Loan Policies and Operations; Loan Purchases From FDIC, 27660-27662 [2010-11772]

Agencies

• Farm Credit Administration

[Federal Register Volume 75, Number 95 (Tuesday, May 18, 2010)]
[Proposed Rules]
[Pages 27660-27662]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-11772]


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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. 75, No. 95 / Tuesday, May 18, 2010 / Proposed 
Rules

[[Page 27660]]



FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AC62


Loan Policies and Operations; Loan Purchases From FDIC

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration is proposing to amend its rules 
on loan policies and operations. The amended rule would permit Farm 
Credit System (System) institutions with direct lending authority to 
purchase from the Federal Deposit Insurance Corporation (FDIC) loans to 
farmers, ranchers, producers or harvesters of aquatic products and 
cooperatives that meet eligibility and scope of financing requirements. 
This action would allow the System to provide liquidity and a stable 
source of funding and credit for borrowers in rural areas affected by 
the failure of their lending institution.

DATES: You may send comments on or before July 19, 2010.

ADDRESSES: We offer a variety of methods for you to submit your 
comments. For accuracy and efficiency reasons, commenters are 
encouraged to submit comments by e-mail or through the FCA's Web site. 
As facsimiles (fax) are difficult for us to process and achieve 
compliance with section 508 of the Rehabilitation Act, we are no longer 
accepting comments submitted by fax. Regardless of the method you use, 
please do not submit your comment multiple times via different methods. 
FCA requests that comments to the proposed amendment include the 
reference RIN 3052-AC62. You may submit comments by any of the 
following methods:
     E-mail: Send us an e-mail at reg-comm@fca.gov.
     FCA Web site: https://www.fca.gov. Select ``Public 
Commenters,'' then ``Public Comments,'' and follow the directions for 
``Submitting a Comment.''
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Gary K. Van Meter, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.

You may review copies of all comments we receive at our office in 
McLean, Virginia, or from our Web site at https://www.fca.gov. Once you 
are in the Web site, select ``Public Commenters,'' then ``Public 
Comments,'' and follow the directions for ``Reading Submitted Public 
Comments.'' We will show your comments as submitted but, for technical 
reasons, we may omit items such as logos and special characters. 
Identifying information you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove e-mail addresses to help reduce Internet spam.

FOR FURTHER INFORMATION CONTACT:

Mark L. Johansen, Senior Policy Analyst, Office of Regulatory Policy, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TTY 
(703) 883-4434, or
Mary Alice Donner, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 
883-4020.

SUPPLEMENTARY INFORMATION: 

Background

    Agriculture and rural sectors in the United States are adversely 
affected by bank failures and depressed local economies. Many 
commercial banks are active in agricultural and cooperative lending 
and, when they fail, farmers and ranchers and cooperatives can be left 
seeking new lenders to meet their ongoing credit needs. The Federal 
Deposit Insurance Corporation, Farm Credit System institutions, and 
others have asked whether System institutions, directly or in 
partnership with other market participants, could provide a source of 
credit and liquidity to borrowers whose operations are financed with 
agricultural or cooperative loans affected by commercial bank 
failures.\1\
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    \1\ System institutions are federally chartered, cooperatively 
owned corporations authorized under titles I, II, and III of the 
Farm Credit Act of 1971, as amended (Act), to make long-term 
mortgage and short- and intermediate-term production loans to 
farmers, ranchers and agricultural producers, and, in the case of 
banks for cooperatives, to eligible cooperative associations. See 12 
U.S.C. 2001 et seq.
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    When a bank fails and the FDIC is appointed receiver, the FDIC may 
sell the whole bank or its pieces (loans, deposits, or other 
assets).\2\ When the FDIC sells bank assets it may sell agricultural or 
cooperative loans individually or in pools at auction. The System, as a 
Government-sponsored enterprise for agricultural lending, should have a 
role in providing credit to farmers and ranchers and cooperatives and 
liquidity to these rural areas by bidding on agricultural or 
cooperative loans, consistent with the safe and sound operation of 
System business.
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    \2\ While a System institution could not qualify as a franchise 
purchaser, it could possibly pair with a non-System lender where 
that lender could buy the deposits and other loans leaving the 
System institution to buy the agricultural loans.
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    FCA regulations currently provide that a System institution may not 
purchase an interest in a loan from a non-System institution except for 
the purpose of pooling and securitizing loans to sell to the Federal 
Agricultural Mortgage Corporation unless the interest is a 
participation interest.\3\ As a result, the System is not able to buy 
loans from the FDIC. However, the Farm Credit Act of 1971, as amended 
(Act), does not prohibit System institutions from purchasing loans from 
the FDIC.\4\ The FCA believes that allowing System institutions to 
purchase loans from the FDIC when a commercial bank lender carrying a 
portfolio of eligible agricultural or cooperative loans is closed and 
placed in receivership would further the public policy of the Act.
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    \3\ 12 CFR 614.4325(b).
    \4\ The Act is silent as to specific authority of a System 
institution to buy loans from an entity such as the FDIC; however, 
section 1.5(5) of the Act gives Farm Credit Banks the authority to 
acquire, hold, dispose and otherwise exercise all the usual 
incidents of ownership of real and personal property necessary or 
convenient to its business (see section 2.2(5) and 2.12(5) for 
parallel authority with respect to Farm Credit associations); and 
section 1.5(15) of the Act gives Farm Credit Banks authority to buy 
and sell obligations of, or insured by the United States or any 
agency thereof (see section 2.2(11) and 2.12(17) for parallel 
authority with respect to Farm Credit associations). For parallel 
authorities with respect to banks for cooperatives, see section 
3.1(5) and (13)(A) of the Act.
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    The proposed rule would create a regulatory framework for 
authorizing System institutions to purchase agricultural or cooperative 
loans of failed commercial banks from the FDIC.

[[Page 27661]]

The System institution would be required to use due diligence to the 
extent allowed by the FDIC auction process to determine whether the 
loans purchased meet the eligibility and scope of financing 
requirements of the Act and FCA regulations.\5\ All failed bank 
borrowers with agricultural loans purchased by a System institution 
would be entitled to certain ``borrower rights.'' \6\ Failed bank 
borrowers with agricultural or cooperative loans also would be offered 
membership status through a stock membership program developed by the 
System institution that meets the requirements of the System 
institution's bylaws and the Act.\7\ Non-eligible loans and eligible 
loans to failed bank borrowers who chose not to become members would be 
divested. However, if distressed, those loans that were purchased by 
System institutions with titles I and II direct lending authority would 
be subject to borrower rights and would be restructured or foreclosed, 
whichever is least costly, as soon as financially feasible.
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    \5\ Part 613, subpart A sets forth the eligibility requirements 
for financing bona fide farmers, ranchers and aquatic producers or 
harvesters under titles I and II. Part 613, subpart B sets forth 
eligibility requirements for cooperative financing under title III.
    \6\ This rule would require borrower rights to borrowers of 
loans purchased from the FDIC by System institutions with direct 
lending authority under titles I and II of the Act. Borrower rights 
would not be required to be given to borrowers of loans purchased 
from the FDIC by a bank for cooperatives. This is because section 
4.14A(a)(6) of the Act excepts banks for cooperatives from borrower 
rights requirements.
    \7\ Section 4.3A(c)(1)(E) of the Act requires that as a 
condition of borrowing from or through the institution, any borrower 
who is entitled to hold voting stock or participation certificates 
shall, at the time a loan is made, acquire voting stock or 
participation certificates in an amount not less than $1,000 or 2 
percent of the amount of the loan, whichever is less. Section 
4.3A(c)(1)(D) of the Act provides that the bylaws of each bank and 
association shall provide for the issuance of voting stock which may 
only be held by borrowers who are farmers, ranchers or producers or 
harvesters of aquatic products, and eligible cooperative 
associations.
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Analysis of the Proposed Rule

    We propose to amend Sec.  614.4325(b) to allow System institutions 
to purchase loans from the FDIC acting as receiver or in any other 
capacity under its statutory authority. The authority to purchase would 
be limited to loans that, with reasonable due diligence allowed through 
the FDIC auction process, the System institution determines eligibility 
and scope of financing requirements under titles I, II and III of the 
Act. After purchase, the System institution would be required to 
complete a more thorough due diligence to ensure that all of the loans 
meet eligibility and scope of financing requirements. System 
institutions would be urged to maintain prudent credit underwriting 
standards in purchasing loans from the FDIC. Funding bank approval 
would be required for acquisitions of loans from the FDIC exceeding 10 
percent of the purchasing Farm Credit association's capital.
    System institutions are particularly positioned to assist 
distressed borrowers through the borrower rights requirements of the 
Act. The proposed rule would provide that the borrower rights 
provisions of part 617 of the FCA regulations, except those with 
respect to effective interest rate disclosure, would apply to the 
failed bank borrowers to the same extent as they would have if the 
System institution had made the loan directly to the failed bank 
borrower. As such, the System institution would be able to restructure 
loans to some of the failed bank borrowers and these restructures would 
allow some of the borrowers to remain in production agriculture. Once 
purchased, the System institution would use all the rights contained in 
part 617 to work with the failed bank borrowers with agricultural loans 
to restructure the loan when it is the least cost alternative. These 
rights would include actions on applications, distressed loan 
restructuring, and rights of first refusal.\8\ System institutions 
would not be expected to retroactively provide differential and 
effective interest rate disclosures associated with new loans; however, 
if a new System loan was made to a failed bank borrower, then those 
provisions, and all of part 617, would apply to that loan.
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    \8\ 12 CFR part 617, subparts A and D through G. These 
``borrower rights'' would not apply to loans to cooperatives. See 
footnote 6.
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    In addition to borrower rights, the rule would provide that the 
System institution give the failed bank borrowers whose loans meet 
eligibility and scope of financing requirements an opportunity to 
acquire stock of the institution under a program to be developed by 
each System institution, consistent with the System institution's 
bylaws and the requirements of the Act. A System institution would be 
required to divest the loan as soon as reasonably feasible if the 
failed bank borrower could not or would not participate in the 
membership program (non-participating failed bank borrower). If that 
loan was distressed, the non-participating failed bank borrower would 
be given all the borrower rights set forth in part 617, subparts A and 
D through G, during the divestiture period. The non-participating 
failed bank borrower would not be entitled to patronage, voting, or 
other shareholder rights under the FCA regulations or institution 
bylaws.
    Because of the nature of the loan pools, it may be impossible to 
purchase a pool with loans solely within the purchasing institution's 
territory. Therefore, the proposed rule would allow any System 
institution to purchase loans from the FDIC regardless of whether the 
borrower's agricultural operation is located wholly or partially in the 
institution's chartered territory. However, we would expect System 
institutions to focus on serving farmers and ranchers' operations 
within their chartered territories, and an institution should carefully 
analyze whether it has the ability to adequately service a particular 
purchased loan to a borrower whose operations are located outside its 
chartered territory. If it does not have that ability, then the 
institution should consider partnering with the System institution 
located in the lending territory where the headquarters for the failed 
bank borrower is located. If it does have the ability to adequately 
service a loan or pool of loans outside of its chartered territory, a 
System institution would be permitted to purchase that loan or pool of 
loans provided notice is given to the System institution(s) chartered 
to serve the territory where the headquarters of the failed bank 
borrower is located. We propose to amend Sec.  614.4070 by adding a new 
paragraph (d) that exempts territorial concurrence for loans or pools 
of loans purchased from the FDIC, if notice is provided to the System 
institution in whose chartered territory the headquarters of the failed 
bank borrower is located. Requiring territorial concurrence compliance 
on each purchase would impede a System institution's ability to bid on 
a pool of agricultural loans. However, this territorial concurrence 
exemption does not apply to any additional loans that may be made to 
the borrower.

Request for Comments on Proposed Rule

    We invite comments on the proposed rule and will take all comments 
into consideration before issuing the final amendment to the FCA 
regulations on loan policies and operations.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated

[[Page 27662]]

associations, has assets and annual income in excess of the amounts 
that would qualify them as small entities. Therefore, Farm Credit 
System institutions are not ``small entities'' as defined in the 
Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 614

    Agriculture, Banks, banking, Foreign trade, Reporting and 
recordkeeping requirements, Rural areas.

    Accordingly, for the reasons stated in the preamble, part 614 of 
chapter VI, title 12 of the Code of Federal Regulations, is proposed to 
be amended as follows:

PART 614--LOAN POLICIES AND OPERATIONS

    1. The authority citation for part 614 continues to read as 
follows:

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 
4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 4.25, 
4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.8, 
7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 2013, 
2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 
2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 
2184, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2207, 
2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 
2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 
of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart B--Chartered Territories

    2. Amend Sec.  614.4070 by adding a new paragraph (d) to read as 
follows:


Sec.  614.4070  Loans and chartered territory--Farm Credit Banks, 
agricultural credit banks, Federal land bank associations, Federal land 
credit associations, production credit associations, and agricultural 
credit associations.

* * * * *
    (d) A bank or association chartered under title I or II of the Act 
may finance eligible borrower operations conducted wholly or partially 
outside its chartered territory through the purchase of loans from the 
Federal Deposit Insurance Corporation in compliance with Sec.  
614.4325(b)(3), provided:
    (1) Notice is given to the Farm Credit System institution(s) 
chartered to serve the territory where the headquarters of borrower's 
operation being financed is located; and
    (2) After loan purchase, additional financing of eligible borrower 
operations complies with paragraphs (a), (b), and (c) of this section.

Subpart H--Loan Purchases and Sales

    3. Amend Sec.  614.4325 by revising paragraph (b) to read as 
follows:


Sec.  614.4325  Purchase and sale of interests in loans.

* * * * *
    (b) Authority to purchase and sell interests in loans. Loans and 
interests in loans may only be sold in accordance with each 
institution's lending authorities, as set forth in subpart A of this 
part. No Farm Credit System institution may purchase any interest in a 
loan from an institution that is not a Farm Credit System institution, 
except:
    (1) For the purpose of pooling and securitizing such loans under 
title VIII of the Act;
    (2) Purchases of a participation interest that qualifies under the 
institution's lending authority, as set forth in subpart A of this part 
and meets the requirements of Sec.  614.4330 of this subpart;
    (3) Loans purchased from the Federal Deposit Insurance Corporation, 
provided that the Farm Credit System institution with direct lending 
authority under titles I, II, or III of the Act:
    (i) Conducts reasonable due diligence prior to purchase, and 
conducts thorough review after purchase, to determine that the loan, or 
pool of loans, qualifies under the institution's lending authority as 
set forth in subpart A of this part, and meets scope of financing and 
eligibility requirements in subpart A or subpart B of part 613;
    (ii) Obtains funding bank approval, if a Farm Credit System 
association, for loans or pools of loans purchased exceeding 10 percent 
of total capital;
    (iii) Establishes a program whereby each eligible borrower of the 
loan purchased is offered an opportunity to acquire the institution's 
required minimum amount of voting stock;
    (iv) Determines whether each loan purchased, except for loans 
purchased that could be financed only by a bank for cooperatives under 
title III of the Act, is a distressed loan as defined in Sec.  
617.7000, and provides the borrower of the purchased loan the rights 
afforded in Sec.  617.7000, subparts A, and D through G if the loan is 
distressed regardless of whether the loan is to an eligible or 
ineligible borrower; and
    (v) Divests itself of ineligible loans purchased that are not 
distressed loans as defined in Sec.  617.7000 and purchased loans of 
borrowers who elect not to acquire stock under the program offered in 
paragraph (b)(3)(iii) of this section in the same manner it would 
divest, under its current business practices, a loan in its loan 
portfolio determined to be ineligible.
* * * * *

    Dated: May 12, 2010.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 2010-11772 Filed 5-17-10; 8:45 am]
BILLING CODE 6705-01-P