed Loans

    Section 762.145 (b)(6)(i) contains an incorrect citation to the 
loan limits. The proposed rule corrects that citation.

Sale, Assignment, and Participation

    A new section, 762.159, is proposed to address the use of Agency 
guaranteed loans as security for lender funding. Many lenders routinely 
borrow money from a Federal Home Loan Bank or a Federal Reserve Bank to 
meet funding or liquidity needs. Lenders are usually required to pledge 
loan assets, which may include Agency guaranteed loans, as security for 
the loans. The existing regulation's restrictions on assignments has 
led to confusion as to how or

[[Page 24538]]

whether a lender can pledge guaranteed loans. The proposed new section 
would explicitly allow pledging Agency guaranteed loans to Federal Home 
Loan Banks or Federal Reserve Banks. The regulation provides that, in 
the event that a Federal Home Loan Bank or Federal Reserve Bank 
acquires a guaranteed loan as a result of enforcing a pledge, the 
guarantee is unenforceable until a new, eligible lender is substituted 
in accordance with existing procedures. This provision is included to 
assure that there is no increase in risk to the Agency as a result of 
servicing lapses or negligent servicing until an eligible lender who 
assumes all servicing responsibilities is substituted.
    Section 762.160 deals with the sale, assignment, and participation 
of guarantees. This rule proposes to revise this section to clarify 
confusing portions and remove unnecessarily restrictive provisions. As 
used in the existing section and as defined in section 762.102(2), 
``sale of guaranteed portion'' and ``assignment of guaranteed portion'' 
are synonymous. To reduce confusion, references to ``sale of guaranteed 
portion'' are removed, including the definition in section 762.102(b). 
The existing section requires Agency concurrence for participation in a 
guarantee. A participation is where a person or organization buys an 
interest in a loan in which the originating lender keeps the note, the 
collateral securing the note, and all responsibility for loan 
servicing. The Agency has determined that the use of participation does 
not affect the risk to the Agency because the originating lender 
retains the note and all servicing responsibility, and a participant 
has no claim to the guarantee in case of default. Because the risk to 
the Agency is not affected, the unnecessary requirement of Agency 
concurrence for participation is removed in the proposed rule. Because 
the term ``participation'' will no longer be used, the proposed rule 
also will remove the term and definition in section 762.102(b).

Executive Order 12866

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and, therefore, was not reviewed by the Office of 
Management and Budget.

Regulatory Flexibility Act

    FSA certifies that this rule will not have a significant economic 
effect on a substantial number of small entities and, 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). In any case, none of the lenders using the guaranteed loan 
program are small entities, and this rule does not impact the smaller 
entities to a greater extent than the larger entities.

Environmental Assessment

    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 part 
1940, Subpart G. FSA concluded that the rule requires no further 
environmental review because it is categorically excluded. No 
extraordinary circumstances or other unforeseeable factors exist which 
would require preparation of an environmental assessment or 
environmental impact statement.

Executive Order 12988

    This rule has been reviewed in accordance with E.O. 12988, Civil 
Justice Reform. All State and local laws and regulations that are in 
conflict with this rule will be preempted. No retroactive effect will 
be given to this rule. It will not affect agreements entered into 
before the effective date of the rule to the extent the rule is 
inconsistent with those agreements. The administrative appeal 
provisions published at 7 CFR part 11 must be exhausted before bringing 
any action for judicial review.

Executive Order 12372

    For reasons set forth in the notice related to 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983) the programs and activities in 
this rule are excluded from the scope of Executive Order 12372, which 
requires intergovernmental consultation with state and local officials.

Unfunded Mandates

    This rule contains no Federal mandates, as defined by Title II of 
the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4), for 
State, local, and tribal governments or the private sector. Therefore, 
this rule is not subject to the requirements of sections 202 and 205 of 
UMRA.

Paperwork Reduction Act

    The amendments to 7 CFR part 762 contained in this proposed rule 
require no revisions to the information collection requirements that 
were approved by OMB under control number 0560-0155.

Federal Assistance Programs

    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.

List of Subjects in 7 CFR Part 762

    Agriculture, Loan programs--Agriculture.

    Accordingly, it is proposed that 7 CFR chapter VII be amended as 
follows:

PART 762--GUARANTEED FARM LOANS

    1. The authority citation for part 762 continues to read as 
follows:

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


Sec.  762.102  [Amended]

    2. In Sec.  762.102(b), remove the definitions of ``Financially 
viable operation,'' ``Participation,'' and ``Sale of guaranteed 
portion''.
    3. Amend Sec.  762.106 by removing paragraph (b)(8) and revising 
paragraph (c)(8) to read as follows:


Sec.  762.106  Preferred and certified lender programs.

* * * * *
    (c) * * *
    (8) Designate a person or persons, either by name, title, or 
position within the organization, to process and service PLP loans for 
the Agency.
* * * * *
    4. Revise Sec.  762.124(e)(1) to read as follows:


Sec.  762.124  Interest rates, terms, charges, and fees.

* * * * *
    (e) * * *
    (1) The lender may charge the loan applicant and borrower fees for 
the loan provided they are no greater than those charged to 
unguaranteed customers for similar transactions. The lender may not 
charge, or cause to be charged, any processing, servicing, or packaging 
fee not charged to unguaranteed customers for similar transactions. 
Similar transactions are those involving the same type of loan 
requested (for example, operating loans or farm real estate loans).
* * * * *
    5. In Sec.  762.126, remove paragraph (e)(1), redesignate 
paragraphs (e)(2), (e)(3), and (e)(4) as (e)(1), (e)(2), and (e)(3), 
respectively, and revise newly designated paragraph (e)(2) to read as 
follows:

[[Page 24539]]

Sec.  762.126  Security requirements.

* * * * *
    (e) * * *
    (2) Junior lien positions are acceptable only if the total amount 
of debt with liens on the security, including the debt in junior lien 
position, is less than or equal to 75 percent of the value of the 
security. Junior liens on crops or livestock products will not be 
relied upon for security unless the lender is involved in multiple 
guaranteed loans to the same borrower and also has the first lien on 
the crops or livestock products.
* * * * *
    6. Revise Sec.  762.145(b)(6)(i) to read as follows:


Sec.  762.145  Restructuring guaranteed loans.

* * * * *
    (b) * * *
    (6) * * *
    (i) As a result of the capitalization of interest, a rescheduled 
promissory note may increase the amount of principal which the borrower 
is required to pay. However, in no case will such principal amount 
exceed the statutory loan limits contained in Sec.  761.8 of this 
chapter.
* * * * *
    7. Add Sec.  762.159, to read as follows:


Sec.  762.159  Pledging of guarantee.

    A lender may pledge all or part of the guaranteed portion of the 
loan as security to a Federal Home Loan Bank or Federal Reserve Bank. 
In the event that a Federal Home Loan Bank or Federal Reserve Bank 
acquires a guaranteed loan as a result of enforcing its security 
interest, the guarantee will be unenforceable until a new eligible 
lender is substituted in accordance with Sec.  762.105. The guarantee 
will not cover a loss that results from negligent servicing during any 
period when the loan is held by an ineligible lender, including the 
Federal Home Loan Bank or Federal Reserve Bank.
    8. Revise Sec.  762.160 to read as follows:


Sec.  762.160  Assignment of guaranteed portion.

    (a) The following general requirements apply to assigning 
guaranteed loans.
    (1) Subject to Agency concurrence, the lender may assign all or 
part of the guaranteed portion of the loan to one or more holders at or 
after loan closing, if the loan is not in default. However, a line of 
credit cannot be assigned.
    (2) The Agency may refuse to execute the Assignment of Guarantee in 
case of the following:
    (i) The Agency purchased and is holder of a loan that was assigned 
by the lender that is requesting the assignment.
    (ii) The lender has not complied with the reimbursement 
requirements of Sec.  762.144(c)(7), except when the 180-day 
reimbursement or liquidation requirement has been waived by the Agency.
    (3) The lender will provide the Agency with copies of all 
appropriate executed forms used in the assignment.
    (4) The guaranteed portion of the loan may not be assigned by the 
lender until the loan has been fully disbursed to the borrower.
    (5) The lender is not permitted to assign any amount of the 
guaranteed or unguaranteed portion of the loan to the loan applicant or 
borrower, or members of their immediate families, their officers, 
directors, stockholders, other owners, or any parent, subsidiary, or 
affiliate.
    (6) Upon the lender's assignment of the guaranteed portion of the 
loan, the lender will remain bound to all obligations indicated in the 
Guarantee, the Lender's Agreement, the Agency program regulations, and 
to future program regulations not inconsistent with the provisions of 
the Lender's Agreement. The lender retains all rights under the 
security instruments for the protection of the lender and the United 
States.
    (b) The following will occur upon the lender's assignment of the 
guaranteed portion of the loan:
    (1) The holder will succeed to all rights of the Guarantee 
pertaining to the portion of the loan assigned.
    (2) The lender will send the holder the borrower's executed note 
attached to the Guarantee.
    (3) The holder, upon written notice to the lender and the Agency, 
may assign the unpaid guaranteed portion of the loan. The holder must 
assign the guaranteed portion back to the original lender if requested 
by the lender for servicing or liquidation of the account.
    (4) The guarantee or assignment of guarantee in the holder's 
possession does not cover:
    (i) Interest accruing 90 days after the holder has demanded 
repurchase by the lender, except as provided in the assignment of 
guarantee and Sec.  762.144(c)(3)(iii).
    (ii) Interest accruing 90 days after the lender or the Agency has 
requested the holder to surrender evidence of debt repurchase, if the 
holder has not previously demanded repurchase.
    (c) Negotiations concerning premiums, fees, and additional payments 
for loans are to take place between the holder and the lender. The 
Agency will participate in such negotiations only as a provider of 
information.

    Signed in Washington, DC on April 12, 2004.
Verle E. Lanier,
Acting Administrator, Farm Service Agency.
[FR Doc. 04-10068 Filed 5-3-04; 8:45 am]
BILLING CODE 3410-05-P