[Federal Register Volume 70, Number 28 (Friday, February 11, 2005)]
[Rules and Regulations]
[Pages 7165-7167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2678]



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  Federal Register / Vol. 70, No. 28 / Friday, February 11, 2005 / 
Rules and Regulations  

[[Page 7165]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 770

RIN 0560-AG87


Revision of Indian Tribal Land Acquisition Program Loan 
Regulations

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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

SUMMARY: This rule clarifies the Indian Tribal Land Acquisition Program 
(ITLAP) regulations for borrowers who apply for a rental value write-
down. The rule clarifies the method for determining the rental value of 
security for purposes of a write-down, adds a definition of ``rental 
value,'' clarifies other write-down eligibility provisions, and limits 
new loan eligibility for borrowers who have received a write-down in 
the past. These clarifications are intended to reduce the borrower's 
costs of applying for a rental value write-down, and reduce the burden 
on Agency employees in processing requests.

EFFECTIVE DATE: March 14, 2005.

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:

Discussion of the Final Rule

    This rule clarifies the write-down servicing policies of the Farm 
Service Agency's (FSA) Indian Tribal Land Acquisition Loan Program 
(ITLAP). The first change it makes is to clarify ``rental value'' by 
adding a definition at section 770.2(b). The second change removes the 
requirement for an appraisal needed to apply for a rental value write-
down and replaces it with a market value rent study report prepared by 
a certified general appraiser. Currently a complete appraisal is 
required to establish the rental value of the subject property. The 
appraisal includes a comparable sales approach, an income approach and 
a cost approach to determine the value of the property. For a rental 
value write-down, the appraisal is excessive for the determination of 
the rental value as only the income approach of the appraisal is 
relevant. Therefore, the appraisal requirement is eliminated and 
replaced with the requirement for a market value rent study. The market 
value rent study compares the rental income of properties similar and 
in the area of the subject property in order to establish the 5-year 
average rental value of the land purchased with ITLAP funds. This 
change will reduce the borrower's costs, reduce the appraiser's time 
required to complete the report, and reduce FSA's application 
processing time. The third change requires that write-down applicants 
must establish that the delinquency is beyond their control and cannot 
be brought current within one year, and that they cannot meet their 
annual loan payments. These requirements will assure that write-downs 
are provided to those borrowers faced with circumstances outside their 
control.
    For rental value write-downs, section 770.10(e)(4)(iv) of the 
existing rule prohibits additional write-downs of the specific ITLAP 
loan that has received the rental value write-down previously. It also 
prohibits additional write-downs of the specific loan that has received 
a land value write-down within the last five years. This limitation is 
modified in this final rule to preclude an additional rental value 
write-down of any loan when any loan has previously received a rental 
value write-down. It also prohibits a write-down of any loan when the 
borrower has received a land value write-down on any loan within the 
last five years. This revision limits potential losses on future rental 
value write-downs.
    In addition, the final rule adds a loan eligibility requirement to 
section 770.3. Since write-downs are the consequence of a borrower's 
seriously deteriorating financial condition, the rule prohibits ITLAP 
loans to borrowers that have received an ITLAP rental value or land 
value write-down within the last five years. The additional eligibility 
requirement enables FSA to make more creditworthy loans and decrease 
the possibility of further Agency losses.
    This rule will result in better service and substantial monetary 
and time savings for borrowers who apply for a write-down based on 
rental value. In addition, it will increase the protection of the 
Government from potential loss and reduce the agency official's burden 
in administering the servicing of the Indian Tribal Land Acquisition 
Program.

Discussion of Comments on the Proposed Rule

    On March 14, 2003, the Farm Service Agency published a Proposed 
Rule (68 FR 12309) requesting comments regarding proposed changes to 
ITLAP. One response was received from a Native American Tribe which 
contained four comments that are addressed as follows:
    The first comment states that FSA did not comply with the 
provisions of Executive Order 13175 (E.O. 13175) and did not consult 
with this Tribe prior to publishing the Proposed Rule. E.O. 13175 
requires that Tribal officials be consulted early in the process of 
developing regulations that are likely to affect them.
    The Agency complied with the requirements of E.O. 13175. The 
proposed rule resulted from requests for debt write-down and the 
concern that the appraisal required was too costly. This rule was 
proposed in part to address that concern. This rule will reduce the 
cost to apply for a write-down by replacing the appraisal requirement 
with a rental value market study. To comply further with E.O. 13175, 
the proposed rule was sent in advance of final Agency approval and 
publication to all Native American Tribes that have ITLAP loans. The 
original debt write-down requirements published January 9, 2001, 
resulted from requests from Tribes for debt relief. This rule results 
from direct discussions with Tribes after publication of the 2001 rule, 
consistent with the consultation requirement of 5(b)(2) of E.O. 13175. 
Thus, the Agency has complied with the requirement in EO 13175 to 
consult with Tribes on regulation changes.

[[Page 7166]]

    The second and third comments state that requiring a market study 
of the rental value of the land purchased with ITLAP funds is still 
impractical for a Tribe to qualify for a write-down based on rental 
value. The respondent states that the market study would be required 
for over 8,000 interests in land acquired with ITLAP funds and the 
costs would be prohibitive. As an alternative to the Agency's proposed 
rule, the respondent suggests that the land's rental value be based on 
the Tribe's ability to make payments on the loan and the past revenue 
from the land purchased with ITLAP funds.
    The Agency must utilize a valid method of valuation of the loan 
collateral to determine if a write-down of the debt is warranted. An 
analysis of the value of the land based on its rental value was 
determined to be the most cost effective solution. A study of the 
rental market in the subject area performed by a certified general 
appraiser according to the Uniform Standards for Professional Appraisal 
Practice (USPAP) meets this requirement. This substantially reduces the 
cost to the debt write-down applicant by eliminating the full breadth 
of requirements for a traditional appraisal by focusing only on the 
rental value of the land. Basing the rental value on actual income from 
a specific parcel may not be valid if that parcel is poorly managed, 
not farmed, or rented for less than market rent in the area. The write-
down, and subsequently, the loss to the Government, would be more in 
such case than it would be based on a valid rental market study. Using 
historical revenues from rent, as proposed by the respondent, could 
cause the debt on the land to be written off entirely if the borrower 
simply did not farm or rent that parcel in recent years. Requiring the 
market rental value study, on which to base rental value, will avoid 
such a result. Therefore, the comment and the suggested alternative to 
the Agency's proposal were not adopted.
    The fourth comment suggests that FSA authorize certain Agency 
officials to make an exception to the write-down regulation to avoid 
appraisal requirements. The respondent asserts that ``FSA has exception 
authority for those programs utilized by non-Indian borrowers and USDA 
civil rights policies require that Native Americans be treated 
equitably.''
    A general exception authority is not necessary to address the 
problem of appraisals intended to be corrected by this rule. The 
appraisal requirement is being replaced with a market value rent study 
requirement. Furthermore, typical exception authorities used in other 
farm loan programs are contingent on the proposed action being 
consistent with statutory authorities and in the best interests of the 
Government. Given the fact that the Agency receives an assignment of 
income from the Tribe through the Bureau of Indian Affairs to cover 
loan payments, the Agency does not believe write-downs other than those 
specifically authorized by part 770 would ever be in the best interests 
of the Government. Therefore, the Agency does not adopt the suggestion.

Executive Order 13175

    The requirements of Executive Order 13175 have been met with the 
promulgation of this rule. The rule is the result of consultation with 
a Tribe applicant for a write-down and all Tribes who currently have an 
ITLAP loan were sent an advance copy of the proposed rule and requested 
to comment. The impact of the rule is to reduce the cost to the 
applicant for a write-down by removing the appraisal requirement and 
replacing it with a market value rent study. In addition, due to the 
time typically associated with the completion of an appraisal, the time 
associated with processing the application is substantially reduced.

Executive Order 12866

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

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (RFA), 5 U.S.C. 
601, the Agency has determined that there will be no significant 
economic impact on a substantial number of small entities. There are 
currently 25 ITLAP borrowers with 107 loans totaling $59 million who 
may be affected by this rule. The RFA requires agencies to consider the 
impact of their regulatory proposals on small entities, minimize small 
entity impacts, and provide their analyses for public comment. This 
rule affects Indian Tribes, and such Tribes are not small businesses as 
defined by and subject to the Regulatory Flexibility Act. Nevertheless, 
this rule provides a substantial reduction in cost to the debt write-
down applicant. Thus, to the extent an Indian Tribe may be affected by 
this rule, there are no negative impacts. Further, FSA stated its 
finding in the proposed rule at 68 FR 12309, March 14, 2003, that the 
rule will not have a significant economic impact on a substantial 
number of small entities, and received no comments on this finding.

Environmental Evaluation

    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 1940, subpart G. FSA 
completed an environmental evaluation and concluded the rule requires 
no further environmental review.

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

    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 of expenditures of $100 million or more in any one year. 
This rule contains no Federal mandates, as defined by title II of the 
UMRA; therefore, this rule is not subject to sections 202 and 205 of 
the 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 substantial direct compliance costs on state and local 
governments.

Paperwork Reduction Act

    The information collections were previously approved under OMB 
control number 0560-0198, but the package was retired since there are 
less than ten respondents annually and the collections are, therefore, 
not subject to

[[Page 7167]]

the Paperwork Burden Act. The number of estimated annual respondents is 
not increased by this rule and the time burden on respondents is 
decreased.

Federal Assistance Program

    The changes affect the following program listed in the Catalog of 
Federal Domestic Assistance: 10.421--Indian Tribes and Tribal 
Corporation Loans.

List of Subjects in 7 CFR Part 770

    Agriculture, Credit, Indians, Rural areas, Loan programs.


0
Accordingly, for the reasons stated in the preamble, 7 CFR part 770 is 
amended as follows:

PART 770--INDIAN TRIBAL LAND ACQUISITION LOANS

0
1. The authority citation for part 770 continues to read as follows:

    Authority: 5 U.S.C. 301, 25 U.S.C. 490.


0
2. Amend Sec.  770.2 by adding the abbreviation USPAP in alphabetical 
order in paragraph (a) and a definition for Rental value in 
alphabetical order in paragraph (b) to read as follows:


Sec.  770.2  Abbreviations and definitions.

    (a) Abbreviations.
* * * * *
    USPAP Uniform Standards of Professional Appraisal Practice.
    (b) Definitions.
* * * * *
    Rental value is the potential annual rental income of a parcel of 
real estate as determined by a market analysis of annual rental incomes 
of like real estate in the subject property area.
* * * * *

0
3. Amend Sec.  770.3 by adding paragraph (h) to read as follows:


Sec.  770.3  Eligibility requirements.

* * * * *
    (h) Have not received a write-down as provided in Sec.  770.10(e) 
within the preceding 5 years.

0
4. Amend Sec.  770.10 by revising paragraphs (e)(3)(iii) and 
(e)(3)(iv), adding paragraph (e)(3)(v), revising paragraphs (e)(4)(iii) 
and (e)(4)(iv) and adding paragraph (e)(4)(v), to read as follows:


Sec.  770.10  Servicing.

* * * * *
    (e) Debt write-down.
* * * * *
    (3) Land value write-down.
* * * * *
    (iii) The loan was made more than 5 years prior to the application 
for land value write-down;
    (iv) The loan has not previously been written down under paragraph 
(e)(4) of this section and has not been written down within the last 5 
years under this paragraph, and
    (v) The borrower must meet the eligibility requirements of 
paragraphs (a)(1)(ii) or (iii) of this section.
    (4) Rental value write-down.
* * * * *
    (iii) The borrower provides a current market value rent study 
report for the land for the preceding 5 years, which identifies the 
average rental value. The report must be prepared by a certified 
general appraiser and meet the requirements of USPAP;
    (iv) The borrower has not previously received a write-down under 
this paragraph and has not had a loan written down within the last 5 
years under paragraph (e)(3) of this section, and
    (v) The borrower must meet the eligibility requirements of 
paragraph (a)(1)(ii) or (iii) of this section.
* * * * *

    Signed in Washington, DC, on January 25, 2005.
James R. Little,
Administrator, Farm Service Agency.
[FR Doc. 05-2678 Filed 2-10-05; 8:45 am]
BILLING CODE 3410-05-P