Loan Servicing; Farm Loan Programs, 5055-5058 [2011-1917]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 76, Number 19 (Friday, January 28, 2011)]
[Rules and Regulations]
[Pages 5055-5058]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1917]



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Rules and Regulations
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Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules 
and Regulations

[[Page 5055]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761 and 766

RIN 0560-AI05


Loan Servicing; Farm Loan Programs

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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

SUMMARY: The Farm Service Agency (FSA) is amending the Farm Loan 
Programs (FLP) direct loan servicing regulations to implement 
provisions of the Food, Conservation, and Energy Act of 2008 (the 2008 
Farm Bill). This rule implements four amendments to the direct loan 
servicing regulations. The first amendment further emphasizes 
transitioning borrowers to private sources of credit in the shortest 
time practicable. The second amendment amends the Homestead Protection 
lease regulations by extending the right to purchase the leased 
property to the lessee's immediate family when the lessee is a member 
of a socially disadvantaged group. The third amendment amends the 
account liquidation regulations to suspend certain loan acceleration 
and foreclosure actions, including suspending interest accrual and 
offsets, if a borrower has filed a claim of program discrimination that 
has been accepted as valid by USDA and the borrower's account is at the 
point of acceleration or foreclosure. The fourth amendment amends the 
supervised bank account regulations to make the FSA regulations on 
insurable account limits consistent with the regulations of the Federal 
Deposit Insurance Corporation.

DATES: This rule is effective on February 28, 2011.

FOR FURTHER INFORMATION CONTACT: Michael C. Cumpton, Assistant to the 
Director, Loan Servicing and Property Management Division, FSA, USDA; 
telephone: (202) 690-4014. Persons with disabilities who require 
alternative means for communications (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 implements multiple provisions of the 2008 Farm 
Bill (Pub. L. 110-246) concerning loan servicing for FSA's direct loan 
program. In general, FSA direct loans provide credit to farmers who are 
unable to get credit elsewhere.
    On August 7, 2009, FSA published the loan servicing proposed rule 
(74 FR 39565-39569). As discussed below, FSA proposed three substantive 
amendments and one conforming technical amendment in the proposed rule. 
This final rule addresses the comments received on the proposed rule 
and makes some minor revisions to the proposed language to address the 
comments received. FSA received comments on the proposed rule from two 
commenters; the comments addressed multiple provisions of the rule. The 
commenters were a nonprofit organization and an FSA employee.

Summary of Amendments to the Loan Servicing Regulations

    The amendments in this rule are made to 7 CFR part 761, ``General 
Program Administration,'' which specifies provisions that apply to 
multiple Farm Loan Programs, and to 7 CFR part 766, ``Direct Loan 
Servicing--Special,'' which specifies the requirements and procedures 
for direct loan servicing in special circumstances, primarily those 
involving financially distressed borrowers.
    One amendment promotes the goal of transitioning borrowers to 
private credit. This rule clarifies and expands the requirements that 
borrowers must meet, including training and planning activities, to 
demonstrate that they are gaining the skills to transition to private 
credit. These amendments are made to 7 CFR 761.1, ``Introduction,'' a 
general introductory section to the farm loan regulations, and to 7 CFR 
761.103, ``Farm Assessment,'' which describes how FSA assesses a 
borrower's farming operation to determine credit counseling needs and 
training needs. As discussed below, in response to a comment on the 
proposed rule, FSA added additional clarity and detail to the 
requirements.
    A second amendment allows family members of lessees who are members 
of a socially disadvantaged group to purchase properties under 
Homestead Protection. This amendment, which is made to 7 CFR 766.154, 
``Homestead Protection Leases,'' is specifically required by the 2008 
Farm Bill. The purpose of the Homestead Protection program is to allow 
borrowers who secured their loan with their principal residence to 
continue to occupy that property through a lease or lease-purchase, 
after it has come into the inventory of the Government after 
foreclosure or voluntary conveyance. Before this amendment was made, 
only the original lessee on a Homestead Protection lease-purchase 
agreement had the option to purchase the property; this amendment 
allows the lessee to designate a family member the right to exercise 
that option.
    The third amendment sets a moratorium on foreclosure and loan 
acceleration actions for borrowers with an accepted program 
discrimination claim with the USDA Office of the Assistant Secretary 
for Civil Rights, Office of Adjudication. This amendment will stop 
foreclosure and loan acceleration actions for borrowers with an 
accepted discrimination claim, including interest accruals and offsets, 
while the discrimination claim is being resolved. This amendment adds a 
new section, 7 CFR 766.358, ``Acceleration and Foreclosure Moratorium'' 
to 7 CFR part 766 subpart H, ``Loan Liquidation.''
    In addition to the amendments required by the 2008 Farm Bill, this 
rule implements a conforming amendment to comply with section 335(a) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 
111-203, July 21, 2010), which increased the maximum deposit insurance 
amount for accounts insured by the Federal Deposit Insurance 
Corporation (FDIC). This rule changes a reference to the limit on 
insured accounts from $100,000 to ``the maximum amount insurable by the 
Federal government,'' which means that the FLP regulations will remain 
consistent with federal deposit insurance regulations, even if the FDIC 
limit is revised again or authority for deposit insurance is 
transferred to another Federal government entity. The

[[Page 5056]]

current FDIC limit is $250,000. This amendment is made to 7 CFR 761.51, 
``Establishing a Supervised Bank Account.''

Discussion of Comments

    The following provides a summary of the comments related to each 
amendment, and FSA's response, including changes we are making to the 
regulations in response to the comments.

Transitioning Borrowers to Private Credit

    Comment: ``Borrower graduation requirements'' should be added to 
the tools noted in 7 CFR 761.1 to assist borrowers in the transition to 
private credit. Also, the new sentence clarifying the purpose of FSA 
farm loan programs should be moved up a sentence.
    Response: FSA agrees and has made the suggested changes.
    Comment: ``Graduation plan'' should be added to the list of items 
required as part of the farm assessment in 7 CFR 761.103(b).
    Response: FSA agrees with the comment and has made the suggested 
change. This change supports the concept of transitioning borrowers to 
private commercial credit in the shortest period possible and 
reinforces the importance of the graduation plan. We also added a 
reference to Conservation Loans (CL), to clarify which requirements do 
not apply to those loans. Conservation Loans are a new type of farm 
loan, authorized by the 2008 Farm Bill, which may be used to implement 
certain conservation practices. An inability to obtain commercial 
credit is not a requirement for CL eligibility, so some of the 
requirements that are intended to help borrowers transition to 
commercial credit do not apply to CL.
    Comment: ``Sufficient experience and training for a successful 
transition to private commercial credit'' should be made part of the 
training waiver requirements in 7 CFR 764.453.
    Response: The proposed rule did not propose changes to 7 CFR 
764.453. The suggested change is not consistent with the overall 
objectives of the direct loan program, which include assisting 
borrowers in obtaining training and experience needed to qualify for 
commercial credit. The direct loan program requires that borrowers who 
need additional training must complete that training during the term of 
their direct loan, not as a condition to initially qualify for a loan. 
A loan applicant who already had the experience and training sufficient 
to make a successful transition to private credit would likely not need 
and would therefore not be eligible for a direct loan. Therefore, FSA 
is not amending the regulations in response to this comment.
    Comment: FSA should reference the statutory requirement for 
performance criteria and publish those criteria.
    Response: The existing statutory requirements for performance 
criteria are referenced in the preamble to the proposed rule. 
Specifically, Section 5304 of the 2008 Farm Bill amends the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1981-2008r, the 
Con Act) to add a section that requires the Secretary to establish a 
plan and performance criteria that promote the goal of transitioning 
borrowers to private commercial credit and other sources of credit in 
the shortest time possible. As discussed in the preamble to the 
proposed rule, FSA does not intend to publish additional detail about 
the performance criteria in the regulations. Regulations set 
requirements and benefits for the public; these performance criteria 
are the internal procedures that FSA will use to evaluate its own 
performance in transitioning borrowers to private credit.

Extension of Right To Reacquire Homestead Property to Family Members

    Comment: Why is this opportunity only provided for lessees who are 
a member of a socially disadvantaged group, rather than all lessees? If 
it's a good idea for one, it's a good idea for all.
    Response: FSA cannot extend this opportunity to all lessees because 
Section 5305 of the 2008 Farm Bill does not provide authority for us to 
do so. FSA is merely implementing the statutory language approved by 
Congress.

Out of Scope Comment

    Comment: Oppose FSA's ``term limits'' on loans and the applicable 
provisions should have been removed in the 2008 Farm Bill. Term limits 
are arbitrary.
    Response: This comment is outside the scope of this rule. FSA did 
not propose changing the term limits in the proposed rule.

Miscellaneous Changes

    This rule makes minor clarifying changes, which are not in response 
to a comment on the provisions in the proposed rule, to make terms 
consistent throughout the rule. For example, this rule consistently 
uses the term ``lessee or designee'' to refer to a lessee utilizing a 
lease-purchase option, rather than sometimes using that term and 
sometimes using the term ``purchaser.'' This rule also adds references 
to Conservation Loans where appropriate, to clarify which provisions do 
not apply to those loans.

Executive Order 12866

    The Office of Management and Budget (OMB) designated this rule as 
not significant under Executive Order 12866 and, therefore, OMB has not 
reviewed this final rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) 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. FSA has determined that this rule will not 
have a significant impact on a substantial number of small entities for 
the reasons explained below. Thus, FSA has not prepared a regulatory 
flexibility analysis.
    All FSA direct loan borrowers and all farm entities affected by 
this rule are small businesses according to U.S. Small Business 
Administration small business size standards. There is no diversity in 
size of the entities affected by this rule, and the costs to comply 
with it are the same for all sizes of entities. The costs of compliance 
with this rule are expected to be minimal. The foreclosure and loan 
acceleration moratorium will reduce interest costs for some borrowers, 
and should in no case increase costs for borrowers. No comments were 
received on the proposed rule regarding disparate impact on small 
entities. Therefore, FSA certifies that this rule will not have a 
significant economic impact on a substantial number of small entities.

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and FSA regulations 
for compliance with NEPA (7 CFR part 799). The changes to the FLP 
direct loan servicing program, required by the 2008 Farm Bill, that are 
identified in this final rule are administrative in nature and can be 
considered non-discretionary. Therefore, FSA has

[[Page 5057]]

determined that NEPA does not apply to this rule, and no environmental 
assessment or environmental impact statement will be prepared.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials. The 
objectives of the Executive Order are to foster an intergovernmental 
partnership and a strengthened Federalism, by relying on State and 
local processes for State and local government coordination and review 
of proposed Federal Financial assistance and direct Federal 
development. For reasons set forth in the Notice to 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983), the programs and activities 
within this rule are excluded from the scope of Executive Order 12372.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, ``Civil Justice Reform.'' The provisions of this rule will not 
have preemptive effect with respect to any State or local laws, 
regulations, or policies that conflict with such provision or which 
otherwise impede their full implementation. The rule will not have 
retroactive effect. Before any judicial action may be brought regarding 
this rule, all administrative remedies in accordance with 7 CFR part 11 
must be exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, the relationship between the 
Federal government and the States, or the distribution of power and 
responsibilities among the various levels of government. Nor does this 
final rule impose substantial direct compliance costs on State and 
local governments. Therefore, consultation with the States is not 
required.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination with Indian Tribal 
Governments.'' This Executive Order imposes requirements on the 
development of regulatory policies that have tribal implications or 
preempt tribal laws. The policies contained in this rule do not preempt 
Tribal law. This rule was included in the October through December 
2010, Joint Regional Consultation Strategy facilitated by USDA that 
consolidated consultation efforts of 70 rules from the 2008 Farm Bill. 
USDA sent senior level agency staff to seven regional locations and 
consulted with Tribal leadership in each region on the rules. When the 
consultation process is complete, USDA will analyze the feedback and 
then incorporate any appropriate changes into the regulations through 
rulemaking procedures.
    USDA will respond in a timely and meaningful manner to all Tribal 
government requests for consultation concerning this rule and will 
provide additional venues, such as webinars and teleconferences, to 
periodically host collaborative conversations with Tribal leaders and 
their representatives concerning ways to improve this rule in Indian 
country.

Unfunded Mandates

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates as defined by Title II of UMRA for 
State, local, or tribal governments or for the private sector. 
Therefore, this rule is not subject to the requirements of sections 202 
and 205 of UMRA.

Federal Assistance Programs

    The title and number of the Federal assistance programs, as found 
in the Catalog of Federal Domestic Assistance, to which this rule 
applies are:

10.099 Conservation Loans
10.404 Emergency Loans
10.406 Farm Operating Loans
10.407 Farm Ownership Loans

Paperwork Reduction Act

    The amendments to 7 CFR parts 761 and 766 in this final rule 
require no new collection or changes to the current information 
collections approved by OMB under the control numbers 0560-0233 and 
0560-0238.

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.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs--Agriculture, Rural areas.

7 CFR Part 766

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
programs--Agriculture.

    For the reasons discussed above, this rule amends 7 CFR chapter VII 
as follows:

PART 761--GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

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

Subpart A--General Provisions


0
2. In Sec.  761.1, amend paragraph (c) by adding a new third sentence 
to read as follows:


Sec.  761.1  Introduction.

* * * * *
    (c) * * * The programs are designed to allow those who participate 
to transition to private commercial credit or other sources of credit 
in the shortest period of time practicable through the use of 
supervised credit, including farm assessments, borrower training, 
market placement, and borrower graduation requirements.
* * * * *

Subpart B--Supervised Bank Accounts

0
3. In Sec.  761.51, revise paragraph (e), introductory text, to read as 
follows:


Sec.  761.51  Establishing a supervised bank account.

* * * * *
    (e) If the funds to be deposited into the account cause the balance 
to exceed the maximum amount insurable by the Federal Government, the 
financial institution must agree to pledge acceptable collateral with 
the Federal Reserve Bank for the excess over the insured amount, before 
the deposit is made.
* * * * *

Subpart C--Supervised Credit

0
4. In Sec.  761.103, revise paragraphs (a), (b)(9), and (b)(10), and 
add paragraph (b)(11) to read as follows:

[[Page 5058]]

Sec.  761.103  Farm assessment.

    (a) The Agency, in collaboration with the applicant, will assess 
the farming operation to:
    (1) Determine the applicant's financial condition, organizational 
structure, and management strengths and weaknesses;
    (2) Identify and prioritize training and supervisory needs; and
    (3) Develop a plan of supervision to assist the borrower in 
achieving financial viability and transitioning to private commercial 
credit or other sources of credit in the shortest time practicable, 
except for CL.
    (b) * * *
    (9) Supervisory plan, except for streamlined CL;
    (10) Training plan; and
    (11) Graduation plan, except for CL.
* * * * *

PART 766--DIRECT LOAN SERVICING--SPECIAL

0
5. The authority citation for part 766 is revised to read as follows:

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

Subpart D--Homestead Protection Program


0
6. In Sec.  766.154, revise paragraph (c) to read as follows:


Sec.  766.154  Homestead Protection Leases.

* * * * *
    (c) Lease-purchase options. (1) The lessee may exercise in writing 
the purchase option and complete the homestead protection purchase at 
any time prior to the expiration of the lease provided all lease 
payments are current.
    (2) If the lessee is a member of a socially disadvantaged group, 
the lessee may designate a member of the lessee's immediate family 
(that is, parent, sibling, or child) (designee) as having the right to 
exercise the option to purchase.
    (3) The purchase price is the market value of the property when the 
option is exercised as determined by a current appraisal obtained by 
the Agency.
    (4) The lessee or designee may purchase homestead protection 
property with cash or other credit source.
    (5) The lessee or designee may receive Agency program or non-
program financing provided:
    (i) The lessee or designee has not received previous debt 
forgiveness;
    (ii) The Agency has funds available to finance the purchase of 
homestead protection property;
    (iii) The lessee or designee demonstrates an ability to repay such 
an FLP loan; and
    (iv) The lessee or designee is otherwise eligible for the FLP loan.
* * * * *

Subpart H--Loan Liquidation

0
7. Add Sec.  766.358 to read as follows:


Sec.  766.358  Acceleration and foreclosure moratorium.

    (a) Notwithstanding any other provisions of this subpart, borrowers 
who file or have filed a program discrimination complaint that is 
accepted by USDA Office of Adjudication or successor office (USDA), and 
have been serviced to the point of acceleration or foreclosure on or 
after May 22, 2008, will not have their account accelerated or 
liquidated until such complaint has been resolved by USDA or closed by 
a court of competent jurisdiction. This moratorium applies only to 
program loans made under subtitle A, B, or C of the Act (for example, 
CL, FO, OL, EM, SW, or RL). Interest will not accrue and no offsets 
will be taken on these loans during the moratorium. Interest accrual 
and offsets will continue on all other loans, including, but not 
limited to, non-program loans.
    (1) If the Agency prevails on the program discrimination complaint, 
the interest that would have accrued during the moratorium will be 
reinstated on the account when the moratorium terminates, and all 
offsets and servicing actions will resume.
    (2) If the borrower prevails on the program discrimination 
complaint, the interest that would have accrued during the moratorium 
will not be reinstated on the account unless specifically required by 
the settlement agreement or court order.
    (b) The moratorium will begin on:
    (1) May 22, 2008, if the borrower had a pending program 
discrimination claim that was accepted by USDA as valid and the account 
was at the point of acceleration or foreclosure on or before that date; 
or
    (2) The date after May 22, 2008, when the borrower has a program 
discrimination claim accepted by USDA as valid and the borrower's 
account is at the point of acceleration or foreclosure.
    (c) The point of acceleration under this section is the earliest of 
the following:
    (1) The day after all rights offered on the Agency notice of intent 
to accelerate expire if the borrower does not appeal;
    (2) The day after all appeals resulting from an Agency notice of 
intent to accelerate are concluded if the borrower appeals and the 
Agency prevails on the appeal;
    (3) The day after all appeal rights have been concluded relating to 
a failure to graduate and the Agency prevails on any appeal;
    (4) Any other time when, because of litigation, third party action, 
or other unforeseen circumstance, acceleration is the next step for the 
Agency in servicing and liquidating the account.
    (d) A borrower is considered to be in foreclosure status under this 
section anytime after acceleration of the account.
    (e) The moratorium will end on the earlier of:
    (1) The date the program discrimination claim is resolved by USDA 
or
    (2) The date that a court of competent jurisdiction renders a final 
decision on the program discrimination claim if the borrower appeals 
the decision of USDA.

    Signed in Washington, DC, on January 21, 2011.
Jonathan W. Coppess,
Administrator, Farm Service Agency.
[FR Doc. 2011-1917 Filed 1-27-11; 8:45 am]
BILLING CODE 3410-05-P