Rural Development Guaranteed Loans, 52618-52666 [07-4349]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Business-Cooperative Service
• Rural Housing Service
• Rural Utilities Service

[Federal Register Volume 72, Number 178 (Friday, September 14, 2007)]
[Proposed Rules]
[Pages 52618-52666]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-4349]



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Part II





Department of Agriculture





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Rural Utilities Service



Rural Housing Service



Rural Business-Cooperative Service



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7 CFR Parts 1779, 3575, 4279, et al.



Rural Development Guaranteed Loans; Proposed Rule

Federal Register / Vol. 72, No. 178 / Friday, September 14, 2007 / 
Proposed Rules

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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1779

Rural Housing Service

7 CFR Part 3575

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4279 and 4280

Rural Business-Cooperative Service

Rural Housing Service

Rural Utilities Service

7 CFR Part 5001

RIN 0570-AA65


Rural Development Guaranteed Loans

AGENCY: Rural Business-Cooperative Service, Rural Housing Service, 
Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: Rural Development, a mission area within the U.S. Department 
of Agriculture, is proposing a unified guaranteed loan platform for 
enhanced delivery of four existing Rural Development guaranteed loan 
programs--Community Facility; Water and Waste Disposal; Business and 
Industry; and Renewable Energy Systems and Energy Efficiency 
Improvement Projects. This proposed rule would eliminate the existing 
loan guarantee regulations for these four programs and consolidate them 
under a new, single part. In addition to consolidating these four 
programs, the proposed rulemaking incorporates provisions that will 
enable the Agency to better manage the risk associated with making and 
servicing guaranteed loans and that will reduce the cost of operating 
the guaranteed loan programs. Such provisions include incorporating 
specific project eligibility criteria, revisions to the requirements 
for lenders to participate in the programs, allowing approved lenders 
to become preferred lenders, and allowing guaranteed loan applications 
to be submitted with less documentation accompanying the application 
under certain conditions.

DATES: Comments on the proposed rule must be received on or before 
November 13, 2007. The comment period for the information collection 
under the Paperwork Reduction Act of 1995 continues through November 
13, 2007.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Agency Web Site: https://www.rurdev.usda.gov/regs. Follow 
instructions for submitting comments on the Web site.
     E-Mail: comments@wdc.usda.gov. Include the RIN No. 0570-
AA65 in the subject line of the message.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Mr. Michael Foore, Rural Development, 
Business and Cooperative Programs, U.S. Department of Agriculture, 1400 
Independence Avenue, SW., Stop 3201, Washington, DC 20250-3201; e-mail: 
Michael.Foore@wdc.usda.gov; telephone (202) 690-4730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been reviewed under Executive Order (EO) 
12866 and has been determined to be significant by the Office of 
Management and Budget. The EO defines a ``significant regulatory 
action'' as one that is likely to result in a rule that may: (1) Have 
an annual effect on the economy of $100 million or more or adversely 
affect, in a material way, the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
Create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; (3) Materially alter the budgetary 
impact of entitlements, grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) Raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in this EO.
    The Agency conducted a qualitative benefit cost analysis to fulfill 
the requirements of Executive Order 12866. Based on the results of this 
qualitative analysis of the benefits and costs of the proposed rule, 
the Agency has concluded that the net effect of the rule will be 
beneficial in part due to improved underwriting.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA) of Public 
Law 104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
tribal governments or the private sector. Thus, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act (NEPA) of 1969, 
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not 
required. Loan applications will be reviewed individually to determine 
compliance with NEPA.

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule: (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 this rule; and (3) 
administrative proceedings in accordance with the regulations of the 
Department of Agriculture National Appeals Division (7 CFR part 11) 
must

[[Page 52619]]

be exhausted before bringing suit in court challenging action taken 
under this rule unless those regulations specifically allow bringing 
suit at an earlier time.

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132, Federalism, 
that this proposed rule does not have sufficient federalism 
implications to warrant the preparation of a Federalism Assessment. The 
provisions contained in the proposed rule will not have a substantial 
direct effect on States or their political subdivisions or on the 
distribution of power and responsibilities among the various government 
levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities. Small entities include small 
businesses, small organizations, and small governmental jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action will not have a significant economic impact on a 
substantial number of small entities. Rural Development made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the program. Small entity applicants will 
not be impacted to a greater extent than large entity applicants.

Executive Order 12372, Intergovernmental Review of Federal Programs

    Rural Development Guaranteed Loans are subject to the Provisions of 
Executive Order 12372, which require intergovernmental consultation 
with State and local officials. Rural Development will conduct 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J, ``Intergovernmental Review of Rural Development 
Programs and Activities,'' available in any Rural Development office, 
on the Internet at https://rurdev.usda.gov.regs, and in 7 CFR part 3015, 
subpart V.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have tribal implications or 
preempt tribal laws. Rural Development has determined that the proposed 
rule does not have a substantial direct effect on one or more Indian 
tribe(s) or on either the relationship or the distribution of powers 
and responsibilities between the Federal Government and the Indian 
tribes. Thus, the proposed rule is not subject to the requirements of 
Executive Order 13175.

Programs Affected

    The Catalog of Federal Domestic Assistance Program numbers assigned 
to this program are 10.760, Water and Waste Disposal Systems for Rural 
Communities; 10.766, Community Facilities Loans and Grants; 10.768, 
Business and Industry Loans; and 10.775, Renewable Energy Systems and 
Energy Efficiency Improvements Program.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, Rural 
Development will seek OMB approval of the reporting and recordkeeping 
requirements contained in this proposed rule and hereby opens a 60-day 
public comment period.
    Title: Rural Development Guarantee Loans.
    Type of Request: New collection.
    Abstract: Rural Development is implementing a new consolidated 
guaranteed loan platform. The new guaranteed loan platform would 
combine the following four existing guaranteed loan regulations into a 
consolidated rule: (1) The Community Facility Program, (2) the Water 
and Waste Disposal Program, (3) the Business and Industry Program, and 
(4) the Renewable Energy Systems and Energy Efficiency Improvements 
Program under Title IX, Section 9006 of the Farm Security and Rural 
Investment Act of 2002 (FSRIA 2002). These programs provide loan 
guarantees for a variety of projects intended to improve the economies 
of rural America.
    The information required under the proposed rule is similar to much 
of the information currently being required under the four separate 
regulations. Under these four separate regulations, the current 
information being collected is approved under OMB control numbers 0570-
0016, 0670-0018, 0572-0122, and 0575-0137. The proposed rule, however, 
is requesting some new information from lenders. The two primary 
examples are: (1) lenders are required to supply information to the 
Agency in order to be approved for participation in the program and (2) 
more frequent reporting of loans that are in default. On the other 
hand, the proposed rule would not include some information previously 
being requested. This is most evident for the Renewable Energy Systems 
and Energy Efficiency Improvements guaranteed loan program, where 
technical reports are being required only for higher cost renewable 
energy systems projects because renewable energy projects of less than 
$200,000 are less complex, so for such projects the technical reports 
only have marginal value, and the energy audit requirements from energy 
efficiency improvement projects are sufficient so that separate 
technical reports also have only marginal value. The proposed rule 
creates a single set of common forms that lenders can use across all 
four programs, thereby creating efficiencies in reporting. On net, the 
information being requested to support the consolidated program is 
estimated to reduce burden and cost to lenders and borrowers.
    As noted in the previous paragraph, the information requirements 
contained in this proposed rule require information from lenders and 
borrowers. This information is vital to Rural Development to make wise 
decisions regarding the eligibility of projects, borrowers, and lenders 
in order to reduce the risk associated with making the loan guarantees, 
to ensure compliance with the proposed rule, to ensure that the funds 
obtained from the Government are used appropriately, and to effectively 
monitor the borrowers and lenders to protect the financial interests of 
the Government. In sum, this collection of information is necessary in 
order to implement the consolidated guaranteed loan regulation being 
proposed.
    The following estimates are based on the average over the first 
three years the program is in place.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 2.6 hours per response.
    Respondents: Rural developers, farmers and ranchers, rural 
businesses, public bodies, local governments, lenders.
    Estimated Number of Respondents: 3,450.
    Estimated Number of Responses per Respondent: 5.4.
    Estimated Number of Responses: 18,472.

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    Estimated Total Annual Burden (hours) on Respondents: 48,892.
    Copies of this information collection may be obtained from Cheryl 
Thompson, Regulations and Paperwork Management Branch, Support Services 
Division, U.S. Department of Agriculture, Rural Development, STOP 0742, 
1400 Independence Ave., SW., Washington, DC 20250-0742 or by calling 
(202) 692-0043.
    Comments: Comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of Rural Development, including whether the information 
will have practical utility; (b) the accuracy of the new Rural 
Development estimate of the burden of the proposed collection of 
information, including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (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 may be sent to Cheryl Thompson, Regulations and 
Paperwork Management Branch, U.S. Department of Agriculture, Rural 
Development, STOP 0742, 1400 Independence Ave., SW., Washington, DC 
20250. All responses to this proposed rule will be summarized and 
included in the request for OMB approval. All comments will also become 
a matter of public record.

E-Government Act Compliance

    Rural Development 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.

I. Background

    Rural Development proposes a unified platform for delivery of four 
existing Rural Development guaranteed loan programs--Community 
Facility; Water and Waste Disposal; Business and Industry; and 
Renewable Energy Systems and Energy Efficiency Improvement Projects. 
These four programs are administered by Rural Housing Service 
(Community Facilities), Rural Utilities Services (Water and Waste 
Disposal), and Rural Business-Cooperative Service (Business and 
Industry and the Renewable Energy Systems and Energy Efficiency 
Improvements Projects). Collectively, Rural Development's programs work 
together to assist in building and maintaining entire, sustainable 
rural communities.
    Under the unified guaranteed loan platform, Rural Development will 
simplify, improve, and enhance the delivery of these four guaranteed 
loan programs across their service areas. The remainder of this section 
describes Rural Development's mission, the four current guaranteed loan 
programs being aligned under the new platform, why the new platform is 
being proposed, and how the new platform will work.
A. Rural Development's Mission
    By statutory authority, Rural Development is the leading Federal 
advocate for rural America, administering a multitude of programs, 
ranging from housing and community facilities to infrastructure and 
business development. Its mission is to increase economic opportunity 
and improve the quality of life in rural communities by providing the 
leadership, infrastructure, venture capital, and technical support that 
enables rural communities to prosper and supports them in the dynamic 
global environment defined by the Internet revolution, and the rise of 
new technologies, products, and markets.
    To achieve its mission, Rural Development provides financial 
support (including direct loans, grants, and loan guarantees) and 
technical assistance to help enhance the quality of life and provide 
the foundation for economic development in rural areas. This proposed 
rulemaking addresses the use of guaranteed loans in achieving Rural 
Development's mission.
B. Current Guaranteed Loan Programs
    Under this proposed rule, Rural Development is combining under one 
regulation the four guaranteed loan regulations of the following 
programs: Community Facilities, Water and Waste Disposal, Business and 
Industry, and Renewable Energy Systems and Energy Efficiency 
Improvements. The following paragraphs describe briefly the scope of 
each of the four current programs with regard to eligible projects, 
borrowers, and lenders; application processes; and guarantee and loan 
terms.
    Community Facilities Guaranteed Loan Program. The Community 
Facilities Guaranteed Loan Program guarantees loans to develop 
essential community facilities in rural areas and towns of up to 20,000 
in population. Loan funds may be used to construct, enlarge, or improve 
community facilities for health care, public safety, and public 
services. This can include costs to acquire land needed for a facility, 
pay necessary professional fees, and purchase equipment required for 
its operation. Refinancing existing loans may be considered an eligible 
guaranteed loan purpose under some circumstances.
    Eligible borrowers for Community Facilities guaranteed loans are 
public entities, such as municipalities, counties, and special-purpose 
districts, as well as not-for-profit corporations and tribal 
governments who are unable to obtain a loan without the Government's 
guarantee. Borrowers must have the legal authority to borrow and repay 
loans; to pledge security for loans, and to construct, operate; and 
maintain the facilities.
    Eligible lenders for Community Facilities guaranteed loans include 
banks, savings and loan associations, mortgage companies that are part 
of bank holding companies, banks of the Farm Credit System, and 
insurance companies regulated by the National Association of Insurance 
Commissioners. These lenders must be subject to credit examination and 
supervision by an appropriate agency of the United States or a State 
that supervises and regulates credit institutions. Lenders must also 
have the capability to adequately service the loans for which a 
guarantee is requested.
    The lender is responsible for conducting an analysis of the 
proposed project to ensure loan repayment, taking into consideration 
tax assessments, revenues, fees, or other sources of money sufficient 
for operation and maintenance, reserves, and debt retirement. Financial 
feasibility studies, prepared by independent consultants, are normally 
required when loans are for start-up facilities or for existing 
facilities when the project will significantly change the borrower's 
financial operations.
    Recently under this program, guarantees have averaged 85 percent of 
the eligible loss of the loan. Lenders may impose an interest rate that 
is similar to unguaranteed projects. Interest rates may be fixed or 
variable, are determined by the lender and borrower, and are subject to 
Agency review and approval.
    Loan repayment terms may not exceed the lender's authority (under 
State law or organizational structure), the useful life of the 
facility, or a maximum 40 years.
    Water and Waste Disposal Guaranteed Loan Program. The Water and 
Waste Disposal Guaranteed Loan Program guarantees loans to develop

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water and wastewater systems, including solid waste disposal and storm 
drainage, in rural areas and to cities and towns with a population of 
10,000 or less. Example projects include construction of water lines, 
pumping stations, wells, storage tanks, and sewage treatment 
facilities.
    Eligible borrowers include public entities, such as municipalities, 
counties, special-purpose districts, and Indian tribes. In addition, 
funds may be made available to corporations operated on a not-for-
profit basis. Borrowers must be unable to obtain funds from other 
sources at reasonable rates and terms. Borrowers must have the legal 
authority to borrow and repay loans, to pledge security for loans, and 
to construct, operate, and maintain the facilities.
    Eligible lenders for Water and Waste Disposal guaranteed loans 
include banks, savings and loan associations, mortgage companies that 
are part of a bank holding company, banks of the Farm Credit System, 
and insurance companies regulated by the National Association of 
Insurance Commissioners. These lenders must be subject to credit 
examination and supervision by an appropriate agency of the United 
States or a State that supervises and regulates credit institutions. 
Lenders must also have the capability to adequately service the loans 
for which a guarantee is requested.
    The lender is responsible for conducting an analysis of the 
proposed project to ensure loan repayment, taking into consideration 
tax assessments, revenues, fees, or other sources of money sufficient 
for operation and maintenance, reserves, and debt retirement. 
Feasibility studies are normally required when loans are for start-up 
facilities or existing facilities when the project will significantly 
change the borrower's financial operations. The feasibility study 
should be prepared by an independent consultant with recognized 
expertise in the type of facility being financed.
    The Agency will determine borrower eligibility, project priority 
status, and funding availability. Priority is given to public entities, 
in areas with less than 5,500 people, to restore a deteriorating water 
supply, or to improve, enlarge, or modify a water facility or an 
inadequate waste facility. Preference is also given to requests that 
involve the merging of small facilities and those serving low-income 
communities. After an application is submitted, the time to process the 
application depends upon the scope of the project, environmental 
review, and legal issues.
    Recently under this program, guarantees have averaged 90 percent of 
the eligible loss of the loan. Interest rates are set periodically, 
usually quarterly, and are based on current market yields for municipal 
obligations. Interest rates may be fixed or variable, are determined by 
the lender and borrower, and are subject to Agency review and approval.
    The maximum term for all loans is 40 years; however, no repayment 
period will exceed State statutes or the useful life of the facility.
    Business and Industry Guaranteed Loan Program. The Business and 
Industry (B&I) Guaranteed Loan Program guarantees loans that help 
create jobs and stimulate rural economies by providing financial 
backing for rural businesses. Loan guarantees expand the lending 
capability of private lenders who provide financing to credit worthy 
entities and individuals in rural areas, helping them make and service 
quality loans that provide lasting community benefits. Loan proceeds 
may be used for permanent working capital, machinery and equipment, 
buildings and real estate, and refinancing of any loan. Except for the 
refinancing of Agency direct loans, refinancing of other loans will be 
limited to a minority portion of the guaranteed loan. The primary 
purpose is to create and maintain employment and improve the economic 
climate in rural communities.
    Eligible borrowers for B&I loans include virtually any legally 
organized entity, including a cooperative, corporation, partnership, 
trust or other profit or not-for-profit entity, Indian tribe or 
Federally recognized tribal group, municipality, county, or other 
political subdivision of a State. Pursuant to section 310B(a) of the 
Consolidated Farm and Rural Development Act, borrowers need not have 
been denied credit elsewhere to apply for this program.
    Eligible lenders for B&I loans include recognized commercial or 
other authorized lenders in rural areas (all areas other than cities of 
more than 50,000 people and the contiguous and adjacent urbanized areas 
of such cities or towns). Generally, authorized lenders include Federal 
or State chartered banks, credit unions, insurance companies, savings 
and loan associations, Farm Credit Banks or other Farm Credit System 
institutions with direct lending authority, a mortgage company that is 
part of a bank holding company, and the National Rural Utilities 
Cooperative Finance Corporation. Other lenders include eligible Rural 
Utilities Program electric and telecommunications borrowers, acting as 
financial intermediaries, and other lenders approved by Business and 
Cooperative Programs who have met the designated criteria.
    The application process may be initiated using a preapplication or 
application. The Agency reviews each application for compliance with 
borrower eligibility guidelines, project priority, and the availability 
of funds.
    Recently under this program, guarantees have averaged 78 percent of 
the eligible loss of the loan. The maximum aggregate debt that can be 
incurred by a borrowing entity at any given time under the B&I 
Guaranteed Loan program is $25 million. A maximum of 10 percent of 
program funding is available to value-added cooperative organizations 
for loans above $25 million to a maximum aggregate of $40 million. 
Repayment terms are up to 30 years for real estate; up to 15 years or 
useful life, whichever is less, for machinery and equipment; up to 30 
years for combined loans on real estate and equipment; and up to 7 
years on working capital loans.
    Renewable Energy Systems and Energy Efficiency Improvements 
Guaranteed Loan Program. The Renewable Energy Systems and Energy 
Efficiency Improvements Guaranteed Loan Program provides loan 
guarantees for the purchase and installation of renewable energy 
systems and energy efficiency improvements. Eligible borrowers include 
farmers, ranchers, and rural small businesses. In addition to being a 
renewable energy system or energy efficiency improvement project, 
project eligibility requirements include the project site being 
controlled by the agricultural producer or small business for the 
proposed financing term of any associated Federal loans or loan 
guarantees.
    Recently under this program, guarantees have averaged 78 percent of 
the eligible loss of the loan. Repayment terms are up to 30 years for 
real estate; up to 20 years or useful life, whichever is less, for 
machinery and equipment; up to 30 years for combined loans on real 
estate and equipment; and up to 7 years on working capital loans.
    The minimum amount of a guaranteed loan is $5,000 (less any program 
grant awards). The maximum amount of a guaranteed loan is $10 million. 
The amount of the loan that will be made available to an eligible 
project can not exceed 50 percent of total eligible project costs.
How the Current Programs Work
    While differences occur within each of the programs (e.g., borrower 
and

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project eligibility, necessary documentation, and funding limits), the 
same basic framework for making loan guarantees applies to each.
     Each prospective borrower works with a lender to obtain a 
loan for a project eligible under one of the four programs, providing 
the lender with necessary information on the borrower and the project.
     Each lender evaluates borrower and project eligibility and 
performs a detailed credit analysis and, as applicable, an economic or 
financial analysis of the project to ensure that the project will be 
able to repay the loan.
     Each lender submits the guaranteed loan application, 
including its credit analysis, and all accompanying documentation to 
the Agency for review and approval.
     The Agency reviews each guaranteed loan application 
package in accordance with program requirements and approves or denies 
the guarantee. Subject to the availability of funds, each approved 
package is provided a loan guarantee.
     Each lender is responsible for the origination and 
servicing of its guaranteed loan portfolio and for working with the 
Agency, as necessary, to resolve borrower issues (such as default).
    Variations do occur in this basic framework, but for the most part 
are not as significant as the scope of each of the programs.
Issues With the Current Programs
    The regulations that are being combined under the proposed rule 
have developed over time and, in some aspects, independently of each 
other. Issues have developed when looking at all four program 
regulations as a whole as well as individually. Four of these 
operational issues are discussed below.
    Inefficiencies. Many of the same lenders and, in some cases, 
borrowers, seek loan guarantees under more than one of these four 
programs. Thus, the same entities are required to learn multiple 
programs. This is inefficient and costly to the lenders and makes the 
programs less attractive to lenders.
    Currently, when new programs are implemented, a whole new 
regulation is developed that, in many respects, addresses or adopts 
many of the same requirements. Time and effort are wasted in 
readdressing issues during the development of new program regulations 
leading to inefficient rulemaking and a delay in program 
implementation.
    Inflexibility. Maintaining four separate sets of basic requirements 
creates certain inflexibilities. For example, with each program 
administered under separate regulations, any change to basic 
requirements calls for multiple concurrences. Similarly, adding a new 
program requires the addition of a new set of basic requirements, as 
these are not currently shared. The proposed combined platform will 
streamline basic loan guarantee requirements, allowing all programs to 
reach a uniform functionality of process.
    Use of Agency Resources. Agency personnel spend a large amount of 
time performing process-related tasks that are not necessarily 
productive in making loan guarantees available to more lenders and, in 
turn, to more borrowers. These tasks are often inefficient and could be 
better managed by the private sector at the lender level. Further, 
these tasks are applied equally regardless of the relative level of 
risk of the associated loans. In sum, the current delivery of these 
four programs is not making the best use of Agency resources.
    Risk Management. In making and managing a portfolio of loan 
guarantees, consideration must be given to project risk, institutional 
risk, Agency loss exposure, and internal operational risk.
    Project risk refers to the ability of a project to repay its debt. 
The current process relies on the lender's evaluation of the project 
and then the Agency's review of the lender's analysis. The types of 
information required to be assessed under each of the programs by the 
lender may vary. Currently, the Agency lacks definitive parameters to 
evaluate project risk and is inconsistent in its evaluation of risk 
across State Offices.
    The lack of definitive parameters inherently creates more risk. It 
allows projects to be funded based on completed processes as opposed to 
appropriate evaluation. Furthermore, this funding may come at the 
expense of less risky projects over time because of limitations of 
available funds. The proposed unified platform will significantly 
reduce inconsistencies in the implementation of these four programs 
across State offices and improve underwriting for loan guarantees, 
which should result in a reduction in risk and an improvement in the 
credit subsidy scores for these programs.
    Institutional risk refers to the quality of the lender seeking the 
loan guarantee. Some lenders simply do a better job at managing their 
portfolios and thereby have a lower rate of defaults. The current 
system does little to pre-qualify lenders; that is, the criteria for a 
lender to originate a loan with the Agency are insufficient. By 
implementing a defined set of criteria to assess lender performance, 
the Agency can improve its management of lenders participating in these 
programs.
    Agency loss exposure refers to the Agency's risk for potential loss 
in any one project in terms of the percent of guarantee and the size of 
the loan. Currently, Agency loss exposure is managed by putting limits 
on the percent of guarantee relative to the size of the loan, by having 
collateral requirements, and, for some of the programs, by limiting the 
size of the loan. While these limits are the primary mechanism for 
managing Agency loss exposure, the current programs could do more to 
manage this risk.
    Agency operational risk refers to internal weaknesses inherent in 
administering multiple programs using a variety of regulations that 
require unique sets of processes and procedures. The new platform will 
reduce operational risk through reliance on commonalities, reduction of 
regulatory language, and integration of information management systems.
C. The New Platform
    As noted above, Rural Development manages multiple guaranteed loan 
programs in separate regulations requiring users to become familiar 
with each. These regulations share many common elements. The 
inefficiencies in maintaining separate regulations have resulted in an 
in-depth evaluation of current program delivery. Further, in assessing 
the delivery of these programs, Rural Development sees the opportunity 
to better manage the risks associated with their delivery.
    The proposed new platform simplifies, improves, and enhances the 
delivery of Rural Development's guaranteed loan programs, applies 
shared requirements when applicable, maintains programmatic nuances for 
varying rural development needs, and intends to reduce the amount of 
Agency loss claims paid through the provision of loan guarantees 
through improved underwriting. This new structure will also make it 
easier and faster to promulgate regulations for new loan guarantee 
programs in the future.
    The following paragraphs address improvements under the proposed 
platform. These improvements provide the requisite flexibility to 
accommodate additional or new programs and enable the Agency to better 
manage its risk.
    1. Increase efficiency. Having a common rule for multiple programs 
will reduce burden for the Rural Development staff, lenders, and 
borrowers, easing delivery and

[[Page 52623]]

increasing efficiency. A common platform will be easier to administer, 
improve communication of basic program aspects, and reduce end user 
confusion.
    Internally, a common regulation will reduce the time, effort, and 
training necessary to guarantee a loan. Externally, a common regulation 
will reduce the lender's and borrower's cost by providing simpler and 
more consistent program requirements.
    Further efficiencies will be realized as common program elements 
facilitate consolidation of information technology platforms and 
systems' maintenance cost. Internal management controls will improve 
with standardized servicing and oversight. Common elements will assist 
lenders in managing a diverse portfolio and meeting Federal 
requirements. Uniform processes will facilitate electronic commerce 
between Rural Development and its customers.
    2. Flexibility. The structure of the new platform provides for the 
addition of other Agency, or newly authorized, guaranteed loan programs 
as needed without the addition of new sets of basic requirements. The 
common elements (proposed subpart A) of the proposed rule are intended 
to remain unchanged, while additional programs would be added to 
proposed subpart B.
    3. Refocus of Agency resources. The new platform directs Agency 
resources away from a processing centric model toward a rural 
development model by emphasizing lender expertise, refocusing time 
spent on process to time spent with clients, and increasing access by 
eliminating regulatory redundancy.
    4. Reduce risk. In developing the proposed new platform, the key 
consideration was how to implement it in a manner that reduces the 
overall risk that a loan would not be repaid. The Agency considered the 
risk associated with making and managing a portfolio of guaranteed 
loans in developing the new platform. How these risks are addressed in 
the proposed new platform is covered in the following section.
D. How the New Platform Works
    Under the proposed platform, the common features of the four 
programs are incorporated into a single subpart (subpart A), with 
program specific features provided in a separate subpart (subpart B). 
While each of the four existing programs remains, the way these four 
programs will be delivered to Rural Development's customers is 
different. In delivering the proposed platform, the Agency will also 
publish Federal Register notices containing specific information 
associated with the guaranteed loan program.
    The following paragraphs address the new platform by examining the 
proposed delivery mechanisms, concluding with a discussion of the 
Federal Register notices that will be used as part of the 
implementation of the new platform.
    1. Eligibility. Under the new platform, three basic types of 
eligibility are identified--project eligibility, borrower eligibility, 
and lender eligibility.
    Project eligibility is based on the proposed project being for the 
benefit of a rural area, on the ability of the activity to be funded to 
meet the requirements of the applicable program, on meeting a minimum 
set of project criteria, and, when applicable, on the boundaries of the 
proposed service area meeting a non-discrimination criterion. Projects 
that do not meet these proposed criteria would be ineligible under the 
new program. In addition, these criteria can not be voided under the 
exception authority provided in the proposed rule.
    The applicable project eligibility requirements, located in 
proposed subpart B, remain essentially unchanged for those of the four 
current programs. Some differences are being proposed and these are 
discussed in sections II. and III. of this preamble. One important 
difference is that the proposed platform uses three minimum project 
financial conditions, which are specifically discussed, in detail, in 
section II.B. of this preamble, to reduce project risk by screening out 
those projects less likely to achieve a level of success that will 
support loan repayment. These three financial conditions establish 
minimum requirements for debt coverage ratio, cash equity or community 
support, and loan-to-value ratio. While the four existing programs 
address cash equity and community support, they do not have 
requirements associated with debt coverage ratios and loan-to-value 
ratios. By specifying these project financial conditions within the 
rule, borrowers and lenders will be able to determine a project's 
eligibility for a loan guarantee early in the process.
    In addition to identifying eligible projects, the proposed rule 
identifies specific projects and purposes that are ineligible under all 
circumstances from receiving a loan guarantee. The Agency assembled 
this list mainly from the list of ineligible projects and purposes 
identified in the regulations for the four current programs.
    Borrower eligibility is based on the borrower meeting two common 
requirements, which are citizenship and legal authority and 
responsibility, and program-specific criteria, which are contained in 
proposed subpart B. The proposed rule also identifies borrowers who 
would be categorically ineligible. In terms of eligible and ineligible 
entities, little has changed under the new platform compared to the 
four current programs.
    Lender eligibility is based on criteria dependent on whether or not 
the lender is a regulated or supervised lender. A lender, who is not 
otherwise debarred or suspended by the Federal government, must be 
approved, as described below, by the Agency to participate in this 
program. As part of the approval process, the Agency may consider the 
experience and capabilities of the lender to properly originate and 
service the variety of guaranteed loans available within the Agency. If 
the Agency disapproves a lender for participation, the lender has the 
right to appeal that decision. In addition, all participating lenders 
will be reviewed for eligibility at least every two years.
    Although the B&I guaranteed loan program has a process for ``other 
lenders'' to participate in the current B&I guaranteed loan program, 
the process for an eligible lender to participate in the proposed 
platform is generally new compared to the four current programs. Figure 
1 illustrates the basic process for lender approval under the proposed 
platform, with the following paragraphs describing this process.
    Any lender that is a regulated or supervised lender is eligible to 
participate in the guaranteed loan programs described in proposed 
subpart B. If a regulated or supervised lender has an existing 
portfolio with the Agency, it is considered to be ``approved'' for 
participation and would not be required to submit an application to the 
Agency for approval to participate. However, the lender would be 
required to submit certification to the Agency that it is in ``good 
standing'' with its regulator. If a regulated or supervised lender does 
not have an existing portfolio with the Agency, it must submit an 
application for lender approval to the Rural Development State Office 
in the State in which the lender is chartered. The State Office will 
review the application and make a decision to approve or disapprove the 
lender for participation in this program. State Office approval of the 
lender will extend to all States and all programs covered by this part. 
If disapproved, the lender will have the right to appeal the decision 
to the National Appeals Division. To be approved, a regulated or 
supervised lender must be in good standing with its regulator(s).

[[Page 52624]]

[GRAPHIC] [TIFF OMITTED] TP14SE07.000

    As proposed, all regulated or supervised lenders would be required 
to submit to the Agency a copy of their current written policies and 
procedures for originating and servicing guaranteed loans. This is not 
currently required under any of the four current programs.
    If the lender is not a regulated or supervised lender, it must 
submit an application to the Rural Development State Office in the 
State in which the lender is chartered for approval for participation. 
The application will address a number of criteria that the Agency will 
consider in approving or disapproving the lender (see section II.B. for 
more detail on these criteria). The State Office will review the 
application and submit it, along with its comments, to the National 
Office for review. The National Office will make the determination as 
to whether to approve the lender for participation. If the National 
Office approves the lender, that approval will apply to all States for 
all programs covered by this part. If disapproved by the National 
Office, the lender will have the right to appeal the decision to the 
National Appeals Division.
    The process described above is intended to help the Agency ensure 
that only qualified lenders participate in this program, and thereby 
mitigate institutional risk by encouraging the participation of better 
qualified and performing lenders.
    2. Preferred Lender versus Approved Lender. An important aspect for 
managing institutional risk under the new platform is the ability of an 
approved lender to apply for preferred lender status (see Figure 1 
above and Sec.  5001.9(c) of the proposed rule). Currently, only the 
B&I guaranteed loan program has provisions for a preferred lender 
program, although there has been no material participation in it to 
date.
    Under the proposed program, there are several benefits for being a 
preferred lender. Preferred lenders would have more opportunities to 
submit applications for guarantee with less supporting documentation, 
would be subject to fewer Agency visits, and would be eligible to 
receive higher percent guarantees than lenders without preferred 
status. In addition, the Agency may expend fewer resources evaluating 
preferred lender loan guarantee applications and reallocate resources 
to better manage risk and encourage program participation.
    To receive preferred lender status, a Rural Development approved 
lender would submit an application for preferred lender status to the 
State Office in the State in which the lender is chartered. The State 
Office would then forward the application and its comments to the 
National Office for review and decision.
    The criteria proposed for obtaining preferred lender status (see 
Figure 2) address the qualifications of the lender for loans of similar 
nature and the quality of the lender in managing its loan portfolio by 
examining its commercial loan losses and any instances of Federal 
negligent loan origination or servicing. The Agency will also consider 
any comments submitted by State Offices when evaluating these 
applications. National Office approval will apply to all States.
    3. Guaranteed loan approval. Under the four current programs, the 
Agency views proper loan origination as a responsibility of the lender. 
The new platform clarifies this responsibility by

[[Page 52625]]

reinforcing the concept of negligent loan origination. To help lenders 
understand the importance of conducting proper credit analysis and 
sound loan origination, the new platform will clarify the Agency's 
policy regarding negligence in the origination and servicing of loans. 
In the case where the lender is the holder of the guarantee, losses 
associated with the lender's negligence will be deducted from the loss 
claims paid under the guarantee. In the case where there is a 
subsequent holder, losses associated with the lender's negligence will 
not be deducted from the loss payment under the guarantee. However, in 
such cases, loss claims paid under the guaranteed will be collected 
from the lender. The Agency anticipates that the clarification for 
negligent loan origination will reduce loan defaults through improved 
loan origination.
[GRAPHIC] [TIFF OMITTED] TP14SE07.001

    Under the new platform, Rural Development has standardized, to the 
extent possible, the type of information to be included in the loan 
guarantee application, although some additional content information is 
required by some of the programs described in subpart B. In general, 
the information associated with a loan guarantee application is not 
significantly different than currently required under the four current 
programs.
    The main difference in the application for loan guarantee under the 
new platform will be the amount of supporting documentation that is 
required to be submitted with or accompany the application for certain 
projects. If criteria are met as described below, the lender will have 
the option of submitting a ``low documentation'' application, which 
would allow the lender to self-certify that it has complied with 
certain Agency requirements. (See section II.B. for more information.) 
The Agency expects the lender to obtain the same level of documentation 
and to perform the same level of analysis and other origination 
activities whether the lender submits a full documentation application 
or a low documentation application.
    The determination of whether a low documentation application can be 
submitted will depend on the borrower's status as a startup or existing 
business, on whether the lender has preferred lender status, and on 
certain project criteria.
    As proposed, all loan guarantee applications for startup businesses 
must be submitted with full documentation (see section II.B. for 
details) given the risk associated with startup businesses.

[[Page 52626]]

    For existing businesses, the proposed rule would allow Rural 
Development approved lenders with preferred lender status to submit 
applications with either low or full documentation if the loan 
guarantee request is for $5 million or less. For a larger loan 
guarantee request, a full documentation application would be required. 
These provisions apply to all four programs under the proposed 
platform.
    For Rural Development approved lenders that do not have preferred 
lender status, all applications would have to be submitted with full 
documentation unless the project meets certain criteria, as discussed 
in section II.B., intended to lower the risk associated with the 
project. If the project meets the lower risk identification criteria, 
the Rural Development approved lender without preferred status would be 
allowed to submit a low documentation application.
    The Agency will examine the lender's analysis of the project, the 
technical merit, any business plans or feasibility studies required, 
and environmental information. If the Agency disapproves the 
application, the lender and borrower have the right to appeal the 
decision.
    4. Servicing. Once the loan has been approved, the lender will 
continue to be responsible for servicing the entire loan. The lender's 
servicing responsibilities, including those regarding negligent 
servicing, under the proposed unified platform are essentially the same 
as under the four existing regulations.
    5. Oversight and Monitoring. As under the four current programs, 
the Agency will conduct under the proposed new platform any and all 
oversight and monitoring activities necessary to ensure that lenders 
are originating and servicing Agency guaranteed loans in a manner 
consistent with lender and Agency standards. These tools include, but 
are not limited to, conducting lender visits and meetings and requiring 
various reports and notifications. There are a few differences between 
the proposed platform and the four current programs for conducting 
these activities. These differences are discussed later in this 
preamble.
    The Agency will also use this oversight and monitoring to ensure 
that lenders maintain the qualification criteria for being a Rural 
Development approved lender and, where applicable, for being a 
preferred lender.
    6. Managing Risk. As noted above, the Agency has incorporated into 
the proposed new platform certain features to help manage risk.
    To limit loss exposure, the Agency will require full supporting 
documentation on all applications for projects from startup businesses 
and from existing businesses unless, for existing businesses, the 
project is a ``lower risk'' project as defined by the criteria in the 
proposed rule. Applications for projects that meet these criteria may 
be submitted with less supporting documentation (i.e., a low 
documentation application).
    The Agency will mitigate the possibility of increased loss exposure 
associated with low documentation applications as the discussed below.
     The loan amount that will be guaranteed under a low 
documentation application would be limited to $5 million. In other 
words, all loan requests for more than this amount must be submitted as 
full documentation applications. This applies across all four programs 
under the new platform. Setting a maximum value for which a low 
documentation application can be submitted will provide the Agency the 
ability to better monitor loans that represent greater potential 
liability.
     If the low documentation application is from a lender who 
does not have preferred status, the maximum percent guarantee that the 
Agency will consider for that loan is 10 percentage points lower than 
for a full documentation application. Reducing the maximum percent 
guarantee available will mitigate Agency loss exposure. In 
consideration of the additional criteria necessary to become a 
preferred lender, the Agency has determined that the risk mitigation 
obtained by applying the preferred lender criteria offsets the risk 
mitigation obtained by reducing the guarantee. Therefore, the Agency is 
proposing to not apply this reduction in the maximum guarantee 
available to a preferred lender.
     If the low documentation application if from a lender who 
does not have preferred status, the proposed rule requires additional 
financial criteria in order to qualify the project for a low 
documentation application. Requiring projects to meet additional 
financial criteria will mitigate project risk.
    To limit project risk, the new platform requires projects to meet a 
minimum set of project financial criteria to prevent high risk projects 
from being proposed at all. In addition, in order to avoid bypassing 
project eligibility criteria, the Agency is proposing that exception 
authority not be extended to any project eligibility criterion, 
including the project financial criteria.
    To limit institutional risk, the new platform requires lenders to 
meet criteria that help ensure the lender has the appropriate 
origination and servicing experience and track record to reduce the 
likelihood of loan defaults. The Agency is proposing different criteria 
for regulated and supervised lenders as opposed to those that are 
unregulated and not supervised. Further, by providing a preferred 
status designation, the Agency is hoping to attract more qualified 
lenders to the programs.
    Finally, to limit operational risk, the new platform relies on 
commonalities, reduction of regulatory language, and integration of 
information management systems. The use of electronic reporting and 
standardized forms also allows the Agency to better manage its 
portfolio of outstanding guaranteed loans.
    7. Federal Register notices. To implement the new platform, the 
Agency will publish at least one Federal Register notice each year. 
Each notice will address the following items as necessary:
     Ineligible projects and purposes. If the Agency has 
identified any additional projects or purposes for which guaranteed 
loans will not be made, it will include such ineligible projects and 
purposes in the Federal Register notice. If there are no new ineligible 
projects or purposes have been identified, the notice would include a 
statement to that effect.
     Maximum loan amounts. The Agency will identify in the 
Federal Register notice the maximum loan amount per loan that will be 
available under each of the programs.
     Fees. If any are required, the Agency will identify in the 
Federal Register notice the guarantee fee and the renewal fee that will 
be used for that year in the calculation of the guarantee fee and the 
renewal fee for each program. In addition, for the B&I guaranteed loan 
program, the Agency will specify in the Federal Register notice the 
limit on the maximum portion of the guarantee authority available for 
that fiscal year that may be used to guarantee loans with the reduced 
guarantee fee of 1 percent.
     Priority Scoring. For the B&I guaranteed loan program, the 
Agency will identify the scoring criteria that will be used, if 
necessary, to allocate funds if funds are insufficient to cover all 
applications within the program. The Agency will manage the Renewable 
Energy Systems and Energy Efficiency Improvements guaranteed loan 
program funds in the same manner.

II. Discussion of Proposed Rule

    In this section, the proposed rule is described. First, an overall 
organization of the proposed rule is presented,

[[Page 52627]]

followed by a section-by-section discussion of each part.
A. Overall Organization of the Rule
    The proposed rule is divided into two main parts. The first part, 
subpart A, contains the provisions that apply to all of the guaranteed 
loan programs covered by the proposed rule. The second part, subpart B, 
contains the provisions specific to the four programs identified 
earlier in this preamble.
    Subpart A. Subpart A is divided into five major elements. In the 
first element are general provisions that cover the purpose of this 
part (Sec.  5001.1), the definitions and abbreviations used in this 
part (Sec.  5001.2), various Agency authorities associated with 
providing guaranteed loans (Sec.  5001.3), oversight and monitoring 
(Sec.  5001.4), and forms, regulations, and instructions (Sec.  
5001.5).
    The second element covers the basic eligibility requirements for 
the project (Sec.  5001.6) and unauthorized projects and purposes 
(Sec.  5001.7), for the borrower (Sec.  5001.8), and for the lender, 
including how a lender can be approved for preferred status, (Sec.  
5001.9).
    The third element covers the basic requirements associated with the 
guaranteed loan application, describing the process for submitting an 
application and its approval (Sec.  5001.11) and the contents of the 
application (Sec.  5001.12).
    The fourth element covers the responsibilities of the lender and 
the borrower. Section 5001.15 covers general responsibilities of the 
lender. Lender responsibilities for originating the loan are covered by 
Sec.  5001.16 and for servicing the loan by Sec.  5001.17. 
Responsibilities of the borrower are found in Sec.  5001.25.
    The fifth element covers basic provisions associated with the 
guarantee, including parameters for the guaranteed loan. General 
guarantee provisions are found in Sec.  5001.30, with guaranteed loan 
parameters (e.g., interest rates, term length, maximum percent 
guarantee, etc.) found in Sec.  5001.31. The remaining sections in the 
fifth element address the process for obtaining the guarantee through 
changes in the guarantee and concluding with termination of the 
guarantee.
    Subpart B. This subpart addresses provisions that are specific to 
the individual programs. Section 5001.101 covers provisions specific to 
the Community Facilities Program, Sec.  5001.102 covers provisions 
specific to the Water and Waste Disposal Facilities Program, Sec.  
5001.103 covers provisions specific to the Business and Industry 
Program, and Sec.  5001.104 covers provisions specific to the Renewable 
Energy Systems and Energy Efficiency Improvements Program.
    Within each of these four sections, the specific provisions are 
related back to a corresponding section in subpart A. For example, each 
of the four sections has subsections that address project eligibility. 
Another example is additional application documentation requirements. 
The intent of subpart B is to identify all of the provisions specific 
to each of the four programs. In this way, each of the four programs 
maintains their integrity under the new platform.
B. Discussion of Sections
Purpose (Sec.  5001.1)
    This section defines the purpose of this part.
Definitions and Abbreviations (Sec.  5001.2)
    This section presents the definitions and abbreviations used in 
this part, including terms that may be specific to one of the four 
programs found in subpart B.
    The proposed rule contains fewer definitions than found in the four 
existing regulations, primarily because the deleted terms are no longer 
used in the proposed rule. Some definitions have been added or revised, 
including, but not limited to: Essential community facility, negligent 
loan origination, negligent loan servicing, rural or rural areas, and 
water and waste disposal project.
Agency Authorities (Sec.  5001.3)
    Under this section, the proposed rulemaking identifies Exception 
Authority and Appeal Rights.
    Exception authority. This paragraph identifies the situations under 
which the Administrator may make exceptions to the requirements 
contained in the regulation. The exceptions will be made on a case-by-
case basis.
    Unlike the four current regulations, the proposed rule identifies 
four exceptions to this Exception Authority, where the Administrator 
would not be allowed to make exceptions. These four exceptions are:
     Applicant and borrower eligibility, including both 
prospective borrowers and lenders.
     Project eligibility, as found in proposed Sec.  5001.6 and 
the individual program in subpart B.
     Rural area definition, as found in proposed Sec.  5001.2.
     Maximum term length of a guaranteed loan, as found in 
proposed Sec.  5001.31(c).
    The Agency believes that applicant/borrower and project eligibility 
criteria must be maintained at all times in order to maintain an 
acceptable level of risk associated with guaranteed loans made under 
this part. The Agency also believes that it is important to maintain 
the definition of rural area at all times in order to ensure that loans 
guaranteed under this program are used to benefit rural areas. Lastly, 
the Agency believes that it is important to ensure a reasonable period 
of payback on guaranteed loans in order to manage its portfolio of 
outstanding loans and, therefore, is proposing not to allow exceptions 
to the maximum term length of a guaranteed loan. For these reasons, the 
Agency is proposing that the Administrator not be allowed to exempt a 
project from any of these four criteria.
    Appeal rights. As provided by the four current programs, this 
paragraph provides the legal basis for a person to file an appeal of an 
adverse decision made by the Agency in implementing the proposed 
program. Such adverse decisions include, but are not limited to: (1) 
disapproving a lender for participation in the program, (2) 
disapproving an approved lender for preferred lender status, and (3) 
denying an application for a loan guarantee for reasons other than a 
lack of funds. When the Agency makes an adverse decision, a person may 
file an appeal with either the appropriate Agency official that 
oversees the program or with the National Appeals Division. Some 
negative determinations may affect a holder, in which case this 
paragraph provides the holder the legal right to file an appeal.
Oversight and Monitoring (Sec.  5001.4)
    This section of the rule lays out the types of oversight and 
monitoring the Agency will perform in implementing this program. 
Consistent with the four current programs, these activities include, 
but are not necessarily limited to, reviewing lender records and 
meeting with the lenders to review the status of their guaranteed 
loans. The purposes of these oversight and monitoring activities are 
to: (1) Ensure that the lender has implemented, and is in compliance 
with, the provisions of this part and (2) determine if the lender is 
maintaining the appropriate requirements to maintain their status as a 
Rural Development approved lender and, if applicable, a preferred 
lender. The amount of oversight and monitoring will vary depending on 
whether the Rural Development approved lender has preferred lender 
status or not.
    Reports. The proposed rule would require each lender to