Revision of Interest Assistance Program, 36055-36060 [05-12316]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 70, Number 119 (Wednesday, June 22, 2005)]
[Proposed Rules]
[Pages 36055-36060]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-12316]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 70, No. 119 / Wednesday, June 22, 2005 / 
Proposed Rules

[[Page 36055]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 762

RIN 0560-AG46


Revision of Interest Assistance Program

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) is proposing to revise the 
regulations that govern how an FSA Farm Loan Programs (FLP) guaranteed 
loan borrower may obtain a subsidized interest rate on their guaranteed 
farm loan. This program is known as the Interest Assistance (IA) 
Program. Changes include deletion of annual review requirements, 
limitations on loan size and period of assistance, and streamlining of 
claim submission. The changes are intended to reduce paperwork burden 
on program participants and agency employees, make IA available to more 
farmers, reduce the costs of the program, and enhance the fiscal 
integrity of the program.

DATES: Comments on the proposed rule, the information collections in 
this rule, or alternatives to this proposal, must be received on or 
before August 22, 2005 to be assured of consideration. Comments 
received after this date will be considered to the extent practicable.

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 Tracy--Jones@wdc.usda.gov.
     Fax: Submit comments by facsimile transmission to (202) 
690-1117.
     Mail: Send comments to Director, Loan Making Division, 
Farm Loan Programs, FSA, United States Department of Agriculture, 1400 
Independence Avenue, SW., STOP 0522, Washington, DC 20250-0522. Mail is 
subject to security screening which may delay its delivery.
     Hand Delivery or Courier: Deliver comments to 1280 
Maryland Avenue, SW., Suite 240, Washington, DC 20024.
     Federal eRulemaking Portal: Go to https://
www.regulations.gov. Follow the online instructions for submitting 
comments.
    All comments including the name, address, and email address 
provided for the commentor become a matter of public record. Comments 
received in connection with this rule will be available for public 
inspection 8:15 a.m.-4:45 p.m., Eastern Standard Time, except holidays, 
at 1280 Maryland Avenue, SW., Suite 240, Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Tracy L. Jones, Senior Loan Officer, 
Farm Service Agency; telephone: (202) 720-3889; facsimile: (202) 720-
6797; E-mail: Tracy.Jones@wdc.usda.gov 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). All comments and supporting documents on this 
rule may be viewed by contacting the information contact. All comments 
received, including names and addresses, will become a matter of public 
record. Comments on the information collection requirements of this 
rule must be sent to the addresses listed in the Paperwork Reduction 
Act section of this rule.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant for purposes of 
Executive Order 12866 and has been 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 Act, Public Law 96-534, as 
amended (5 U.S.C. 601). An insignificant number of guaranteed loan 
borrowers and no lenders are small entities. This rule does not impact 
the small entities to a greater extent than large entities.

Environmental Evaluation

    The environmental impacts of this rule have been considered under 
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 regulations of the Farm Service Agency (FSA) of 
the Department of Agriculture (USDA) for compliance with NEPA, 7 CFR 
part 799. An Environmental Evaluation was completed and the proposed 
action has been determined not to have the potential to significantly 
impact the quality of the human environment. No environmental 
assessment or environmental impact statement is necessary. 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 Executive Order 
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 IA agreements 
entered into prior to the effective date of the rule to the extent that 
it is inconsistent with the terms of the agreements. Existing 
agreements will be honored and continue to be reviewed and serviced in 
accordance with the regulations in effect when the IA agreement was 
executed. 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 to 7 CFR part 3015, subpart V 
(48 FR 29115, June 24, 1983) the programs and activities within this 
rule are excluded from the scope of Executive Order 12372, which 
requires intergovernmental consultation with state and local officials.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does 
not apply to this rule because it contains no Federal mandates, as 
defined in UMRA.

Paperwork Reduction Act

    The amendments to 7 CFR part 762 proposed in this rule will revise 
the information collection requirements previously approved by OMB 
under 44 U.S.C. chapter 35. Comments regarding the following issues 
should be sent to

[[Page 36056]]

the Desk Officer for Agriculture, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Washington, DC 20503 and to 
Tracy L. Jones, Senior Loan Officer, Farm Loan Programs Loan Making 
Division, Farm Service Agency, USDA 1400 Independence Avenue, SW., Stop 
0522, Washington, DC 20250-0522: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of burden including 
the validity of the methodology and assumptions used; (c) ways to 
enhance the quality, utility and clarity of the information to be 
collected; (d) ways to minimize the burden of the collection of 
information on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. 
Comments regarding paperwork burden will be summarized and included in 
the request for OMB approval of the information collection. All 
comments will also become a matter of public record.
    Title: 7 CFR 762--Guaranteed Farm Loans.
    OMB control number: 0560-0155.
    Expiration Date of Approval: August 31, 2007.
    Type of Request: Revision to a Currently Approved Information 
Collection.
    Abstract: The information collected under OMB Control Number 0560-
0155 is needed to effectively administer the FSA guaranteed farm loan 
programs. The information is collected by the FSA loan official in 
consultation with participating commercial lenders. The basic objective 
of the guaranteed loan program is to provide credit to applicants who 
are unable to obtain credit from lending institutions without a 
guarantee. The reporting requirements imposed on the public by the 
regulations at 7 CFR part 762 are necessary to administer the 
guaranteed loan program in accordance with statutory requirements of 
the Consolidated Farm and Rural Development Act and are consistent with 
commonly performed lending practices. Collection of information after 
loans are made is necessary to protect the Government's financial 
interest. This proposed rule will reduce information requirements which 
are imposed on the public. Savings will be reflected in reduced loan 
origination and servicing requirements for loans with Interest 
Assistance. This reduction will occur as a result of the elimination of 
the annual needs test, which requires lenders to submit annual cash 
flow and financial information to justify the need for continued 
assistance.
    Estimate of Burden: Public reporting burden for the collection of 
information in this regulation is estimated to average 0.7535 hours per 
response.
    Respondents: Commercial Banks, Farm Credit System, farmers and 
ranchers.
    Estimated Number of Respondents: 5,500 lenders, 9,000 loan 
applicants.
    Estimated Number of Responses per Respondent: 49.90 per lender, 
2.14 per loan applicant.
    Estimated Total Annual Burden on Respondents: 221,360 hours.

Government Paperwork Elimination Act

    FSA is committed to compliance with the Government Paperwork 
Elimination Act, which requires Federal Government agencies to provide 
the public the option of submitting information or transacting business 
electronically to the maximum extent possible. Most of the information 
collections required by this rule are fully implemented for the public 
to conduct business with FSA electronically. However, a few may be 
completed and saved on a computer, but must be printed, signed and 
submitted to FSA in paper form.

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. Therefore, consultation with the States is not required.

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

Discussion of the Proposed Rule

    The FSA guaranteed loan program is designed to provide financing to 
creditworthy farmers who would be unable to obtain sufficient credit to 
fund their farming operations without the guarantee. Since the mid-
1980's, the Agency has also provided pursuant to Section 351 of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1999) an interest 
subsidy up to an annual interest rate reduction of 4 percent on certain 
eligible farmers' guaranteed farm loans. This interest subsidy, or 
interest assistance (IA), as it is now called, enables lenders to 
provide credit to operators of family farms who do not have the 
financial resources to meet the standard repayment terms. IA is subject 
to additional eligibility criteria beyond that required for the initial 
guarantee. This rule proposes to amend the regulatory requirements for 
the IA program.
    The changes in this proposed rule will enable lenders to provide 
credit to more operators of family farms, who have complex farming 
problems or lack financial resources to meet standard repayment terms, 
as compared to other operators of similar type operations. IA is 
intended to assist farmers who have underdeveloped managerial ability, 
low production, an underdeveloped operation, or suffer the effects of a 
natural disaster or adverse economic conditions. The specific changes 
proposed are discussed as follows:

Loans Eligible for IA

    Current regulations at:
     7 CFR 762.150 allows IA to be provided to both new and 
existing borrowers under the guaranteed Operating (OL) and Farm 
Ownership (FO) loan programs;
     7 CFR 762.143(b)(3)(iii) provides that IA will be 
considered in conjunction with a rescheduling action; and
     7 CFR 762.149(g)(2) provides that IA will be considered 
when a borrower defaults on a loan prior to acceleration.
    While authorized by regulation, Congress has not appropriated IA 
funds for guaranteed FO's and existing guaranteed OL's since the 
implementation of the Federal Credit Reform Act of 1990 (2 U.S.C. 661 
et. seq.) that became effective beginning in fiscal year 1992. As a 
result, IA funding has only been available for new OL's or the 
continuation of IA during the authorized period on loans when IA was 
granted at the time of initial loan approval. Therefore, in an effort 
to align the regulations with current practices under appropriations 
law, the proposed rule will revise its regulations to limit IA to new 
guaranteed OL's only.

Debt to Asset Ratio

    Existing regulation, 7 CFR 762.150, provides for IA based simply on 
cash flow. However, program reviews by the Agency have found that some 
borrowers who receive IA have a significant net worth, with adequate 
financial strength that would allow them to restructure their balance 
sheet to meet their credit

[[Page 36057]]

needs without receiving IA. This rule proposes that IA be limited to 
applicants who possess a debt to asset ratio in excess of 50 percent 
prior to the new loan. We propose to set this limit at 50 percent 
because one-third of the existing guaranteed portfolio has a debt to 
asset ratio of 50 percent or greater and approximately one-third of the 
guaranteed operating loans receive IA. Additionally, a 50 percent debt 
to asset ratio is the most common capital standard used by the Agency's 
preferred lenders.

Maximum Assistance Period

    Existing regulations limit IA for each borrower to a maximum of 10 
years from the date of the first IA agreement signed by the loan 
applicant, including entity members, or the outstanding term of the 
loan, whichever is less. The proposed rule would limit each borrower to 
a total of 5 consecutive years of IA eligibility, regardless of the 
number of loans received. New agreements may not extend beyond 5 
consecutive years from the date of the initial agreement signed by the 
loan applicant or the term of the loan, whichever is less. The term of 
subsequent agreements would be reduced by the period of time any 
existing or previous IA agreement has been in effect. The intent of the 
program is to provide temporary relief. By reducing the number of years 
an individual borrower may receive IA, the Agency would significantly 
reduce its cost per borrower. The Agency feels that a term of 5 years 
is adequate for a farm operation to achieve or return to a level of 
profitability that is sufficient to sustain the operation without an 
interest subsidy. Therefore, reducing the current maximum assistance 
period from 10 years to 5 years realigns the program to meet its 
original intent.
    The Agency realizes that some existing borrowers need some time to 
prepare for the reduced period of eligibility. Therefore, we propose to 
provide for a transition rule which will give any borrower at least two 
more years of eligibility after publication of the final rule as long 
as the total period does not exceed ten years from the effective date 
of the original IA agreement.

Maximum Interest Assistance Payment

    This rule proposes that the maximum amount of debt on which an 
applicant may receive IA be limited to $400,000. This will effectively 
limit the amount of loan principal that may be subsidized, regardless 
of whether it is in one loan or multiple loans, to a maximum of 
$400,000. Currently, the maximum guaranteed loan that can be approved 
is $782,000, and IA is available on that entire amount. In recent 
fiscal years, IA funds have been depleted early in the year, and the 
number of larger loans receiving the subsidy contributed to this rapid 
depletion. Since the IA program is the most expensive of the Agency's 
guaranteed farm loan programs, limits are proposed to control costs and 
target funds to a larger number of eligible borrowers. Also, by capping 
the amount of debt on which an applicant is eligible to receive IA, the 
subsidy would be targeted to borrowers with the most need, and 
appropriated subsidized loan funds will be available for more farmers 
and ranchers. Had this change been in effect in fiscal year 2002, only 
8 percent of the borrowers who received IA would have been affected; 
however, they received over 23 percent of the IA obligated. With the 
other changes in this proposed rule, it is still expected that all 
available funds will be utilized; however, this change will allow these 
limited funds to help more farmers and ranchers.

Guarantee Fees

    This rule proposes that loans with IA be charged a guarantee fee. 
The current regulation, 7 CFR 762.130(d), waives the fee for loans with 
IA; this rule proposes to delete that language. The Agency is concerned 
that not charging a fee on loans with IA creates an unanticipated 
incentive for lenders to request IA. Reinstating the guarantee fee is 
expected to reduce potential abuse, and result in requests being 
submitted mainly by those with a legitimate need for the subsidy. This 
would also reduce the cost of the IA program to the Agency. The Agency 
will continue to waive the guarantee fee under that regulation for 
those loans used mainly to refinance an Agency direct loan and loans to 
beginning farmers or ranchers involved in the direct beginning farmer 
down-payment program.

Reduced Application Requirements

    The existing regulation, 7 CFR 762.150, requires lenders to submit 
a completed IA needs analysis in addition to those items required for a 
loan without IA. In addition, requests for IA on lines of credit or 
loans made for annual operating purposes must also be accompanied by a 
projected monthly cash flow budget. Further, requests for IA for loans 
with unequal payments require that the lender submit a debt repayment 
schedule which shows scheduled payments for the subject loan in each of 
the remaining years of the loan. We have determined that these 
additional documents are not necessary to make the evaluation, and are 
a significant burden on program participants and need not be required. 
Therefore, the proposed rule will require all lenders to submit the 
appropriate items required for a loan application, plus an IA needs 
analysis. The proposed rule will not require the submission of a 
monthly cash flow budget or a debt repayment schedule.

Removal of Annual Review Requirements

    This rule proposes to reduce the submission requirements for annual 
claims for IA payment. In order to receive an IA subsidy payment, and 
to continue the Agency's obligation to pay the subsidy in the following 
year, current regulations require lenders to submit a long list of 
items each year, including:
     Request for Interest Assistance Payment.
     Current balance sheet.
     Projected cash flow budget for the period being planned.
     Copy of the IA needs analysis portion of the application, 
which has been completed based on the planned period's cash flow 
budget.
     Detailed statement of activity, including all 
disbursements and payments applied to the loan.
     Detailed calculations of average daily principal balances 
for the claim period.
     Summary of the operation's financial performance in the 
previous year, including a detailed income and expense statement.
     Narrative description of the causes of any major 
differences between the previous year's projections and actual 
performance.
    This list of requirements is excessively burdensome and has 
resulted in delays and confusion in the handling of subsidized loans. 
In addition, these requirements are the subject of the majority of 
complaints received from lenders, loan applicants, and FSA field staff 
about the program. Agency records indicate that 93 percent of the 
borrowers operating under an IA agreement receive the subsidy payment 
every year, regardless of the long list of qualifying requirements 
imposed on them every year. Clearly, the significant administrative 
burden imposed on the public and Agency to determine whether the 
borrower requires a subsidy payment each year is not cost effective. In 
addition, while all of the funding has been utilized nationally each 
year, this excessive burden creates an unbalanced program as it 
discourages many lenders from participating in the program at all. 
Twelve states have less than five IA

[[Page 36058]]

loans on their books. This indicates the program is basically 
unavailable to farmers that may need assistance in these areas.
    In this rule it is proposed that IA will simply be authorized for 5 
years for the borrower from the date of the first IA agreement. If the 
loan is for less than 5 years, however, IA will be approved for the 
term of the loan. The term of an IA agreement on subsequent loans will 
be limited to 5 years from the date of the first IA agreement. IA will 
be approved at the initial loan closing and will be renewed each year 
on a designated date, expected to generally be the payment due date or 
loan anniversary date. The lender only will be required to submit:
     An Agency IA payment form, and
     The average daily principal balance for the claim period, 
with supporting documentation.
    This will greatly reduce the paperwork associated with IA loans. 
The amount of subsidy will change each year consistent with, and only 
to the extent that, the principal balance of the loan changes.

Fees Charged by Lenders for IA Claims Submission

    Agency reviews of lenders indicate that some lenders charge fees to 
the borrower for the preparation of documentation and claims for 
payment of IA that are submitted to FSA. The range of fees charged by 
lenders varies substantially from modest document preparation fees to 
significant charges for loan analysis and preparation of cash flows, 
balance sheets, and needs tests. Since the analysis activities and 
requirements for cash flows, balance sheets, and recurring annual needs 
tests in connection with IA are being eliminated, fees for such 
activities involved with IA loans will no longer be appropriate. 
Further, in keeping with the intention of providing assistance to 
economically impacted borrowers and to ensure consistent treatment of 
all borrowers, the charging of fees for the annual submission of IA 
claims by lenders is prohibited under the proposed rule.

First and Final Claims

    Existing regulations require final IA claims to be submitted 
concurrently with the submission of any estimated loss claims. The 
proposed rule will require, upon liquidation of a loan, that the lender 
complete the Request for Interest Assistance and submit it to the 
Agency concurrently with any estimated or final loss claims. IA will be 
calculated through the date that interest accrual ceases in the case of 
an estimated loss claim, or a final loss claim when it is not preceded 
by an estimated loss claim.
    IA claim periods for most installments are required to be exactly 
12 months. This rule maintains current requirements providing that IA 
claims for final payments be calculated based on the average daily 
principal loan balance, prorated over the number of days the loan has 
actually been outstanding during the payment period. The period for all 
other claims must be for a period not exceeding 12 months.

Servicing

    The new 7 CFR 762.150(d) clarifies procedures for when a loan 
subject to IA may be transferred, discontinuation of IA in the event of 
a loan writedown, and when interest on a loan covered by an IA 
Agreement is reduced by court order in a bankruptcy reorganization.
    This rule proposes to consolidate the provisions governing the 
handling of loans with IA regarding transfers and assumptions, 
consolidations, and writedowns to one paragraph for clarification 
purposes.
    The rescheduling and deferral provisions in the existing 
regulations also are proposed to be revised regarding the obligation of 
additional years of IA and increases in the restructured loan amount. 
The proposed rule will allow the rescheduling of loans subject to IA; 
however, the IA will not be extended beyond 5 years from the date of 
the first IA agreement, nor will the amount of principal subject to IA 
be increased above that approved on the existing agreement. Thus, the 
restructured loan amount, including any interest capitalized, may not 
exceed the original loan amount. Interest on the loan to be 
restructured that cannot be paid or capitalized under this amount will 
have to be dealt with in another manner. This change is in keeping with 
the Agency's objective for IA to be reasonably limited in duration and 
amount to place the borrower on sound enough financial footing to meet 
their obligations without the need for continued subsidy.

Miscellaneous Changes

    Existing regulations contain outdated references to forms and 
internal administrative processes to be completed for IA loans. This 
rule proposes the use of FSA forms, and clarifies what process is 
necessary for the borrower to receive IA on multiple loans. Internal 
processes are removed, and the organizational structure of the section 
is revised for clarity and readability.

List of Subjects in 7 CFR Part 762

    Agriculture, Banks, Banking, Credit, Loan programs.

    For the reasons stated in the preamble, the Farm Service Agency 
proposes to amend Chapter VII, as set forth below:

PART 762--GUARANTEED FARM LOANS

    1. The authority citation continues to read as follows:

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


Sec.  762.130  [Amended]

    2. Amend Sec.  762.130 by removing paragraph (d)(4)(iii)(A) and 
redesignating paragraphs (d)(4)(iii)(B) and (C) as (d)(4)(iii)(A) and 
(B).
    3. Revise Sec.  762.145(b)(2)(i) and the first sentence of (b)(8).


Sec.  762.145  Restructuring guaranteed loans.

* * * * *
    (b) * * *
    (2) * * *
    (i) A feasible plan as defined in Sec.  762.102(b).
* * * * *
    (8) Any holder agrees to any changes in the original loan terms. * 
* *
* * * * *
    4. Revise Sec.  762.150 to read as follows:


Sec.  762.150  Interest Assistance program.

    (a) Requests for interest assistance. In addition to the loan 
application items required by Sec.  762.110, to apply for Interest 
Assistance the lender's cash flow budget for the guaranteed loan 
applicant must reflect the need for Interest Assistance and the ability 
to cash flow with the subsidy. Interest Assistance is available only on 
new guaranteed OL's.
    (b) Requirements. (1) Eligibility. The lender must document that 
the following conditions have been met for the loan applicant to be 
eligible for Interest Assistance:
    (i) A feasible plan cannot be achieved without Interest Assistance, 
but can be achieved with Interest Assistance.
    (ii) If significant changes in the borrower's cash flow budget are 
anticipated after the initial 12 months, then the typical cash flow 
budget must demonstrate that the borrower will still have a feasible 
plan following the anticipated changes, with or without Interest 
Assistance.
    (iii) The typical cash flow budget must demonstrate that the 
borrower will have a feasible plan throughout the term of the loan.
    (iv) The borrower, including members of an entity borrower, does 
not own any significant assets that do not contribute

[[Page 36059]]

directly to essential family living or farm operations. The lender must 
determine the market value of any such non-essential assets and prepare 
a cash flow budget and Interest Assistance calculations based on the 
assumption that these assets will be sold and the market value proceeds 
used for debt reduction. If a feasible plan can then be achieved, the 
borrower is not eligible for Interest Assistance.
    (v) Debt to Asset Ratio. A borrower may only receive Interest 
Assistance if their total debts (including personal debts) prior to the 
new loan exceed 50 percent of their total assets (including personal 
assets). An entity's debt to asset ratio will be based upon a financial 
statement that consolidates business and personal debts and assets of 
the entity and its members.
    (2) Maximum Assistance. The maximum total guaranteed farm debt on 
which a borrower can receive Interest Assistance in any year of 
borrower eligibility is $400,000, regardless of the number of 
guaranteed loans outstanding.
    (3) Maximum time for which Interest Assistance is available. (i) 
General rule. A borrower may only receive Interest Assistance for one 
5-year period. The term of any Interest Assistance agreement executed 
under this section shall not exceed 5 consecutive years from the date 
of the initial agreement signed by the loan applicant, including entity 
members, or the outstanding term of the loan, whichever is less. This 
is a lifetime limit.
    (ii) Transition rule. Notwithstanding the general 5-year limitation 
of paragraph (b)(3)(i) of this section, a new Interest Assistance 
agreement may be approved for eligible borrowers to provide interest 
assistance through (2 YEARS FROM THE DATE OF PUBLICATION OF THE FINAL 
RULE IN THE Federal Register), provided the total period does not 
exceed 10 years from the effective date of the original Interest 
Assistance agreement.
    (4) Multiple loans. Interest Assistance can be applied to each 
loan, only to one loan or any distribution the lender selects; however, 
Interest Assistance is only available on as many loans as necessary, up 
to a maximum of $400,000 guaranteed OL debt, to achieve a feasible 
plan.
    (5) Terms. The typical term of scheduled loan repayment will not be 
reduced solely for the purpose of maximizing eligibility for Interest 
Assistance. A loan must be scheduled over the maximum term typically 
used by lenders for similar type loans within the limits in Sec.  
762.124. An OL for the purpose of providing annual operating and family 
living expenses will be scheduled for repayment when the income is 
scheduled to be received from the sale of the crops, livestock, and/or 
livestock products which will serve as security for the loan. OL for 
purposes other than annual operating and family living expenses (i.e. 
purchase of equipment or livestock, or refinancing existing debt) will 
be scheduled over 7 years from the effective date of the proposed 
Interest Assistance agreement, or the life of the security, whichever 
is less.
    (6) Rate of interest. The lender may charge a fixed or variable 
interest rate, but not in excess of what the lender charges its average 
farm customer.
    (7) Agreement. The lender and borrower must execute an Interest 
Assistance agreement as prescribed by the Agency.
    (c) Interest Assistance claims and payments. To receive an Interest 
Assistance payment, the lender must prepare and submit a claim on the 
appropriate Agency form. The following conditions apply:
    (1) Rate. Interest Assistance payments will be four (4) percent of 
the average daily principal loan balance prorated over the number of 
days the loan has been outstanding during the payment period. However, 
for loans with a note rate less than four (4) percent, Interest 
Assistance payments will be the weighted average interest rate 
multiplied by the average daily principal balance.
    (2) Date of claim. The lender may select at the time of loan 
closing, the date that they wish to receive an Interest Assistance 
payment and that date will be included in the Interest Assistance 
agreement. The initial and final claims submitted under an agreement 
may be for a period less than 12 months. All other claims will be 
submitted for a 12 month period, unless there is a loan rescheduling or 
lender substitution during the 12 month period in accordance with this 
section.
    (3) Claims. A claim should be filed within 60 days of its due date. 
Claims not filed within 1 year from the due date will not be paid, and 
the amount due the lender will be permanently forfeited.
    (4) Calculations. All claims will be supported by detailed 
calculations of average daily principal balances during the claim 
period.
    (5) Prohibition of claim preparation fees. Lenders may not charge 
or cause a borrower with an Interest Assistance agreement to be charged 
a fee for preparation and submission of the items required for an 
annual Interest Assistance claim.
    (d) Transfer, consolidation and writedown. Loans covered by 
Interest Assistance agreements cannot be consolidated. Such loans can 
be transferred only when the transferee was liable for the debt on the 
effective date of the Interest Assistance agreement. Interest 
Assistance will be discontinued as of the date of any writedown on a 
loan covered by an Interest Assistance agreement.
    (e) Rescheduling and deferral. When a borrower defaults on a loan 
with Interest Assistance, or the loan otherwise requires rescheduling 
or deferral, the Interest Assistance agreement will remain in effect 
for that loan at its existing terms. The lender may reschedule the loan 
in accordance with Sec.  762.145, if the capitalized interest does not 
cause the principal amount of the loan to be above the principal amount 
on the original Interest Assistance agreement. A claim for Interest 
Assistance through the effective date of the rescheduling will be 
submitted by the lender to be processed at the time of the rescheduling 
action.
    (f) Bankruptcy. In cases where the interest on a loan covered by an 
Interest Assistance agreement is reduced by court order in a 
reorganization plan under the bankruptcy code, Interest Assistance will 
be terminated effective on the date of the court order. Guaranteed 
loans which have had their interest reduced by bankruptcy court order 
are not eligible to receive Interest Assistance.
    (g) Termination of Interest Assistance payments. Interest 
Assistance payments will cease upon termination of the loan guarantee, 
upon reaching the expiration date contained in the agreement, or upon 
cancellation by the Agency under the terms of the Interest Assistance 
agreement. In addition, for loan guarantees sold into the secondary 
market, Agency purchase of the guaranteed portion of a loan will 
terminate the Interest Assistance.
    (h) Excessive Interest Assistance. Upon written notice to the 
lender, borrower and any holder, the Agency may amend or cancel the 
Interest Assistance agreement and collect from the lender any amount of 
Interest Assistance granted which resulted from incomplete or 
inaccurate information, an error in computation, or any other reason 
which resulted in payment that the lender was not entitled to receive.
    (i) Substitution. If there is a substitution of lender, the 
original lender will prepare and submit to the Agency a claim for its 
final Interest Assistance payment calculated through the effective date 
of the substitution. This final claim will be submitted for

[[Page 36060]]

processing at the time of the substitution.
    (1) Interest Assistance will continue automatically with the new 
lender.
    (2) The new lender must follow paragraph (c) of this section to 
receive their initial and subsequent IA payments.

    Signed in Washington, DC, on June 16, 2005.
James R. Little,
Administrator.
[FR Doc. 05-12316 Filed 6-21-05; 8:45 am]
BILLING CODE 3410-05-P