Guaranteed Loans; Number of Days of Interest Paid on Loss Claims, 32635-32637 [E8-12981]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 73, Number 112 (Tuesday, June 10, 2008)]
[Rules and Regulations]
[Pages 32635-32637]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-12981]



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Federal Register / Vol. 73, No. 112 / Tuesday, June 10, 2008 / Rules 
and Regulations

[[Page 32635]]



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: Final rule.

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

SUMMARY: The Farm Service Agency (FSA) is clarifying and simplifying 
its regulations governing the number of days interest will be paid on 
loss claims. The liquidation provisions currently provide a timeframe 
for the interest payment based upon ``the date of the decision to 
liquidate,'' which is often difficult to determine. This final rule 
will eliminate ``the date of the decision to liquidate'' as the 
beginning timeframe for the interest payment on loss claims. In 
addition, FSA is clarifying the guaranteed lender's responsibility for 
future recoveries.

DATES: Effective Date: July 10, 2008.

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. Persons with disabilities who 
require alternative means for communication (Braille, large print, 
audio tape, etc.) should contact the USDA Target Center at (202) 720-
2600 (voice and TDD).

SUPPLEMENTARY INFORMATION: 

Background

    This final rule clarifies and simplifies the number of days' 
interest that may be paid on loss claims for 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. When a borrower cannot fully repay the guaranteed 
loan, the lender submits a loss claim request to FSA for payment of the 
guaranteed percentage of the unpaid debt, if any, after liquidation of 
the collateral.
    As explained in the proposed rule, published on March 27, 2007 (72 
FR 14244-14246), there was confusion for both lenders and FSA personnel 
on how to compute the number of days' interest that may be paid on loss 
claims. In order to both clarify and simplify this issue the final rule 
changes the regulations in 7 CFR 762.149(d) to allow a maximum of 210 
days of accrued interest from the payment due date.
    All lenders within 150 days of the payment due date must prepare a 
liquidation plan under 7 CFR 762.149(b). The reference to 150 days will 
replace the current language, ``within 30 days of the decision to 
liquidate.''
    Lenders also must file estimated and final loss claims on all 
accounts in a timely manner. If the lender expects no loss, a zero 
dollar estimated loss claim is to be filed. 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 
to close out the loan on FSA's financial records as to any remaining 
liability to the lender.
    If the loss claim processing exceeds 40 days as a result of FSA's 
failure to take action on the claim FSA will pay additional interest to 
the lender after the 40 days.
    FSA 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 FSA, the 
lender will continue to have the responsibility to collect the entire 
loan balance.
    In 7 CFR 762.148(d), FSA is removing 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.
    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 7 CFR 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.

Summary of Public Comments

    The 60-day comment period for the proposed rule ended on May 29, 
2007. Only one comment was received. The commenter agreed with the 
proposed rule in three areas and disagreed in four. The commenter 
agreed that: the number of days of interest paid should not exceed 210 
days from the payment due date, the new rule would clarify and simplify 
the issue, and the current language ``within 30 days of the decision to 
liquidate'' should be replaced with a reference to 150 days from the 
payment due date.
    The commenter disagreed that a lender should submit an estimated 
loss claim when no loss is anticipated stating that even though this 
would help FSA to better monitor the liquidation process it is of no 
benefit to the lender. It would cause additional time and effort by the 
lender when they would be terminating the guarantee in the near future. 
The commenter also stated that the lender has little incentive to 
submit a zero estimated loss claim report. The commenter indicated that 
under the current regulation the lender is not required to file an 
estimated loss claim if no loss is expected and interest stops accruing 
90 days after the decision to liquidate. The commenter stated that 
every time a lender has a loan on which no loss is expected filing a 
zero dollar estimated loss claim is a waste of time. The current 
regulation requires the filing of an estimated loss claim if 
liquidation is expected to take more than 90 days with a specific 
exception only for loans that will be liquidated in 90 days or less. 
The regulation also states that ``interest accrual will cease 90 days 
after the decision to liquidate or an estimated loss of zero will be 
submitted.'' It was anticipated that zero estimated loss claims would 
be filed so FSA could more easily project current loss information. 
However, that is not happening, and it is hoped that this change will 
increase awareness and compliance. Additionally, FSA is currently 
testing an automated loss claim system, which should simplify the 
process of filing loss claims. We expect that this automated system 
will

[[Page 32636]]

be made available to lenders in fiscal year 2009. The time required to 
file a zero dollar estimated loss claim would be minimal as lenders 
will only need to show that the estimated recovery is greater than the 
loan balance. Additionally, FSA's ability to accurately project losses 
directly benefits the taxpayers and the long-term viability of the 
guaranteed loan program. Thereby, it indirectly benefits all lenders 
participating in the program. No changes were made in the final rule as 
a result of this comment.
    The commenter had the same objections about filing a final zero 
dollar loss claim for any loan where an estimated loss claim has been 
filed. This is not a new requirement, but rather existing policy. Once 
an estimated loss claim has been processed the only way to close out 
the account is filing a final loss claim. Therefore, no changes were 
made in the final rule as a result of this comment.
    The commenter also objected to the requirement that sale proceeds 
from the liquidation of assets be applied to principal first as long as 
the loan is accruing interest. The commenter recognized that this 
policy would reduce the amount of any loss claim, but felt that the 
amount would be small. Additionally, the commenter indicated that the 
requirement would ``be inconsistent with normal practices.'' The 
commenter stated that the lender may incur expenses in pursuing 
collections and the additional interest earned by applying sale 
proceeds first to interest may be ``minimal'' but ``it still is of some 
benefit to the lender.'' Finally the commenter stated that the argument 
that since the funds were advanced for the collateral liquidated it was 
consistent to use the proceeds from the liquidation of those assets to 
reduce the principal was ``not relative on many levels.'' No further 
explanation was provided as to how it was not relative on many levels. 
The practice of requiring guaranteed lenders to apply the proceeds from 
the liquidation of collateral principal first is not unique to FSA. 
Additionally, the requirement only applies while interest is still 
accruing. It may be a small benefit to FSA, but then FSA bears 90 
percent of the risk. No changes were made in the final rule as a result 
of this comment.
    Lastly, the commenter disagreed that interest should be paid up to 
90 days after the time period the lender is unable to dispose of 
acquired property due to state imposed redemption rights, if an 
estimated loss claim was paid by FSA. The commenter stated that the 
intention was good, but lenders are handicapped due to redemption 
rights. The commenter provided calculations based on the number of days 
involved and suggested that interest should be paid longer. However, 
the only change that FSA made in this paragraph was in the paragraph 
number, and did not propose changes to the existing practice. The 90 
days time period is adequate in most cases and reasonably limits the 
cost to the Government. Therefore, no changes were made in the final 
rule as a result of this comment.

Executive Order 12866

    The Office of Management and Budget (OMB) designated this final 
rule as not significant under Executive Order 12866 and, therefore, 
this final rule did not require review by OMB.

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 based on their size. 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 revised regulations. The Agency 
anticipates that the final rule will require submission of no 
significant 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

    FSA has determined that this final rule would not constitute a 
major Federal action that would significantly affect the quality of the 
human environment. Therefore, in accordance with 7 CFR Part 799, 
Environmental Quality and Related Environmental Concerns--Compliance 
with the National Environmental Policy Act, implementing the 
regulations of the Council on Environmental Quality, 40 CFR parts 1500-
1508, no environmental assessment or environmental impact statement 
will be prepared.

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 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 
previously approved by OMB under control number 0560-0155.

E-Government Act Compliance

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

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.

0
Accordingly, 7 CFR is amended as follows:

[[Page 32637]]

PART 762--GUARANTEED FARM LOANS

0
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]

0
2. Amend Sec.  762.148(d)(1) by removing the second sentence.

0
3. Amend Sec.  762.149 by revising paragraphs (b)(1) introductory text, 
(b)(1)(v), (d) introductory text, (d)(2), (i)(1), and (i)(5) to read as 
set forth below.


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 that accrues during and up to 45 days after the discharge on 
the portion of the 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 that accrues during 
and up to 90 days after the time period the lender is 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 must 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 May 5, 2008.
Thomas B. Hofeller,
Acting Administrator, Farm Service Agency.
[FR Doc. E8-12981 Filed 6-9-08; 8:45 am]
BILLING CODE 3410-05-P