[Federal Register Volume 69, Number 106 (Wednesday, June 2, 2004)]
[Rules and Regulations]
[Pages 30997-30999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12202]



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 Rules and Regulations
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  Federal Register / Vol. 69, No. 106 / Wednesday, June 2, 2004 / Rules 
and Regulations  

[[Page 30997]]



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: Final rule.

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

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

DATES: This rule is effective July 2, 2004.

FOR FURTHER INFORMATION CONTACT: Michael Cumpton, Loan Servicing and 
Property Management Division, United States Department of Agriculture, 
Farm Service Agency, STOP 0523, 1400 Independence Avenue, SW., 
Washington, DC 20250-0523, telephone: 202-690-4014; e-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Discussion of the Final Rule

    This rule amends the regulations that govern the requirement for 
appraisals for FSA Farm Loan Programs (FLP) direct loans. In response 
to the proposed rule published August 21, 2003 (68 FR 50479-50481), 
four comments were received. One comment was from a farm interest group 
and the other comments were from private citizens. Most aspects of the 
proposed rule received comments, with some respondents disagreeing with 
all changes. Two of the four comments received were vague or presented 
general observations that were not specific to the proposed rule. They 
included statements that FSA appraisals should be done in a fair and 
honest manner and that none of the proposals should be adopted. No 
changes were made to the rule as a result of these general comments. 
The remaining public comments are summarized as follows:
    One respondent supported the proposal to allow FSA to approve loans 
with the condition that an acceptable appraisal, which reflects at 
least adequate collateral for the loan, will be obtained prior to loan 
closing. The respondent agreed that this would result in cost savings 
to the Government and provide better service to the applicant. The 
respondent also requested that the Agency adopt clear regulatory 
deadlines for completing the appraisal. The Agency believes that while 
delays in funding can occur, the appraisal requirement will not cause 
any additional delay in most loan closings. FSA will continue to 
monitor all applications closely to minimize any delays in ordering and 
funding appraisals, and this suggestion was not adopted.
    One respondent stated that the FSA loan official should be given 
the latitude to decide whether a chattel or real estate appraisal is 
needed before loan approval. Currently, FSA's standard procedure allows 
the loan official to decide at what point in the loan-approval process 
appraisals will be completed. Therefore, no changes are being made to 
FSA policy due to this comment.
    Two respondents supported the proposal to require a real-estate 
appraisal when real estate is taken as primary security for an 
operating loan only when the amount of the loan to be secured by the 
real estate exceeds $50,000. Previously, the regulation provided no set 
threshold dollar amount. The respondents agreed with FSA that adoption 
of the proposed rule will provide cost savings to the Government by 
reducing appraisal expenses and also will be consistent with the Lo-Doc 
requirements. As part of the Agency's streamlining project, Lo-Doc 
regulations were designed to reduce the time from receipt of a loan 
application to the disbursal of operating loan funds to a borrower. The 
proposed rule is adopted on this issue without change.
    Two respondents commented on the proposal 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. One respondent 
felt the limit should be changed from $10,000 to $50,000 because the 
$25,000 limit is already exceeded by ``many small real-estate 
transactions.'' The other respondent supported the change because they 
felt it increased farmers' flexibility by eliminating some potential 
delays in processing. The Agency believes that the $25,000 limit 
strikes a reasonable balance between cost savings and convenience for 
the borrower and local FSA personnel and the protection of the 
Government's interest. Further, direct FLP loans are specifically 
targeted to family farmers in need of supervised credit, and 
transactions above the $25,000 limit should receive a higher level of 
supervision. Therefore, the comment suggesting a $50,000 limit is not 
adopted.
    FSA is currently required to appraise the real property retained 
when processing a partial release. This ensures that the property 
retained by the borrower, after the sale, is not adversely affected by 
the loss of the tract sold, such as where the sale removes access to a 
paved road. The Agency proposed to eliminate this requirement, in most 
cases, because 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.
    FSA received two comments on this proposal. One respondent 
supported the change, but indicated that language that allows the use 
of an existing FSA appraisal, as long as it is less than one year old, 
was removed. The respondent

[[Page 30998]]

is correct. However the rule refers to 7 CFR 761.7, which states that 
an existing appraisal can be used if certain conditions are met and the 
appraisal is less than 12 months old. Therefore, the proposed language 
will be adopted.
    The other respondent thought the rule was confusing and advocated a 
policy that would allow local FSA officials to waive all appraisals if 
there would be ``obvious value in the property being retained.'' This 
comment suggests that the controlling factor in the Agency's decision 
is the overall amount of remaining security, when, in fact, it is that 
the remaining security is not harmed by the transaction. If the 
borrower is receiving adequate compensation for the property sold and 
all other regulatory requirements are met, the Agency may still grant 
the release even if the value of the remaining security is inadequate. 
The appraised value of the remaining security is not relevant to the 
decision as long as the value of the retained property is not reduced 
by the loss of the property released. The Agency also believes that the 
policy suggested by the respondent is too subjective and could lead to 
disparate treatment from office to office. Therefore, the comment is 
not adopted and the proposed language remains unchanged.

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 FSA 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 revises 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 OL's processed per year, or 
approximately 720 applicants, and will result in annual savings to the 
Agency of approximately $540,000 ($750/appraisal). In loan servicing, 
the Agency will increase the dollar threshold for requiring a real 
estate appraisal be completed by a certified general appraiser 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 real estate 
appraisals, for annual savings to the Agency of approximately $112,500.
    The Agency did not propose 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 relating to 7 CFR part 3015, 
subpart V published June 24, 1983 (48 FR 29115), the programs and 
activities within this rule are excluded from the scope of Executive 
Order 12372, which requires intergovernmental consultation with State 
and local officials.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, requires Federal agencies to assess the effects of their 
regulatory actions on state, local, and tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
final 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 final 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 
final rule impose substantial direct compliance costs on State and 
local governments. Therefore, consultation with the States is not 
required.

Paperwork Reduction Act

    This rule contains no new information collections that require 
approval under the Paperwork Reduction Act of 1995 for information 
collections previously approved by OMB under 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:

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

List of Subjects

7 CFR Part 1910

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

[[Page 30999]]

7 CFR Part 1941

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

7 CFR Part 1965

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

0
Accordingly, 7 CFR chapter XVIII is amended as follows:

PART 1910--GENERAL

0
1. The authority citation for part 1910 continues to read as follows:

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

Subpart A--Receiving and Processing Applications

0
2. Amend Sec.  1910.4 by removing paragraph (b)(21) and by 
redesignating paragraph (b)(22) as new paragraph (b)(21).

0
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

0
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

0
5. Revise Sec.  1941.25(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 PROPERTY

0
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

0
7. In Sec.  1965.13(d) revise the introductory paragraph 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 May 19, 2004.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 04-12202 Filed 6-1-04; 8:45 am]
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