Guaranteed Loans-Number of Days of Interest Paid on Loss Claims, 14244-14246 [E7-5511]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 72, Number 58 (Tuesday, March 27, 2007)]
[Proposed Rules]
[Pages 14244-14246]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-5511]


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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. 72, No. 58 / Tuesday, March 27, 2007 / 
Proposed Rules

[[Page 14244]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 762

RIN 0560-AH55


Guaranteed Loans--Number of Days of Interest Paid on Loss Claims

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: This action proposes to clarify and simplify the number of 
days' interest that may be paid on loss claims. The liquidation 
provisions currently provides a timeframe for the interest payment 
based upon ``the date of the decision to liquidate'' which is often 
difficult to determine. In addition, the Agency is clarifying the 
application for payment after liquidation and the guaranteed lender's 
responsibility for future recoveries.

DATES: Comments concerning this proposed rule must be submitted by May 
29, 2007 to be assured of consideration.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments should reference the volume, date and 
page number of this issue of the Federal Register. Comments may be 
submitted by any of the following methods:
    E-mail: Send comments to Marilyn.Meese@wdc.usda.gov.
    Fax: Submit comments by facsimile transmission to (202) 690-1196.
    Mail: Submit comments to Branch Chief, Guaranteed Loan Servicing 
and Inventory Property Branch, Loan Servicing and Property Management 
Division, FSA, USDA, 1400 Independence Avenue, STOP 0523, Washington, 
DC 20250-0523.
    Hand Delivery or Courier: USDA FSA DAFLP LSPMD Suite 500, 1250 
Maryland Avenue, SW., Washington, DC 20024.
    Federal eRulemaking Portal: Go to https://www.regulations.gov. 
Follow the online instructions for submitting comments.

FOR FURTHER INFORMATION CONTACT: Marilyn Z. Meese, Senior Loan Officer, 
Farm Service Agency; telephone: (202) 690-4002; Facsimile: (202) 690-
1196; E-mail; Marilyn.Meese@wdc.usda.gov.

SUPPLEMENTARY INFORMATION:

Discussion of the Proposed Rule

    This rule proposes changes to the FSA guaranteed farm loan program. 
FSA guaranteed loans provide conventional agricultural lenders with up 
to a 95 percent guarantee of the principal loan amount, and accrued 
interest. The lender is responsible for servicing a borrower's account 
for the life of the loan. When a borrower cannot fully repay the 
guaranteed loan, the lender submits a loss claim request to the Agency 
for payment of the guaranteed percentage of the unpaid debt, if any, 
after liquidation of the collateral. There has been confusion for both 
lenders and FSA personnel on how to compute the number of days' 
interest that may be paid on loss claims. The number of days should not 
exceed 210 days from the payment due date. As originally envisioned and 
stated in paragraph 355 of FSA Handbook 2-FLP, Guaranteed Loan Making 
and Servicing, the lender was to reach a decision to either restructure 
the loan or liquidate it within 120 days after the payment due date. It 
is common for bank regulators to require lenders to place a loan on a 
non-accrual basis if it is 90 days in default. A decision regarding the 
credit is typically made during this time period. The loan defaults at 
30 days past due and 90 additional days equals 120 days. FSA then pays 
interest an additional 90 days from this decision to liquidate. As a 
result FSA can pay the lender interest for up to 210 days from the 
payment due date. If liquidation is estimated to take more than 90 
days, the lender is to submit an estimated loss claim. Whether or not 
an estimated loss claim is filed, however, interest will only be paid 
for another 90 days, for a maximum of 210 days. The proposed changes 
incorporate these timeframes into the regulation. As a result, 
determinations of the maximum interest payable will be made 
consistently.
    In order to both clarify and simplify this issue the proposed rule 
will allow for a maximum of 210 days of accrued interest from the 
payment due date as a general rule. The proposed rule places renewed 
emphasis on the expected actions of the lenders and FSA personnel. All 
lenders within 150 days of the payment due date must prepare a 
liquidation plan under proposed Sec.  762.149(b). Preferred (PLP) 
lenders currently prepare the plan under their FSA-approved Credit 
Management Systems, but need not submit them. The reference to 150 days 
will replace the current language, ``within 30 days of the decision to 
liquidate,'' for consistency with other changes being proposed in this 
rule. Lenders also must file estimated and final loss claims on all 
accounts in a timely manner.
    The new rule will require a zero dollar estimated loss claim to be 
filed if the lender expects no loss. This will effectively establish in 
the Agency's financial records that a loss is not expected but the 
account is in liquidation. This change would allow better monitoring 
and record-keeping by FSA. The estimated loss claim need not be filed 
if the account has already been completely liquidated within the 150 
days. In that case, the lender would file only the final loss claim. A 
final loss claim also needs to be completed for any loan. This will 
close out the loan on the Agency's financial records as to any 
remaining liability to the lender. In some cases it is possible that 
the final loss claim could be for zero dollars. In addition, if the 
loss claim processing exceeds 40 days as a result of the Agency's 
failure to take action on the claim the Agency will pay additional 
interest to the lender after the 40 days. This change is intended as an 
incentive to Agency personnel to promptly process claims and avoid 
extra cost to the lender.
    The Agency is providing clarification that the payment of a loss 
claim to the lender does not automatically relieve the borrower from 
any liability for the debt owed the lender or the lender of 
responsibility for any future recoveries. After payment of a loss claim 
by the Agency, the lender will continue to have the responsibility to 
collect the entire loan balance. The lender will pursue aggressive 
collection of the debt after payment of the final loss claim unless the 
Agency has approved of a lender's request for release of liability of 
the borrower pursuant to 7 CFR part 762. FSA also will continue to seek 
reimbursement for its payment from the

[[Page 14245]]

borrower under Sec.  762.149(m), but the borrower will never pay more 
than its outstanding debt. In Sec.  762.148(d), the Agency is proposing 
to remove the provision that the date the borrower files for Chapter 7 
bankruptcy is the date of the decision to liquidate for purposes of 
calculating liquidation time frames. These cases will follow the same 
maximum interest policy as other cases. If the loan account has been 
past due prior to the Chapter 7 bankruptcy filing those days will count 
towards the liquidation timeframes.
    Finally, the Agency is amending Sec.  762.149(i)(1) by stating that 
as long as a loan is accruing interest, the sale proceeds from the 
liquidation of assets will be applied to principal first. This practice 
reduces the interest accrual on the defaulted loan, resulting in a 
smaller loss payment. Since principal was advanced for the collateral 
it is consistent practice to first reduce the principal when the 
collateral is sold.

Executive Order 12866

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

Regulatory Flexibility Act

    The Agency certifies that this rule will not have a significant 
economic effect on a substantial number of small entities. This rule 
does require actions on the part of the subject program's borrowers or 
lenders. Borrowers may be individuals or entities. No distinction is 
made between small and large entities. The Agency will bear most of the 
burden under the proposed regulations. The Agency anticipates that the 
proposed rule will require submission of no additional information, 
further justifying the conclusion that a Regulatory Flexibility 
Analysis is not required. The Agency, therefore, concludes that it is 
not required to perform a Regulatory Flexibility Analysis as required 
by the Regulatory Flexibility Act, Public Law 96-535, as amended (5 
U.S.C. 601).

Environmental Evaluation

    The environmental impacts of this proposed rule have been 
considered in accordance with the provisions of the National 
Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the 
regulations of the Council on Environmental Quality (40 CFR Parts 1500-
1508), and the FSA regulations for compliance with NEPA, 7 CFR parts 
799, and 1940, subpart G. FSA completed an environmental evaluation and 
concluded that the rule requires no further environmental review. No 
extraordinary circumstances or other unforeseeable factors exist which 
would require preparation of an environmental assessment or 
environmental impact statement. A copy of the environmental evaluation 
is available for inspection and review upon request.

Executive Order 12988

    This rule has been reviewed in accordance with E.O. 12988, Civil 
Justice Reform. In accordance with 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 
except that lender servicing under this rule will apply to loans 
guaranteed prior to the effective date of the rule to the extent 
permitted by existing contracts; and (3) administrative proceedings in 
accordance with 7 CFR part 11 must be exhausted before requesting 
judicial review.

Executive Order 12372

    For reasons contained in the Notice related 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

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

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on the 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.

Paperwork Reduction Act

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

Federal Assistance Programs

    These changes affect the following FSA programs listed in the 
Catalog of Federal Domestic Assistance:

10.406--Farm Operating Loans
10.407--Farm Ownership Loans

List of Subject in 7 CFR part 762

    Agriculture, Banks, Credit, Loan Programs--agriculture.

    Accordingly, 7 CFR part 762 is amended as follows:

PART 762--GUARANTEED FARM LOANS

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

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


Sec.  762.148  [Amended]

    2. Amend Sec.  762.148(d)(1) by removing the second sentence.
    3. In Sec.  762.149, revise paragraphs (b)(1) introductory text, 
(b)(1)(v), (d) introductory text, (d)(2), (i)(1) and (i)(5), to read as 
follows:


Sec.  762.149  Liquidation.

* * * * *
    (b) * * *
    (1) Within 150 days after the payment due date, all lenders will 
prepare a liquidation plan. Standard eligible and CLP lenders will 
submit a written liquidation plan to the Agency which includes:
* * * * *
    (v) An estimated loss claim must be filed no later than 150 days 
past the payment due date unless the account has been completely 
liquidated and then a final loss claim must be filed.
* * * * *
    (d) Estimated loss claims. An estimated loss claim must be 
submitted by all lenders no later than 150 days after the payment due 
date unless the account has been completely liquidated and then a final 
loss claim must be filed. The estimated loss will be based on the 
following:
* * * * *
    (2) The lender will discontinue interest accrual on the defaulted 
loan at the time the estimated loss claim is paid by the Agency. The 
Agency will not pay interest beyond 210 days from the payment due date. 
If the lender estimates that there will be no loss after considering 
the costs of liquidation, an estimated loss of zero will be submitted 
and interest accrual will cease upon the approval of the estimated loss 
and never later than 210 days from the payment due date. The following 
exceptions apply:
    (i) In the case of a Chapter 7 bankruptcy, in cases where the 
lender filed an estimated loss claim, the Agency will pay the lender 
interest which accrues during and up to 45 days after the discharge on 
the portion of the

[[Page 14246]]

chattel only secured debt that was estimated to be secured but upon 
final liquidation was found to be unsecured, and up to 90 days after 
the date of discharge on the portion of real estate secured debt that 
was estimated to be secured but was found to be unsecured upon final 
disposition.
    (ii) The Agency will pay the lender interest which accrues during 
and up to 90 days after the time period the lender in unable to dispose 
of acquired property due to state imposed redemption rights on any 
unsecured portion of the loan during the redemption period, if an 
estimated loss claim was paid by the Agency during the liquidation 
action.
* * * * *
    (i) Final loss claims. (1) Lenders must submit a final loss claim 
when the security has been liquidated and all proceeds have been 
received and applied to the account. All proceeds shall be applied to 
principal first and then toward accrued interest if the interest is 
still accruing. The application of the loss claim payment to the 
account does not automatically release the borrower of liability for 
any portion of the borrower's debt to the lender. The lender will 
continue to be responsible for collecting the full amount of the debt 
and sharing these future recoveries with the Agency in accordance with 
paragraph (j) of this section.
* * * * *
    (5) The Agency will notify the lender of any discrepancies in the 
final loss claim or, approve or reject the claim within 40 days. 
Failure to do so will result in additional interest being paid to the 
lender for the number of days over 40 taken to process the claim.
* * * * *

    Signed at Washington, DC, on March 9, 2007.
Teresa C. Lasseter,
Administrator, Farm Service Agency.
[FR Doc. E7-5511 Filed 3-26-07; 8:45 am]
BILLING CODE 3410-05-P