[Federal Register Volume 80, Number 230 (Tuesday, December 1, 2015)]
[Rules and Regulations]
[Pages 74966-74974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30331]



Farm Service Agency

7 CFR Parts 761 and 769

RIN 0560-AI32

Highly Fractionated Indian Land (HFIL) Loan Program

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.


SUMMARY: The Farm Service Agency (FSA) is implementing the HFIL Loan 
Program to provide revolving loan funds to eligible intermediary 
lenders familiar with Indian Lands. The intermediary lenders will 
provide loan funds to qualified individuals, entities, and tribes to 
purchase highly fractionated Indian land consistent with the 
Agricultural Act of 2014 (2014 Farm Bill). FSA is also requesting 
public comments on the rule.

DATES: Effective date: December 1, 2015.
    Comment date: We will consider comments that we receive by February 
29, 2016.

ADDRESSES: We invite you to submit comments on the rule. In your 
comment, include the Regulation Identifier Number (RIN), the volume, 
date, and page number of this issue of the Federal Register. You may 
submit comments by any of the following methods:
     Federal Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Carrie L. Novak, Senior Loan Officer, Loan Making 
Division, Deputy Administrator for Farm Loan Programs, FSA, U.S. 
Department of Agriculture, 1400 Independence Avenue SW., Stop 0522, 
Washington, DC 20250-0522.
    Comments will be available online at http://www.regulations.gov. A 
copy of this rule is available through the FSA home page at http://www.fsa.usda.gov/.

FOR FURTHER INFORMATION CONTACT: Carrie Novak; telephone; (202) 720-
1643. Persons with disabilities or who require alternative means for 
communication should contact the USDA Target Center at (202) 720-2600 



    The HFIL Loan Program is authorized by the section 5402 of the 2014 

[[Page 74967]]

Bill (Pub. L. 113-79), which amended 25 U.S.C. 488 to allow the 
Secretary to make and insure loans to intermediary lenders to establish 
revolving loan funds for the purchase of HFIL. FSA will loan funds to 
intermediary lenders, who will facilitate the purchase and 
consolidation of fractionated interest by relending the funds to 
qualified tribes, individuals, and entities. FSA is adding 7 CFR part 
769 to specify the requirements for the HFIL Loan Program. The rule 
provides a way for tribes and tribal members to obtain loans to 
purchase fractionated interests via intermediary lenders. The 
intermediary lenders will work with the U.S. Department of Interior's 
Bureau of Indian Affairs (BIA) on the processes and procedures needed 
for the ultimate recipients to resolve the undivided interests in the 
fractionated land. FSA will provide a long term loan to the 
intermediary lender and will review their reports and agreement to 
provide oversight of the lender's loan process and procedure; FSA will 
not provide oversight for the ultimate recipients.
    As a result of the General Allotment Act of 1887 (also commonly 
known as the Dawes Act), Indian reservation land was allotted to 
individual tribal members. When an allottee died, title ownership was 
divided among his or her heirs, but the land itself was not partitioned 
and, as such, each Indian heir received an undivided interest in the 
land. As each generation passes, the number of owners grows 
exponentially. This has resulted in the highly fractionated ownership 
of much of the nation's Indian land. As ownership of Indian land 
descends from one generation to another, the long standing problem of 
fractionation continues to worsen as many tracts are owned by hundreds 
or even thousands of individuals. The ability of the owners to use land 
decreases as fractionation increases, sometimes to the point where it 
is nearly impossible to locate the owners or for the known owners to 
coordinate the use of the property. The HFIL Loan Program will help 
encourage intermediary lenders to provide loans to individual tribal 
members in order to resolve the highly fractionated ownership of land.
    To ensure the HFIL Loan Program would have the greatest chance of 
success, FSA held a Tribal Consultation session on December 10, 2014. 
Recommendations on issues discussed during the Tribal Consultation have 
been addressed in this rule.


    Some definitions in this rule originate from other already 
established laws and regulations and are used here for consistency. 
Indian Country uses the definition in 18 U.S.C. 1151. ``Native American 
Tribe'' and ``Tribal Entity'' definitions are consistent with 7 U.S.C. 
770, ``Indian Tribal Land Acquisition Program.'' HFIL will be defined 
as undivided interests held by four or more individuals. The definition 
in 25 U.S.C. 2201 defines highly fractionated as 50 or more undivided 
owners. A less constraining definition is needed for this rule in order 
for the HFIL Loan Program to effectively meet the objectives of 
consolidating fractionated interests. Tribal Consultation indicated 
that not all fractionated parcels have 50 or more owners and using the 
strict definition could exclude the parcels from the HFIL Loan Program.
    In addition, Sec.  761.2 needs to be revised to specify that the 
products of tree farming and the products of other plant and animal 
production are agricultural commodities. Therefore, this rule also 
revises the definition of ``Agricultural Commodity'' in Sec.  761.2 as 
a conforming change. The intention of the list of items that are 
considered agricultural commodities has not changed; it is strictly 
correcting the language in the definition.

Intermediary Lenders

    Through Tribal Consultation, it became apparent to FSA that the 
most important characteristics of an intermediary lender are the 
knowledge and familiarity of working with Indian Country and experience 
working with BIA. The list of entities in Sec.  769.103 should be 
flexible enough to include any qualifying entity interested in 
participating in the HFIL Loan Program.
    FSA will develop guidelines for and provide loan funds to the 
intermediary lenders, who will facilitate the purchase and 
consolidation of fractionated interest by relending the funds to 
qualified tribes, individuals, and entities. FSA will establish 
criteria in Sec.  769.103(b) and (c) for the intermediary lender that 
will be tied to the organization's demonstrated skills, ability, and 
knowledge of working with Indian land. The intermediary lender will 
establish eligibility criteria for the ultimate recipient as restricted 
by this rule in Sec.  769.104.
    An ultimate recipient is an entity or individual that receives a 
loan from an intermediary's HFIL revolving fund. The eligibility 
requirements of the ultimate recipient in Sec.  769.104 are restrictive 
because this program is limited by the provisions of the 2014 Farm 
Bill; therefore, only Tribes, individual Tribal members, and Tribal 
entities are eligible to apply. In addition, the 2014 Farm Bill 
authorizes the HFIL Loan Program under 25 U.S.C. 488 rather than the 
Consolidated Farm and Rural Development Act (CONACT, 7 U.S.C. 1911-
2008r) where most FSA loan programs are authorized. Accordingly, the 
FSA loan is to the intermediary lender as authorized under 25 U.S.C. 
488 and the CONACT requirements regarding credit elsewhere and maximum 
loan amounts which typically apply to applicants of the FSA Farm Loan 
Programs do not apply to the intermediary or the ultimate recipient.

Use of HFIL Loan Funds

    The purposes of the HFIL Loan Program are very specific and funds 
can only be used for the purchase of HFIL and related expenses as 
specified in Sec. Sec.  769.105 and 769.106.
    The HFIL Loan Program is subject to environmental compliance 
provisions specified in 7 CFR part 1940, subpart G. Accordingly, each 
intermediary lender will provide FSA with documentation of its process 
to address environmental issues on the land to be purchased.
    The Tribal Consultation resulted in the strong recommendation that 
the ultimate recipient be limited in use of loan funds to purchasing 
land for an agricultural use for the term of the loan. The requirement 
to qualify for HFIL loans is contained in this rule in Sec.  769.106.

Intermediary Relending Agreement

    The rate of interest for the intermediary lender will be set 
annually, but will not be less than 1 percent and the maximum HFIL loan 
term is 30 years. The intermediary lender will relend at a rate of 
interest and term negotiated with the ultimate recipient in a manner 
detailed in the Intermediary Relending Agreement approved by FSA.
    The Intermediary Relending Agreement will contain the policies and 
procedures that the intermediary lender will follow with respect to the 
loan and the working relationship with the ultimate recipients. This 
will provide maximum flexibility for the intermediary lender to work 
with its ultimate recipient on loan making and loan servicing and will 
be approved by FSA prior to the HFIL loan closing. The required 
elements of the agreement are specified in Sec.  769.103(d). The 
agreement and requirements are similar to the requirements in Sec.  
762.106 that must be met by FSA guaranteed lenders seeking 
certification as a preferred lender.

Revolving Loan Fund

    An intermediary lender will be required to have a revolving loan 

[[Page 74968]]

All HFIL loan funds received by an intermediary lender must be 
deposited into an HFIL revolving fund account. The account must be 
fully covered by federal deposit insurance or fully collateralized with 
U.S. Government obligations and must remain separate from other funds 
of the intermediary lender. The fund will have two types of deposit 
accounts, one of which will be HFIL funds from FSA. The other will be 
comprised of repayments of loans from the ultimate recipients, interest 
earned on funds in the account and cash, or other short-term marketable 
assets that the intermediary lender chooses to deposit. Loans made to 
ultimate recipients will be from both deposit accounts within the 
revolving fund account, and therefore, loans can be made from initial 
loan funds from FSA and from repayments. Administrative fees and debt 
servicing costs will be paid from funds accumulated from repayments by 
ultimate recipients. Maintenance of the fund is described in Sec.  
    Primary security for the HFIL Loan Program will be in the form of a 
first lien in the intermediary lender's revolving loan fund. Additional 
security will be required if needed to fully secure the loan.
    FSA determined that yearly monitoring reports would be both 
necessary for the success of the program and beneficial to the 
intermediary lender. FSA did not want to be over burdensome in the 
required type of reporting or audits and therefore adopted an approach 
similar to what has been successfully used in the Boll Weevil 
Eradication Loan Program in 7 CFR part 77.

Transfer and Assumption of HFIL Loans

    This rule is adding Sec.  769.124 to allow for transfer and 
assumptions of the HFIL loans in the event that an intermediary lender 
should want or need to discontinue participation in the HFIL Loan 

Effective Date

    The Administrative Procedure Act (5 U.S.C. 553) provides generally 
that before rules are issued by Government agencies, the rule is 
required to be published in the Federal Register, and the required 
publication of a substantive rule is to be not less than 30 days before 
its effective date. One of the exceptions is when the agency finds good 
cause for not delaying the effective date. This rule is exempt from 
notice and comment rulemaking requirements of the Administrative 
Procedure Act (5 U.S.C. 553). The rule provides a way for tribes and 
tribal members to obtain loans to purchase fractionated interests via 
intermediary lenders as a way to help resolve the longstanding problems 
relating back to HFIL and will enable tribal members to participate in 
USDA programs that require land ownership. As noted in this rule, FSA 
has conducted Tribal consultation and will take public comments 
following the publication of this rule. Therefore, to help tribal 
members as soon as possible, using the administrative procedure 
provisions in 5 U.S.C. 553, FSA finds that there is good cause for 
making this rule effective less than 30 days after publication in the 
Federal Register. This rule allows FSA to implement the HFIL Loan 
Program in time for the 2016 fiscal year. Therefore, this final rule is 
effective when published in the Federal Register.

Executive Orders 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    The Office of Management and Budget (OMB) designated this rule as 
not significant under Executive Order 12866 and, therefore, OMB has not 
reviewed this final rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule whenever an agency is required by the 
APA or any other law to publish a proposed rule, unless the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities. This rule is exempt from notice 
and comment rulemaking requirements of the APA and no other law 
requires that a proposed rule be published for this rulemaking 

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), 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). This 
rule is to implement the new HFIL Loan Program, a program created by 
the 2014 Farm Bill. The discretionary provisions needed to implement 
the HFIL Loan Program, specifically those relating to our loans to the 
intermediary lenders include the loan making and servicing rules, which 
will mirror present FLP regulations. One discretionary provision that 
will not mirror current FSA rules is that implementation will be 
through an intermediary lender that will relend the funds, an approach 
that will be a new lending tool for FSA. The process FSA will use to 
administer the intermediary lending model was vetted through and 
determined to be acceptable by a Tribal consultation, held on December 
10, 2014, at the Intertribal Agricultural Council annual meeting. As 
the provisions needed to implement this rule are all administrative in 
nature, FSA will not prepare an environmental assessment or 
environmental impact statement for this regulatory action.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials. The 
objectives of the Executive Order are to foster an intergovernmental 
partnership and a strengthened Federalism, by relying on State and 
local processes for State and local government coordination and review 
of proposed Federal Financial assistance and direct Federal 
development. For reasons set forth in the final rule related notice 
regarding 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.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, ``Civil Justice Reform.'' This rule will not preempt State or 
local laws, regulations, or policies unless they represent an 
irreconcilable conflict with this rule. The rule does not have 
retroactive effect. Before any judicial action may be brought regarding 
the provisions of this rule, the administrative appeal provisions of 7 
CFR parts 11 and 780 are to be exhausted.

[[Page 74969]]

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, on the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor would this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination with Indian Tribal 
Governments.'' Executive Order 13175 imposes requirements on the 
development of regulatory policies that have Tribal implications or 
preempt Tribal laws. The USDA Office of Tribal Relations has concluded 
that the policies contained in this rule do not, to USDA's knowledge, 
preempt Tribal law.
    Rulemaking to address the issue of HFIL was initially considered as 
part of the implementation of the Food, Conservation, and Energy Act of 
2008 (Pub. L. 110-246, known as the 2008 Farm Bill). An HFIL loan 
program was authorized by the 2008 Farm Bill; however, the language 
required that the program operate as a direct loan program in which FSA 
would make loans directly to the ultimate recipients. During 2010, USDA 
held two sets of face-to-face Tribal consultation sessions across the 
country. FSA Farm Loan Programs held seven Tribal consultation sessions 
specifically to discuss the HFIL Loan Program (section 5501 of the 2008 
Farm Bill) in the following locations on the following dates:

1......................................  Washington DC.............  August 3, 2010.
2......................................  Pendleton, OR.............  August 10, 2010.
3......................................  Billings, MT..............  August 24, 2010.
4......................................  Rapid City, SD............  August 25, 2010.
5......................................  Oklahoma City, OK.........  August 30, 2010.
6......................................  Albuquerque, NM...........  August 31, 2010.
7......................................  Fairbanks, AK.............  September 7, 2010.

    FSA Farm Loan Programs also participated in an additional seven 
Tribal consultation sessions across the country to discuss the 2008 
Farm Bill changes, including the HFIL Loan Program. The USDA 2008 Farm 
Bill Tribal consultations were held in the following locations on the 
following dates:

1......................................  Rapid City, SD............  October 28 to 29, 2010.
2......................................  Oklahoma City, OK.........  November 3 to 4, 2010.
3......................................  Minneapolis, MN...........  November 8 to 9, 2010.
4......................................  Seattle, WA...............  November 22 to 23, 2010.
5......................................  Nashville, TN.............  November 29 to 30, 2010.
6......................................  Albuquerque, NM...........  December 1 to 2, 2010.
7......................................  Anchorage, AK.............  December 13 to 14, 2010.

    Early on, during the 2008 Farm Bill Tribal consultations, FSA heard 
the various concerns that were raised and thought a workable solution 
could still be found to implement the HFIL Loan Program; however, as 
additional concerns continued to be raised and differences were 
identified in other regions of the country, it became clear that one of 
the problems was that the 2008 Farm Bill provision was tied to the BIA 
definition of highly fractionated and as such would also be tied to the 
BIA procedures for clearing titles, so it was determined that a 
regulation would not result in a successful program for Indian country. 
FSA listened and heard concerns about the land being too fractionated, 
the process being too complicated, the difficulties in really 
understanding the issues that caused the fractionation, problems with 
consolidation, and related cultural issues. In addition to the 
complexity of the BIA process for clearing titles for fractionated 
land, the results were different across the country. In one example, it 
took 6 months to clear a title, in another example, clearing a title 
took 10 years. There were suggestions that the HFIL Loan Program would 
work if FSA worked with existing Native American organizations that 
were already established to consolidate fractionated land and make it a 
relending program.
    As a direct result of everything that FSA heard and learned 
throughout the 2008 Farm Bill Tribal consultations, FSA provided input 
for the new requirements in the 2014 Farm Bill to work out a way to 
make the regulations effective for Indian Country by incorporating the 
option for an intermediary lender to relend the funds and remove the 
tie to the BIA definition of highly fractionated.
    For the development of this rule, a Tribal consultation was held on 
December 10, 2014, at the Intertribal Agricultural Council annual 
meeting. The participants in the Tribal consultation have strongly 
supported the HFIL Loan Program. During the Tribal consultation, FSA 
staff asked for and received feedback on the following proposed 
provisions of the HFIL Loan Program.
    HFIL Proposed Provision: Should the HFIL Loan Program be 
administered as a relending program?
    Tribal Consultation Response: Yes.
    HFIL Proposed Provision: Should there be a minimum number of acres 
consolidated with the HFIL Loan Program?
    Tribal Consultation Response: No.
    HFIL Proposed Provision: Should there be a limited number of 
intermediary lenders?
    Tribal Consultation Response: Yes, given the limited amount of 
funds, approved intermediary lenders should be limited to no more than 
two lenders per year.
    HFIL Proposed Provision: Should there be any restrictions to the 
use of funds under the HFIL Loan Program?
    Tribal Consultation Response: Yes, funds should be used only for 
the consolidation of agricultural land.
    During the 90-day comment period for this rule, FSA will schedule 
additional Tribal consultation on the HFIL Loan Program. Although FSA 
is making this rule effective on publication, FSA will work on changes 
to the regulation as needed based on comments and

[[Page 74970]]

additional input from Tribal consultation.
    In addition, to developing the HFIL Loan Program, FSA will continue 
to engage with Tribal organizations to ensure HFIL Loan Program rules 
are consistent with Tribal laws and so that the HFIL Loan Program has a 
maximum opportunity for success. USDA will continue to coordinate with 
Tribal governmental organizations concerning this rule and will provide 
appropriate venues, such as webinars and teleconferences, to host 
collaborative conversations with Tribal leaders and their 
representatives concerning ways to improve this rule in Indian country.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or 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 
rule contains no Federal mandates under the regulatory provisions of 
Title II of the Unfunded Mandates Reform Act of 1995 for State, local, 
or 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

    FSA will not be collecting any information from the ultimate 
recipients in the HFIL Loan Program. There are some reporting 
requirements on the HFIL Loan Program activities from intermediary 
lenders to FSA. The intermediary lenders must allow FSA to review the 
ultimate recipients' records; the intermediary lenders maintain the 
records are expected to be a part of customary and usual business 
practices for the process of loans. Therefore, the burden associated 
with recordkeeping is excluded. The intermediary lenders will be an 
entity that meets certain criteria to be established by FSA such as: 
Has been active in the previous 5 years, and has expertise in technical 
assistance, is an established financial organization which is regulated 
by an acceptable state or federal regulatory agency, meets certain 
capital requirements, and ability to work with the Bureau of Indian 
Affairs (BIA). FSA will lend funds to an eligible entity, which will 
then relend directly to a Tribe or an individual. There are limited 
entities that will qualify to be intermediary lenders for the HFIL Loan 
Program. The current annual allocation of $10 million will not 
sufficiently fund multiple intermediaries. For the HFIL Loan Program to 
be effective adequate funds must be available for each intermediary 
lender to borrow to relend. As discussed above, at the Tribal 
Consultation held on December 10, 2014, members in attendance strongly 
suggested that HFIL Loan Program be restricted to no more than 2 
intermediary lenders per year for funding due to limited funding. FSA 
expects to have less than 10 intermediary lenders eligible to 
participate in the HFIL Loan Program annually. Therefore, this would 
not require OMB approval under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501-3520).

E-Government Act Compliance

    FSA is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs-agriculture, Rural areas.

7 CFR Part 769

    Loan program-Agriculture, Indians, Land.

    For the reasons discussed above, FSA amends 7 CFR chapter VII as 


1. The authority citation for part 761 continues to read as follows:

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

Subpart A--General Provisions

2. Amend Sec.  761.2 as follows:
a. In the introductory text, add ``and 769'' immediately after ``767''; 
b. In paragraph (b), revise the definition of ``Agricultural 
    The revision reads as follows:

Sec.  761.2  Abbreviations and definitions.

* * * * *
    (b) * * *
    Agricultural commodity means livestock, grains, cotton, oilseeds, 
dry beans, tobacco, peanuts, sugar beets, sugar cane, fruit, vegetable, 
forage, nursery crops, nuts, aquacultural species, and the products 
resulting from: livestock, tree farming, and other plant or animal 
production as determined by the Agency.
* * * * *

3. Add part 769 to read as follows:


769.101 Purpose.
769.102 Abbreviations and definitions.
769.103 Eligibility requirements of the intermediary lender.
769.104 Requirements of the ultimate recipient.
769.105 Authorized loan purposes.
769.106 Limitations.
769.107 Rates and terms.
769.108 Security requirements for HFIL loans and ultimate 
769.109 Intermediary lender's application.
769.110 Letter of conditions.
769.111 Loan approval and obligating funds.
769.120 Loan closing.
769.121 Maintenance and monitoring of HFIL revolving fund.
769.122 Loan servicing.
769.123 Transfer and assumption.
769.124 Appeals.
769.125 Exceptions.

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 25 U.S.C. 488.

Sec.  769.101  Purpose.

    (a) This part contains regulations for loans made by the Agency to 
eligible intermediary lenders and applies to intermediary lenders and 
ultimate recipient involved in making and servicing Highly Fractionated 
Indian Land (HFIL) loans.
    (b) The purpose of the HFIL Loan Program is to establish policies 
and procedures for a revolving loan fund through intermediary lenders 
for the purchase of HFIL by a Native American tribe, tribal entity, or 
member of either.

Sec.  769.102  Abbreviations and definitions

    (a) Abbreviations. The following abbreviations are used in this 

BIA--The Department of the Interior's Bureau of Indian Affairs (BIA).
HFIL--Highly Fractionated Indian Land.

    (b) Definitions. The following definitions are used in this part:
    Administrator means the head of the Farm Service Agency or 
    Highly Fractionated Indian Land (HFIL) means for the purpose of 
this part only, Highly Fractionated Indian Land is undivided interests 
held by four or more individuals as a result of ownership or original 

[[Page 74971]]

passing by state laws of intestate succession for multiple generations.
    Indian Country land, communities, and allotments means the 
    (1) All land within the limits of any Indian reservation under the 
jurisdiction of the U.S. Government, notwithstanding the issuance of 
any patent, and, including rights-of-way running through the 
    (2) All dependent Indian communities within the borders of the 
United States whether within the original or subsequently acquired 
territory thereof, and whether within or without the limits of a state, 
    (3) All Indian allotments, the Indian titles to which have not been 
extinguished, including rights-of-way running through the same; or
    (4) All land, communities, and allotments that meet the definition 
of 18 U.S.C. 1151.
    Intermediary lender means the entity requesting or receiving HFIL 
loan funds for establishing a revolving fund and relending to ultimate 
    Intermediary relending agreement means the signed agreement between 
FSA and the intermediary that specifies the terms and conditions of the 
HFIL loan.
    Native American tribe means the following:
    (1) An Indian tribe recognized by the U.S. Department of the 
Interior; or
    (2) A community in Alaska incorporated by the U.S. Department of 
the Interior pursuant to the Indian Reorganization Act.
    Revolving funds means a fund that has two types of deposit 
accounts, one of which will be HFIL funds from FSA and the other will 
be comprised of repayments of loans from the ultimate recipients, 
interest earned on funds in the account and cash, or other short-term 
marketable assets that the intermediary lender chooses to deposit. 
Revolving funds are not considered Federal funds.
    Tribal entity means an eligible entity established pursuant to the 
Indian Reorganization Act.
    Ultimate recipient means Native American tribe, tribal entity, or 
member of either that receives a loan from an intermediary lender's 
HFIL revolving fund.
    Undivided interest means a common interest in the whole parcel of 
land that is owned by two or more people. Owners of undivided interest 
do not own a specific piece of a parcel of land; rather they own a 
percentage interest in the whole.

Sec.  769.103  Eligibility requirements of the intermediary lender.

    (a) Eligible entity types. The types of entities that may become an 
intermediary lender are:
    (1) Private and Tribal operated nonprofit corporations;
    (2) Public agencies--Any State or local government, or any branch 
or agency of such government having authority to act on behalf of that 
government, borrow funds, and engage in activities eligible for funding 
under this part;
    (3) Indian tribes or tribal corporations; or
    (4) Lenders who are subject to credit examination and supervision 
by an acceptable State or Federal regulatory agency.
    (b) Intermediary lender requirements. The intermediary lender must:
    (1) Have the legal authority necessary for carrying out the 
proposed loan purposes and for obtaining, giving security for, and 
repaying the proposed loan;
    (2) Have a record of successful lending in Indian Country and 
knowledge and experience working with the BIA. The Agency will assess 
the applicant staff's training and experience in lending in Indian 
Country based on recent experience in loan making and servicing with 
loans that are similar in nature to the HFIL program. If consultants 
will be used, FSA will assess the staff's experience in choosing and 
supervising consultants; and
    (3) Have an adequate assurance of repayment of the loan based on 
the fiscal and managerial capabilities of the proposed intermediary 
    (c) The Intermediary Relending Agreement. The intermediary lender 
and the Agency will enter into an Intermediary Relending Agreement, 
satisfactory to the Agency based on:
    (1) Loan documentation requirements including planned application 
forms, security instruments, and loan closing documents;
    (2) List of proposed fees and other charges it will assess the 
ultimate recipients;
    (3) The plan for relending the loan funds. The plan must have 
sufficient detail to provide the Agency with a complete understanding 
of the complete mechanics of how the funds will get from the 
intermediary lender to the ultimate recipient. Included in the plan are 
the service area, eligibility criteria, loan purposes, rates, terms, 
collateral requirements, a process for addressing environmental issues 
on property to be purchased, limits, priorities, application process, 
analysis of new loan requests, and method of disbursement of the funds 
to the ultimate recipient;
    (4) Loan review plans that specify how the intermediary lender will 
review the loan request from the ultimate recipient and make an 
eligibility determination;
    (5) An explanation of the intermediary lender's established 
internal credit review process; and
    (6) An explanation of how the intermediary lender will monitor the 
loans to the ultimate recipients.

Sec.  769.104  Requirements of the ultimate recipient.

    (a) Ultimate recipients must be individual Tribal members, Tribes 
or eligible Tribal entities, with authority to incur the debt and carry 
out the purpose of the loan.
    (b) The intermediary lender will make this determination in 
accordance with the Intermediary Relending Agreement.

Sec.  769.105  Authorized loan purposes.

    (a) Intermediary lender. Agency HFIL loan funds must be placed in 
the intermediary's HFIL revolving fund and used by the intermediary to 
provide direct loans to eligible ultimate recipients.
    (b) Ultimate recipient. Loans from the intermediary lender to the 
ultimate recipient using the HFIL revolving fund:
    (1) Must be used to acquire and consolidate at least 50 percent of 
the highly fractionated Indian land parcel and interests in the land. 
The interests include rights-of-way, water rights, easements, and other 
appurtenances that would normally pass with the land or are necessary 
for the proposed operation of the land located within the tribe's 
    (2) Must finance land that will be used for agricultural purposes 
during the term of the loan;
    (3) May be used to pay costs incidental to land acquisition, 
including, but not limited to, title clearance, legal services, 
archeological or land surveys, and loan closing; and
    (4) May be used to pay for the costs of any appraisal conducted in 
accordance with this part.

Sec.  769.106  Limitations.

    (a) Loan funds may not be used for any land improvement or 
development purposes, acquisition or repair of buildings or personal 
property, payment of operating costs, payment of finders' fees, or 
similar costs, or for any purpose that will contribute to excessive 
erosion of highly erodible land or to the conversion of wetlands to 
produce an agricultural commodity as specified in 7 CFR part 12.

[[Page 74972]]

    (b) The amount of loan funds used to acquire land may not exceed 
the current market value of the land as determined by a current 
appraisal that meets the requirements as specified in 7 CFR 
    (c) Agency HFIL loan funds may not be used for payment of the 
intermediary's administrative costs or expenses. The amount removed 
from the HFIL revolving fund for administrative costs in any year must 
be reasonable, must not exceed the actual cost of operating the HFIL 
revolving fund and must not exceed the amount approved by the Agency in 
the intermediary lender's annual loan monitoring report.
    (d) No loan to an intermediary lender may exceed the maximum amount 
the intermediary can reasonably expect to lend to eligible ultimate 
recipients, based on anticipated demand for loans to consolidate 
fractioned interests and capacity of the intermediary to effectively 
carry out the terms of the loan.

Sec.  769.107  Rates and terms.

    (a) Loans made by the Agency to the intermediary lender will bear 
interest at a fixed rate as determined by the Administrator, but not 
less than 1 percent per year over the term of the loan.
    (1) Interest rates charged by intermediary lender to ultimate 
recipients on loans from the HFIL revolving fund will be negotiated 
between the intermediary lender and ultimate recipient, but the rate 
must be within limits established by the Intermediary Relending 
    (2) The rate should normally be the lowest rate sufficient to cover 
the loan's proportional share of the revolving fund's debt service 
costs and administrative costs.
    (b) No loan to an intermediary lender will be extended for a period 
exceeding 30 years. Interest will be due annually but principal 
payments may be deferred by the Agency.
    (1) Loans made by an intermediary lender to an ultimate recipient 
from the HFIL revolving fund will be scheduled for repayment over a 
term negotiated by the intermediary lender and ultimate recipient but 
will not exceed 30 years or the date of the end of the term of the HFIL 
loan, whichever is sooner.
    (2) The term of an HFIL loan must be reasonable and prudent 
considering the purpose of the loan, expected repayment ability of the 
ultimate recipient, and the useful life of collateral, and must be 
within any limits established by the intermediary lender's Intermediary 
Relending Agreement.

Sec.  769.108  Security requirements for HFIL loans and the ultimate 

    (a) HFIL loans. Security for all loans to intermediaries must be 
such that the repayment of the loan is reasonably assured, taking into 
consideration the intermediary's financial condition, Intermediary 
Relending Agreement, and management ability. The intermediary is 
responsible to make loans to ultimate recipients in such a manner that 
will fully protect the interest of the intermediary and the Government. 
The Agency will require adequate security, as determined by the Agency, 
to fully secure the loan, including but not limited to the following:
    (1) Assignments of assessments, taxes, levies, or other sources of 
revenue as authorized by law;
    (2) Investments and deposits of the intermediary; and
    (3) Capital assets or other property of the intermediary and its 
    (b) Liens. In addition to normal security documents, a first lien 
interest in the intermediary's revolving fund account will be 
accomplished by a control agreement satisfactory to the Agency. The 
control agreement does not require the Agency's signature for 
withdrawals. The depository bank must waive its offset and recoupment 
rights against the depository account to the Agency and subordinate any 
liens it may have against the HFIL depository bank account.
    (c) Ultimate recipient. Security for a loan from an intermediary 
lender's HFIL revolving fund to an ultimate recipient will be adequate 
to fully secure the loan as specified in the relending agreement.
    (1) The Agency will only require concurrence in the intermediary 
lender's security requirement for a specific loan when security for the 
loan from the intermediary lender to the ultimate recipient will also 
serve as security for an Agency loan.
    (2) The ultimate recipient will take appropriate action to obtain 
and provide security for the loan.

Sec.  769.109  Intermediary lender's application.

    (a) The application will consist of:
    (1) An application form provided by the Agency;
    (2) A draft Intermediary Relending Agreement and other evidence the 
Agency requires to show the feasibility of the intermediary lender's 
program to meet the objectives of the HFIL Loan Program; and
    (3) Applications from intermediary lenders that already have an 
active HFIL loan may be streamlined by filing a new application and a 
statement that the new loan would be operated in accordance with the 
Intermediary Relending Agreement on file for the previous loan. This 
statement may be submitted at the time of application in lieu of a new 
Intermediary Relending Agreement.
    (4) Documentation of the intermediary lender's ability to 
administer HFIL in accordance with this part;
    (5) Submission of a completed Agency application form;
    (6) Prior to approval of a loan or advance of funds, certification 
of whether or not the intermediary lender is delinquent on any Federal 
debt, including, but not limited to, Federal income tax obligations or 
a loan or loan guarantee or from another Federal agency. If delinquent, 
the intermediate lender must explain the reasons for the delinquency, 
and the Agency will take such written explanation into consideration in 
deciding whether to approve the loan or advance of funds;
    (7) Prior to approval of a loan or advance of funds, certification 
as to whether the intermediary lender has been convicted of a felony 
criminal violation under Federal law in the 24 months preceding the 
date of application.
    (8) Certification of compliance with the restrictions and 
requirements in 31 U.S.C. 1352, and 2 CFR 200.450 and part 418.
    (9) Certification to having been informed of the collection options 
the Federal government may use to collect delinquent debt.
    (b) An intermediary lender that has received one or more HFIL loans 
may apply for and be considered for subsequent HFIL loans provided:
    (1) The intermediary lender is relending all collections from loans 
made from its revolving fund in excess of what is needed for required 
debt service, approved administration costs, and a reserve for debt 
    (2) The outstanding loans of the intermediary lender's HFIL 
revolving fund are performing; and
    (3) The intermediary lender is in compliance with all regulations 
and its loan agreements with the Agency.

Sec.  769.110  Letter of conditions.

    (a) The Agency will provide the intermediary lender a letter 
listing all requirements for the loan. After reviewing the conditions 
and requirements in the letter of conditions, the intermediary lender 
must complete, sign, and return the form provided by the Agency 
indicating the intermediary lender's intent to meet the conditions. If 
certain conditions cannot be met, the intermediary lender may propose 
alternate conditions in writing to the

[[Page 74973]]

Agency. The Agency loan approval official must concur with any changes 
made to the initially issued or proposed letter of conditions prior to 
acceptance. The loan request will be withdrawn if the intermediary 
lender does not respond within 15 days.
    (b) At loan closing, the intermediary lender must certify that:
    (1) No major changes have been made in the Intermediary Relending 
Agreement except those approved in the interim by the Agency;
    (2) All requirements of the letter of conditions have been met; and
    (3) There has been no material change in the intermediary lender or 
its financial condition since the issuance of the letter of conditions. 
If there have been changes, the intermediary lender must explain the 
changes to the Agency. The changes may be waived, at the sole 
discretion of the Agency.

Sec.  769.111  Loan approval and obligating funds.

    (a) Loan requests will be processed based on the date the Agency 
receives the application. Loan approval is subject to the availability 
of funds.
    (b) The loan will be considered approved for the intermediary 
lender on the date the signed copy of the obligation of funds document 
is mailed to the intermediary lender.

Sec.  769.120  Loan closing.

    (a) Loan agreement. A loan agreement or supplement to a previous 
loan agreement must be executed by the intermediary lender and the 
Agency at loan closing for each loan setting forth, at a minimum,
    (1) The amount of the loan, the interest rate, the term and 
repayment schedule,
    (2) The requirement to maintain a separate ledger and segregated 
account for the HFIL revolving fund; and
    (3) It agrees to comply with Agency reporting requirements.
    (b) Loan closing. Intermediary lenders receiving HFIL loans will be 
governed by this part, the loan agreement, the approved Intermediary 
Relending Agreement, security instruments, and any other conditions 
that the Agency requires on loans made from the ``HFIL revolving 
fund.'' The requirement applies to all loans made by an intermediary 
lender to an ultimate recipient from the intermediary lender's HFIL 
revolving fund for as long as any portion of the intermediary lender's 
HFIL loan from the Agency remains unpaid.
    (c) Intermediary lender certification. The intermediary lender must 
include in their file a certification that:
    (1) The proposed ultimate recipient is eligible for the loan;
    (2) The proposed loan is for eligible purposes; and
    (3) The proposed loan complies with all applicable laws and 

Sec.  769.121  Maintenance and monitoring of HFIL revolving fund.

    (a) Maintenance of revolving fund. The intermediary lender must 
maintain the HFIL revolving fund until all of its HFIL obligations have 
been paid in full. All HFIL loan funds received by an intermediary 
lender must be deposited into an HFIL revolving fund account. Such 
accounts must be fully covered by Federal deposit insurance or fully 
collateralized with U.S. Government obligations. All cash of the HFIL 
revolving fund must be deposited in a separate bank account or accounts 
so as not to be commingled with other financial assets of the 
intermediary lender. All money deposited in such bank account or 
accounts must be security assets of the HFIL revolving fund. Loans to 
ultimate recipients must be from the HFIL revolving fund.
    (1) The portion of the HFIL revolving fund that consists of Agency 
HFIL loan funds may only be used for making loans in accordance with 
Sec.  769.105. The portion of the HFIL revolving fund that consists of 
repayments from ultimate recipients may be used for debt service, 
reasonable administrative costs, or for making additional loans;
    (2) An intermediary lender may use revolving funds and HFIL loan 
funds to make loans to ultimate recipients without obtaining prior 
Agency concurrence in accordance with the Intermediary Relending 
    (3) Any funds in the HFIL revolving fund from any source that is 
not needed for debt service, approved administrative costs, or 
reasonable reserves must be available for additional loans to ultimate 
    (4) All reserves and other funds in the HFIL revolving loan fund 
not immediately needed for loans to ultimate recipients or other 
authorized uses must be deposited in accounts in banks or other 
financial institutions. Such accounts must be fully covered by Federal 
deposit insurance or fully collateralized with U.S. Government 
obligations, and will be interest bearing. Any interest earned thereon 
remains a part of the HFIL revolving fund;
    (5) If an intermediary lender receives more than one HFIL loan, it 
does not need to establish and maintain a separate HFIL revolving loan 
fund for each loan; it may combine them and maintain only one HFIL 
revolving fund, unless the Agency requires separate HFIL revolving 
funds because there are significant differences in the loan purposes, 
Intermediary Relending Agreement, loan agreements, or requirements for 
the loans; and
    (6) A reasonable amount of revolved funds must be used to create a 
reserve for bad debts. Reserves should be accumulated over a period of 
years. The total amount should not exceed maximum expected losses, 
considering the quality of the intermediary lender's portfolio of 
loans. Unless the intermediary lender provides loss and delinquency 
records that, in the opinion of the Agency, justifies different 
amounts, a reserve for bad debts of 6 percent of outstanding loans must 
be accumulated over 5 years and then maintained.
    (b) Loan monitoring reviews. The intermediary lender must complete 
loan monitoring reviews, including annual and periodic reviews, and 
performance monitoring.
    (1) At least annually, the intermediary lender must provide the 
Agency documents for the purpose of reviewing the financial status of 
the intermediary Lender, assessing the progress of utilizing loan 
funds, and identifying any potential problems or concerns. Non-
regulated intermediary lenders must furnish audited financial 
statements at least annually.
    (2) At any time the Agency determines it is necessary, the 
intermediary lender must allow the Agency or its representative to 
review the operations and financial condition of the intermediary 
lender. Upon the Agency requests, the Intermediary must submit 
financial or other information within 14 days unless the data requested 
is not available within that time frame.
    (c) Progress reports. Each intermediary lender will be monitored by 
the Agency based on progress reports submitted by the intermediary 
lender, audit findings, disbursement transactions, visitations, and 
other contact with the intermediary lender as necessary.

Sec.  769.122  Loan servicing.

    (a) Payments. Payments will be made to the Agency as specified in 
loan agreements and debt instruments. The funds from any extra payments 
will be applied entirely to loan principal.
    (b) Restructuring. The Agency may restructure the intermediary 
lender's loan debt, if:
    (1) The Government's interest will be protected;
    (2) The restructuring will be performed within the Agency's budget 
authority; and

[[Page 74974]]

    (3) The loan objectives cannot be met unless the HFIL loan is 
    (c) Default. In the event of monetary or non-monetary default, the 
Agency will take all appropriate actions to protect its interest, 
including, but not limited to, declaring the debt fully due and payable 
and may proceed to enforce its rights under the loan agreement or any 
other loan instruments relating to the loan under applicable law and 
regulations, and commencement of legal action to protect the Agency's 
interest. The Agency will work with the intermediary lender to correct 
any default, subject to the requirements of paragraph (b) of this 
section. Violation of any agreement with the Agency or failure to 
comply with reporting or other program requirements will be considered 
non-monetary default.

Sec.  769.123  Transfer and assumption.

    (a) All transfers and assumptions must be approved in advance in 
writing by the Agency. The assuming entity must meet all eligibility 
criteria for the HFIL Loan Program.
    (b) Available transfer and assumption options to eligible 
intermediary lenders include the following:
    (1) The total indebtedness may be transferred to another eligible 
intermediary lender on the same terms; or
    (2) The total indebtedness may be transferred to another eligible 
intermediary lender on different terms not to exceed the term for which 
an initial loan can be made. The assuming entity must meet all 
eligibility criteria for the HFIL Loan Program.
    (c) The transferor must prepare the transfer document for the 
Agency review prior to the transfer and assumption.
    (d) The transferee must provide the Agency with information 
required in the application as specified in Sec.  769.109.
    (e) The Agency prepared assumption agreement will contain the 
Agency case number of the transferor and transferee.
    (f) The transferee must complete an application as specified in 
Sec.  769.109(a).
    (g) When the transferee makes a cash down-payment in connection 
with the transfer and assumption, any proceeds received by the 
transferor will be credited on the transferor's loan debt in order of 
maturity date.
    (h) The Administrator or designee will approve or decline all 
transfers and assumptions.

Sec.  769.124  Appeals.

    Any appealable adverse decision made by the Agency may be appealed 
upon written request of the intermediary as specified in 7 CFR part 11.

Sec.  769.125  Exceptions.

    The Agency may grant an exception to any of the requirements of 
this part if the proposed change is in the best financial interest of 
the Government and not inconsistent with the authorizing law or any 
other applicable law.

Val Dolcini,
Administrator, Farm Service Agency.
[FR Doc. 2015-30331 Filed 11-30-15; 8:45 am]