This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

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Rules and Regulations Federal Register

17353 

Vol. 72, No. 67 

Monday, April 9, 2007 

DEPARTMENT OF AGRICULTURE 

Farm Service Agency 

7 CFR Part 762 

RIN 0560–AG46 

Revision of the Interest Assistance 

Program 

AGENCY: Farm Service Agency, USDA. 

ACTION: Final rule. 

SUMMARY: The Farm Service Agency 

(FSA) is amending its regulations 

governing how FSA guaranteed farm 

loan borrowers may obtain a subsidized 

interest rate on their guaranteed farm 

loan. This program is known as the 

interest assistance (IA) program. 

Changes include deletion of annual 

review requirements, limitations on 

maximum subsidy payments and period 

of assistance, and streamlining of claim 

submission. The changes are intended 

to reduce paperwork burden on program 

participants and agency employees, 

make IA available to more farmers, 

reduce the costs of the program, and 

enhance the fiscal integrity of the 

program. 

EFFECTIVE DATE: June 8, 2007. 

FOR FURTHER INFORMATION CONTACT: 

Tracy L. Jones, Senior Loan Officer, 

Farm Service Agency; telephone: (202) 

720–3889; Facsimile: (202) 720–6797; email: Tracy.Jones@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: 

Summary of Public Comments 

FSA published a proposed rule on 

June 22, 2005, (69 FR 36055–36060) to 

amend its regulations governing loans 

made under the guaranteed farm loan 

program, IA program. The initial 

comment period deadline of August 22, 

2005, was extended to September 6, 

2005, due to a change in the e-mail 

address of the information contact. 

Comments were received from 144 

respondents from 18 states and the 

District of Columbia. Many of the 

respondents provided multiple 

comments. 

Six respondents supported the 

proposed rule in its entirety, stating that 

the entire proposed rule was well 

written and easy to understand, or 

commenting that the proposed rule 

looks good and will save a lot of time. 

Three respondents did not approve of 

the IA program at all; however, they did 

not give specific reasons as to why they 

opposed the IA program. 

Two respondents asked that the 

Agency keep the program the same 

because they really needed to keep 

receiving the money. Another indicated 

that the assistance received makes the 

difference between making a profit or 

not. While the Agency understands the 

importance of the assistance, there were 

no specific recommendations provided 

to support their general comments. 

One respondent generally asked how 

the changes would affect those serving 

in Iraq. No specific changes were made 

to address this issue. Borrowers called 

to active duty will continue to be 

handled in accordance with existing 

procedures. 

One respondent indicated under the 

discussion of the proposed rule, the 

Agency gave a negative connotation of 

borrowers receiving IA by stating those 

recipients were ‘‘underdeveloped’’. The 

Agency in no way intended to portray 

farmers in a negative connotation, so 

this terminology has not been used in 

the final rule. 

While these comments received in 

opposition to the proposed changes 

were reviewed, they did not provide 

specific recommendations, so no 

changes were made in the final rule to 

address them. 

Following is a review of specific 

comments and the changes made in the 

final rule in response to the comments. 

Loans Eligible for Interest Assistance 

The Agency proposed to delete 

references to providing IA on Farm 

Ownership (FO) loans and existing 

guaranteed Operating Loans (OL) in 

conjunction with a rescheduling action 

because Congress has not appropriated 

IA funds for these purposes since 1992. 

Seven comments supported this change. 

One respondent indicated that FO’s 

would be too costly for the program. 

However, 35 comments received were 

opposed to the change citing that it 

would be a mistake to eliminate 

regulations governing the use of IA for 

FO’s and/or existing OL’s. In the event 

that funds were appropriated to fund IA 

for these other types of loans, 

implementation would be delayed while 

FSA implemented regulations again to 

govern these aspects of the program. 

The respondents stated that they 

recognize the desire to streamline the 

Code of Federal Regulations, but believe 

it does no harm to leave regulations in 

place for currently unfunded 

applications of IA. The Agency carefully 

considered the comments and 

determined that because funding has 

not been provided since fiscal year 1992 

and such funding would be 

prohibitively expensive, the proposed 

change is warranted. Therefore, the final 

rule implements the proposal to limit IA 

to new guaranteed OL’s only. 

One respondent stated the Agency 

should eliminate the requirement to 

consider IA after loan default. The 

Agency agrees with this comment, 

however, this requirement is required 

by 7 U.S.C. 1999 and can only be 

changed by Congress. 

One respondent recommended that 

the Agency prohibit the use of a loan 

with IA to refinance debt owed by the 

applicant to another lender. The Agency 

agrees that this change would prevent 

lenders from using IA to unfairly market 

their loans to their competitor’s 

customers and would extend limited 

program funds. However, this is a 

localized problem and would be a 

significant program change that would 

make a large number of applicants 

ineligible. Thus, the agency decided not 

to include this change in the final rule. 

One respondent requested additional 

guidance on the definition of 

nonessential assets. The Agency feels 

that the definition and discussion in the 

rule are sufficiently clear. No changes 

are made in the final rule; however, 

additional guidance will be provided in 

the FSA field office handbook for the 

Guaranteed Loan Program. Also, as was 

suggested by one respondent, direction 

will be added to this handbook for FSA 

employees on when it is appropriate to 

encourage lenders to use the FO 


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17354 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Rules and Regulations 

program rather than IA to fund an 

applicant’s needs. 

Debt-to-Asset Ratio 

As stated in the proposed rule, 

current regulations provide for IA based 

simply on cash flow. Agency reviews 

have revealed that some borrowers who 

receive IA have a significant net worth, 

with adequate financial strength that 

would allow them to restructure their 

liabilities to meet their credit needs 

without receiving IA. To address this 

concern the Agency proposed to limit 

IA to applicants who possess a debt-toasset ratio in excess of 50 percent prior 

to receiving the new loan. There were 

18 comments that supported this 

change. These comments pointed out 

that this would limit subsidy to the 

more highly stressed borrowers and 

reduce the number of large loans that 

have used a large portion of the funding 

allocation. 

Conversely, 73 comments received 

did not support this change. Seven 

respondents disagreed with this 

proposal in general but did not give 

specific reasons for their concern. 

Another had strong objection to the 

change, although the respondent went 

on to comment that most of the loans on 

IA have a 50 percent or higher debt-toasset ratio. Nine respondents were 

concerned that the ratio would limit 

eligibility and may screen out needy 

operations. Three respondents suggested 

that a 50 percent debt-to-asset ratio was 

too liberal, and suggested that a ratio 

between 35 to 40 percent would be more 

appropriate. Three other respondents 

indicated that 50 percent was too low 

and suggested the agency adopt a 65 

percent ratio. Six respondents were 

concerned that this proposed change 

would only cause problems, would not 

simplify the program, and could lead to 

burdensome documentation and 

applicants’ manipulation of balance 

sheets. 

The Agency’s proposed limit for new 

IA applicants to possess a debt to asset 

ratio in excess of 50 percent prior to the 

new loan is reasonable. The 50 percent 

level was proposed after the Agency 

performed an analysis of the financial 

characteristics of borrowers in the 

guaranteed loan program to determine 

the correlation between debt to asset 

ratio, loan performance, and the need 

for interest subsidy. The Agency found 

that one-third of the borrowers in the 

current guaranteed portfolio have a debt 

to asset ratio of 50 percent or greater 

while approximately one-fourth of the 

guaranteed operating loans receive IA. 

Additionally, a 50 percent debt to asset 

ratio is the most common capital 

standard used by those lenders who 

have achieved the Agency’s preferred 

lender status. The Agency acknowledges 

that some applicants will become 

ineligible, but believes that applicants 

below the 50 percent threshold have the 

financial strength to restructure their 

debt and cash flow without an interest 

subsidy. Guidance will be provided in 

the Agency’s handbook on how to 

address fraud or misrepresentation of 

asset values. 

Forty-six respondents recommended 

that the Agency use a measure of 

repayment ability rather than one of 

solvency. Thirteen respondents 

indicated that it would be difficult to 

impossible to lend money solely based 

on this change; a true depiction of the 

need for IA should be based instead on 

a producer’s cash flow. Three 

respondents indicated that this proposal 

was unfair, because it does not take into 

account each individual operation, 

unfairly penalized those who have 

owned real estate for some time, or 

unfairly impacted agricultural operators 

in their areas who need IA initially to 

have adequate repayment capacity. 

The Agency acknowledges that an 

applicant with a strong net worth does 

not necessarily have strong cash flow 

and vice versa. This rule maintains the 

current IA capacity provision which 

requires that an applicant be unable to 

repay the debt at the note rate of interest 

without a subsidy. However, this 

control by itself has been inadequate. 

The Agency’s long standing policy is 

that IA is intended for farmers with 

inadequate financial resources. 

Producers with a strong net worth have 

assets with which to restructure their 

debt and improve their cash flow. 

Therefore, this rule provides that 

applicants with such resources cannot 

receive an interest subsidy. 

One respondent suggested the Agency 

calculate the applicant’s debt to asset 

ratio as it would be after the loan is 

closed. The Agency seriously 

considered this recommendation. 

However, it was determined that this 

limitation would be subject to 

manipulation in that an applicant could 

possibly purchase assets or acquire debt 

in order to achieve a debt/asset ratio 

that would qualify them for the subsidy. 

The Agency, therefore, is not adopting 

this suggestion. 

One respondent suggested using an 

applicant’s current ratio, not debt to 

asset ratio. The Agency chose to not 

adopt this recommendation because of 

the volatility of this ratio throughout the 

operating year. 

Of the comments opposed to the 

change, five indicated that the proposal 

would unjustly impact beginning 

farmers and ranchers because they 

typically have smaller operations with 

less debt. For example, a beginning 

farmer or rancher may have a pickup 

truck with very few other assets and 

almost no debt, and could very easily 

have greater than 50 percent equity and, 

therefore, be ineligible for IA subsidy. 

This was not the Agency’s intent. 

Beginning farmers are specifically 

targeted by FSA for increased assistance 

because of their inability to access 

private credit programs. In addition, this 

program could provide such applicants 

with the assistance needed to get them 

through the difficult early years as they 

accumulate farm assets and become 

financially viable. By specifically 

targeting funds to beginning farmers in 

the statute, Congress has clearly 

signaled its intent that the Agency 

should endeavor to address the specific 

needs of this group. Therefore, the rule 

has been modified to exclude beginning 

farmers and ranchers from this debt to 

asset restriction. The 50 percent equity 

limitation will be applied to applicants 

not defined as beginning farmers. This 

will target the limited amount of IA 

funds to those most in need of the 

assistance. 

Maximum Assistance Period 

Existing regulations limit IA for each 

borrower to a maximum of 10 years 

from the date of the first IA agreement 

signed by the loan applicant, including 

entity members, or the outstanding term 

of the loan, whichever is less. The 

proposed rule would limit each 

borrower to a total of 5 consecutive 

years of IA eligibility. Seventy-nine 

comments received were opposed to 

this change. These comments stated that 

this change would be detrimental to 

some borrowers and suggested that the 

current 10-year limitation is the 

minimum time needed to give farmers 

and ranchers adequate opportunity to 

establish their operations considering 

the realities of weather. One respondent 

indicated that he believed the Agency 

had ‘‘sold out’’, and the Agency should 

extend and not shorten the program. 

Three respondents suggested a 7-year 

maximum assistance period. There were 

25 comments that supported the change 

and stated that 5 years was an adequate 

period of time for a farm to achieve, or 

return to, profitability. 

Two respondents stated that the 

maximum assistance period should be 

for the life of the borrower, not 

consecutive years. To adopt this 

suggestion, the need for subsidy would 

need to be determined each year and the 

Agency could not eliminate the annual 

needs test. Of the changes in this rule, 

elimination of the annual needs test will 

result in the most significant reduction 


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Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Rules and Regulations 17355 

in burden on the public. The advantage 

to a borrower receiving 5 years of 

subsidy in intermittent 1-year periods, 

rather than in one 5-year block, would 

be minimal when compared to the 

increased administrative burden to all 

parties involved with adopting such a 

proposal. Some producers will receive 

less total subsidy due to the reduced 

term. Nonetheless, budget constraints 

force the Agency to make difficult 

decisions regarding the best use of 

Government resources. The IA program 

is intended to provide temporary relief, 

and the Agency has determined that 5 

years is an adequate maximum subsidy 

period within which an applicant’s 

operation should become sufficiently 

profitable to eliminate the need for an 

interest subsidy. 

One respondent supported the 

reduction to 5 years only if the annual 

renewal process is eliminated as 

proposed. The Agency agrees. 

The Agency is making an additional 

change in the final rule with regard to 

the maximum IA period for beginning 

farmers and ranchers. It was determined 

that 5 years may be too short a period 

of time for beginning farmers and 

ranchers to accumulate assets and 

reduce debt load to a level necessary for 

the operation to be viable without IA. 

The final rule permits beginning farmers 

to receive a second 5-year period of IA 

eligibility if their cash flow requires the 

subsidy, and they are still beginning 

farmers at the end of the first 5-year 

period. Non-beginning farmers are still 

limited to one 5-year period of 

eligibility as provided in the proposed 

rule. 

Some respondents expressed concern 

that this rule would reduce the term on 

existing IA agreements. That is 

incorrect. Existing agreements will 

remain in effect as written. In addition, 

the rule provides existing borrowers 

time to prepare for the reduced period 

of eligibility to ease the transition to this 

new maximum period. 

Maximum Interest Assistance Payment 

The proposed rule did not restrict the 

maximum guaranteed loan that could be 

received, but did limit the maximum 

amount of debt on which an applicant 

may receive IA to $400,000. With the 

percentage rate of IA subsidy 

established at 4 percent, this change 

would limit the amount of subsidy that 

may be paid to a maximum of $16,000 

annually ($400,000 × .04). Twenty-four 

comments supported this change, 

stating that this would permit FSA to 

assist a larger number of young, 

beginning, and small producers and 

reduce abuse in the program. There 

were 76 comments opposed to the 

change. The opposing comments stated 

that this change was too restrictive, 

arbitrary, limits legitimate borrowers 

from accessing the program, and was 

inappropriate considering that the costs 

required for farming have increased. 

Another four respondents suggested 

the subsidized debt limit be indexed to 

inflation and adjusted annually 

accordingly. The Agency concedes that 

indexing the maximum amount of debt 

on which an applicant may receive IA 

would be minimally advantageous to 

farmers. However, changing the 

maximum amount annually would 

increase the cost of the program each 

year, would be administratively 

complex, and would make planning 

difficult because the amount would be 

changing each year. Therefore, the final 

rule does not link the maximum subsidy 

amount to inflation. 

Thirty-two respondents stated that 

this change would limit a benefit that 

Congress intended to be available across 

the board. However, the Agency feels 

that Congress intended that IA be 

provided to those who need it most. If 

Congress had intended that borrowers of 

all sizes receive the maximum benefit it 

seems the level of IA funds appropriated 

annually would have kept pace with 

demand. However, this is not the case. 

In recent fiscal years, IA funds have 

been depleted early in the fiscal year. 

The numbers of large loans receiving IA 

are a main cause for this rapid depletion 

of funds and the result is a decrease in 

the number of borrowers assisted with 

IA. Appropriations to the program have 

not increased while the sizes of 

guaranteed loans, including those with 

IA, have increased. Therefore, the 

Agency believes the respondent’s 

rationale is misplaced, and reducing the 

maximum amount of subsidy payable to 

each producer does not violate 

Congressional intent for the program. 

A number of respondents implied that 

the Agency was proposing to decrease 

the maximum guaranteed loan to 

$400,000. This is not correct; a borrower 

with IA may still incur the maximum 

allowable guaranteed loan debt; 

however, subsidy payments will be 

limited to $16,000 per year. As clarified 

in the final rule, this maximum 

guaranteed loan level with interest 

assistance is a lifetime limit. 

In summary, the Agency, as proposed, 

will limit subsidy payments to $16,000 

per year, for a term of 5 years. The IA 

program is the most expensive of the 

Agency’s guaranteed farm loan 

programs. These limits will help control 

costs, allow limited funds to reach more 

borrowers, and target those funds to 

applicants with the most need. These 

changes will not prevent borrowers from 

accessing the program; the Agency still 

expects all available funds to be utilized 

each year. 

Guarantee Fees 

The proposed rule proposed to 

eliminate the waiver of a guarantee fee 

for IA loans. Seventy-five comments 

were opposed to this change. These 

respondents stated that a fee is counterproductive and adds stress to farmers 

already in financial trouble. Four 

respondents expressed an additional 

concern about how the fee would affect 

beginning farmers and ranchers. 

Since the IA proposed rule was 

published on June 22, 2005, the Agency 

published another rule proposing to 

increase the fees charged for guaranteed 

loans (71 FR 27978, May 15, 2006). To 

comply with anticipated budget 

requirements and maintain new loan 

activity at the proposed level, the 

Agency must increase fees. 

The Agency has decided to leave this 

issue open and will finalize it with the 

proposed rule (71 FR 27978) regarding 

fees. All comments on this issue will be 

carefully considered at that time. No 

change of the guarantee fee for IA loans 

is being made in this rule. 

Reduced Application Requirements 

The existing regulation requires 

lenders to submit a repayment schedule 

for the guaranteed loan and a projected 

monthly cash flow budget on lines of 

credit. The Agency proposed to delete 

these requirements as the forms are not 

necessary to make the evaluation, and 

impose significant burdens on program 

participants. Sixty-seven comments 

supported this change to make the 

program more attractive to lenders due 

to the reduced paperwork burden. 

Twelve respondents opposed the 

change, indicating that the monthly 

budgets are important financial analysis 

documents and the requirement for 

lines of credit should not be removed. 

The Agency acknowledges that monthly 

cash flow budgets can be useful tools 

and certainly may be used when 

needed, at the lender’s discretion. 

However, they are not always necessary 

and should not be required by the 

Agency. The final rule adopts the 

proposed rule as written with regard to 

the application requirements. 

Removal of Annual Review 

Requirements 

Current regulations require a lender to 

submit to FSA—once a year, each year, 

for each IA borrower, for the term of the 

IA agreement—a form requesting the 

previous year’s interest subsidy 

payment and a ‘‘needs test’’. This needs 

test must document that the borrower 


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needs IA in the next production cycle, 

usually a year, in order to achieve a 

feasible business plan. The proposed 

rule proposed to reduce the submission 

requirements for annual claims for IA 

payment. In the proposal, IA would 

simply be authorized for 5 years for the 

borrower from the date of the first IA 

agreement. The lender would only be 

required to submit an Agency IA 

payment form and the average daily 

principal balance for the claim period, 

with supporting documentation. 

Comments were received from 58 

respondents supporting this change. 

These comments stated that this 

streamlined claim process should make 

the program much more attractive to all 

participants. There were 11 comments 

opposed to the change stating that 

although the existing submission 

requirements may be burdensome, they 

were necessary to determine if IA was 

actually needed. One respondent stated 

that this would remove a ‘‘supervision 

tool’’. 

As discussed in the preamble to the 

proposed rule, the annual review 

requirements have not been a 

meaningful control for the program. 

Approximately 93 percent of the 

borrowers operating under an IA 

agreement receive a subsidy payment 

each year, regardless of the amount and 

scope of documentation that has been 

required. Clearly, the significant 

administrative burden has not been cost 

effective and is not warranted. In 

addition, this burden has resulted in an 

unbalanced program as it discourages 

many lenders from participating at all, 

effectively making the program 

unavailable to producers in certain parts 

of the country. The Agency feels that the 

few producers who may receive a 

subsidy payment at a time when they 

may not need it is far outweighed by the 

improved delivery and more equitable 

distribution of the program throughout 

the country that will result from these 

reduced annual review requirements. 

The Agency will continue to honor 

existing Interest Assistance agreements 

that require an annual needs test. 

Two respondents suggested that the 

producer be required to keep loan 

agreements, such as accounting for 

collateral and supplying requested 

financial information, to receive annual 

subsidy payments. The Agency believes 

that it is the lender’s responsibility to 

enforce its loan agreements. FSA will 

make subsidy payments upon the 

lender’s request in accordance with the 

Interest Assistance Agreement and FSA 

regulations. No changes have been made 

in relation to these comments. 

Fees Charged by Lenders for IA Claims 

Submissions 

Agency reviews of guaranteed lenders 

indicate that some lenders charge fees to 

the borrower for the preparation of 

documentation and claims for payment 

of IA that are submitted to FSA. The 

Agency proposed to prohibit these fees. 

There were 36 comments opposed to 

this change, stating that the Agency 

should not be in the business of 

regulating fees charged by lenders, and 

that banks should be allowed to recover 

their preparation costs. Respondents 

opposed to the change also stated that 

it was contradictory to prohibit a fee 

when the Agency will be increasing its 

guarantee fee. Twenty-three respondents 

supported this change, stating that 

borrowers are in financially stressed 

circumstances, additional fees are 

counter-productive, and lenders did not 

charge a fee anyway. The Agency has 

carefully considered the comments and 

has adopted as final the prohibition on 

fees as proposed. Most of the 

requirements for IA claims are 

eliminated in this rule, greatly reducing 

lender administrative costs. Since IA 

claims are now very easy to submit 

charging fees for IA claims is not 

appropriate. 

First and Final Claims 

Existing regulations require final IA 

claims to be submitted concurrently 

with the submission of any estimated 

loss claims. The Agency proposed that, 

upon liquidation of a loan, the lender 

complete the Request for Interest 

Assistance and submit it to the Agency 

concurrently with any estimated or final 

loss claims. Approximately 15 

comments supported this change; 

however, some comments indicated that 

it should be more clearly stated. Based 

on these comments, the Agency has 

clarified this section regarding final IA 

claims being submitted with the 

estimated loss claim or final loss claim 

if an estimated loss claim was not 

previously provided, and added that the 

IA accrual date cannot exceed the last 

date of interest accrual for a loss claim. 

Servicing 

The proposed rule proposed to clarify 

numerous servicing actions concerning 

IA including: transfers, assumptions, 

writedown, interest reduction due to 

court order in bankruptcy 

reorganization, and loan restructuring. 

There were 15 comments received 

supporting these changes. 

One respondent objected to allowing 

the rescheduling of loans subject to IA, 

but not allowing the IA agreement term 

to be extended beyond 5 years from the 

date of the first IA agreement. This 

comment stated that such IA loans are 

in need of maximum assistance and 

these interest assistance agreements 

should be extended to 10 years. 

Extending the term due to restructuring 

would be difficult to control, as even 

performing loans might be restructured 

in an effort to assure that every borrower 

has IA available for an additional time 

period. This would defeat the purpose 

of limiting the term to 5 years per 

borrower. For consistency purposes, all 

borrowers will be treated the same, and 

the Agency did not adopt this comment. 

Another respondent requested that 

entities be allowed to assume a loan 

with IA. The Agency agrees and will 

allow this to occur if the entity is 

eligible and one of the entity members 

was liable for the debt when the original 

agreement was signed. Since the entity 

is eligible for a loan with IA, this is a 

reasonable way to accommodate the 

situation, and save loan funds. 

Otherwise, the entity would have to 

make an application for a new loan, 

requiring expenditure of more loan 

funds and more subsidized funding, all 

to achieve the same result, a loan with 

IA. 

Two respondents suggested that the 

Agency was not clear on how it would 

handle restructuring of a guaranteed 

loan above the authorized IA amount. 

One of the respondents thought that the 

amount restructured above the IA 

portion of the loan would not be 

guaranteed. In response, the Agency has 

clarified and expanded on § 762.150(k) 

to more specifically state that lenders 

are able to capitalize interest when 

restructuring up to the original loan 

amount under the remaining terms and 

still have interest assistance available 

for the full amount of the original loan. 

This clarification mirrors the existing 

practice and has no impact on funding 

because IA funds have already been set 

aside at loan origination. When 

restructuring, if terms are increased or 

interest is capitalized to the extent that 

additional funds are needed, Agency 

approval is subject to funding 

availability. Interest assistance is not 

available on that portion of the loan as 

interest assistance is limited to the 

original loan amount. 

A final technical correction is being 

made to remove the requirement for an 

IA claim to be submitted through the 

effective date of rescheduling. Claims 

are required to be submitted annually 

on the date identified on the interest 

assistance agreement and in the event of 

rescheduling; only an annual claim is 

needed. The claim submission is 

already addressed in this rule and more 

details on administrative processing 


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Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Rules and Regulations 17357 

will be elaborated on in the Agency 

Handbook. 

Miscellaneous Changes 

The proposed rule proposed to 

update, clarify, and remove references 

to forms and internal administrative 

processes to be completed for IA loans. 

There were 5 comments that supported 

these changes. The Agency adopts the 

proposed rule on these miscellaneous 

changes as written. In addition, the 

Agency is removing the definitions for 

‘‘Interest Assistance Review’’ and 

‘‘Interest Assistance Anniversary Date’’

as unnecessary. It is also revising the 

definition of ‘‘Average Farm Customer’’

to ‘‘Average Agricultural Loan 

Customer.’’

Average Customer Rate 

The proposed rule provided in 

§ 762.150(b)(6) that the lender may 

charge a fixed or variable interest rate, 

but not in excess of what the lender 

charges its average farm customer. One 

respondent stated that FSA should not 

dictate rates and a guaranteed customer 

should not be compared with a nonguaranteed customer because of 

increased risk. Another indicated that 

they had not used the program; 

however, higher risk borrowers should 

pay a higher rate like the rest of the 

borrowing community. The Agency 

does not agree. This limitation has been 

in place many years under § 762.124 

and the proposed rule did not propose 

a change in this area. The guarantee 

from FSA compensates the lender for 

most of its risk of loss. Lenders 

ordinarily charge higher risk customers 

a higher interest rate to compensate for 

the higher probability of loss associated 

with such loans. The guarantee 

eliminates most of that risk, so the 

lender cannot justify charging a ‘‘risk 

premium’’ as a part of the interest rate 

on guaranteed loans. The lender, when 

it comes to alleviating the higher risk 

from a loan to a borrower that they may 

not normally extend credit, may charge 

that customer a higher rate of interest, 

or obtain an FSA guarantee, not both. 

Thirty-one respondents objected to 

FSA using the term ‘‘average farm 

customers’’ to describe the maximum 

interest rate that could be charged. 

These respondents stated that there is 

no single, clear definition of this term. 

Respondents also recommended that the 

Agency clarify the limitation on the 

maximum interest rate that can be 

charged under § 762.124(a)(3). They 

pointed out that this provision discusses 

‘‘average agricultural loan customer’’

while the term ‘‘average farm 

customers’’ is defined in § 762.102(a). 

FSA and guaranteed lenders historically 

have considered these terms 

synonymous; however for clarity, the 

Agency is amending the definition in 

§ 762.102(a) and reference in 

§ 762.124(a)(2) to ‘‘average agricultural 

loan customer’’, instead of ‘‘average 

farm customers.’’ The definition also is 

being clarified to refer to the 

conventional farm borrower who is 

required to pledge their crops, livestock, 

other chattel, ‘‘and/or’’ real estate 

security for the loan. As has always 

been the case, depending on the type of 

loan, available security and market 

conditions, different types of security 

may be required from conventional farm 

borrowers and not all types of security 

listed will be required of all borrowers. 

No substantive policy changes are made 

at this time. 

Exception Authority 

The proposed rule failed to provide 

exception authority as provided in the 

current § 762.150(k). The Agency is 

reinserting the exception authority rule. 

Based upon past experience and the 

need in the final for flexibility in 

implementing the new requirements in 

this rule, exception authority is needed 

to address unusual situations that may 

arise. If a case is not adverse to the 

Government or contrary to statute, and 

is in the Government’s best financial 

interest, the Agency may use this 

exception authority to waive a 

regulatory provision involving interest 

assistance. 

Executive Order 12866 

This rule has been determined by the 

Office of Management and Budget to be 

not significant for the purposes of 

Executive Order 12866, and was 

therefore not reviewed by the Office of 

Management and Budget. 

Regulatory Flexibility Act 

The Agency certifies that this rule 

will not have significant economic effect 

on a substantial number of small 

entities, because it does not require any 

specific actions on the part of the 

borrower or the lenders. The Agency 

made this certification in the proposed 

rule, and no comments were received in 

this area. The Agency, therefore, is not 

required to perform a Regulatory 

Flexibility Analysis as required by the 

Regulatory Flexibility Act, Public Law 

96–534, as amended (5 U.S.C. 601). 

Environmental Evaluation 

The environmental impacts of this 

final rule have been considered 

consistent with the provisions of the 

National Environmental Policy Act of 

1969 (NEPA), 42 U.S.C. 4321 et seq., the 

regulations of the Council on 

Environmental Quality (40 CFR parts 

1500–1508), and the FSA regulations for 

compliance with NEPA, 7 CFR part 

1940 subpart G. FSA concluded that the 

rule does not require preparation of an 

environmental assessment or 

environmental impact statement. 

Executive Order 12988 

This rule has been reviewed in 

accordance with Executive Order 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; it will not affect 

IA agreements entered into prior to the 

effective date of the rule to the extent 

that it is inconsistent with the terms of 

those agreements; 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 the 

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 are currently 

approved by OMB under control 

number 0560–0155. A proposed rule 

containing an estimate of the 

information collection burden of this 

rule was published on June 22, 2005 (70 

FR 36055–36060). No comments 


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17358 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Rules and Regulations 

regarding the burden estimates were 

received. 

Federal Assistance Programs 

These changes affect the following 

FSA programs as listed in the Catalog of 

Federal Domestic Assistance: 

10.406—Farm Operating Loans 

10.407—Farm Ownership Loans 

List of Subjects in 7 CFR Part 762 

Agriculture; Loan programs; Banks, 

banking; Credit. 

■ For the reasons stated in the preamble, 

the Farm Service Agency is amending 7 

CFR Chapter VII as set forth below: 

PART 762—GUARANTEED FARM 

LOANS 

■ 1. The authority citation for part 762 

continues to read as follows: 

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

■ 2. Amend § 762.102(b) by removing 

the definitions of the terms ‘‘average 

farm customers’’, ‘‘interest assistance 

anniversary date’’ and ‘‘interest 

assistance review’’ and adding the 

following definition in alphabetical 

order: 

§ 762.102 Abbreviations and definitions. 

* * * * * 

(b) * * * 

Average agricultural loan customer. 

The conventional farm borrower who is 

required to pledge crops, livestock, 

other chattels and/or real estate security 

for the loan. This does not include the 

high-risk farmer with limited security 

and management ability that is generally 

charged a higher interest rate by 

conventional agricultural lenders. Also, 

this does not include the low-risk farm 

customer who obtains financing on a 

secured or unsecured basis, who has as 

collateral items such as savings 

accounts, time deposits, certificates of 

deposit, stocks and bonds, and life 

insurance to pledge for the loan. 

* * * * * 

§ 762.124 [Amended] 

■ 3. Amend § 762.124(a)(2) to replace 

the phrase ‘‘average farm customers’’

with ‘‘average agricultural loan 

customer’’ in the second sentence. 

■ 4. Amend § 762.145 by revising 

paragraph (b)(2)(i) and the first sentence 

of paragraph (b)(8) to read as follows: 

§ 762.145 Restructuring guaranteed loans. 

* * * * * 

(b) * * * 

(2) * * * 

(i) A feasible plan as defined in 

§ 762.102(b). 

* * * * * 

(8) Any holder agrees to any changes 

in the original loan terms. * * * 

* * * * * 

■ 5. Revise § 762.150 to read as follows: 

§ 762.150 Interest assistance program. 

(a) Requests for interest assistance. In 

addition to the loan application items 

required by § 762.110, to apply for 

interest assistance the lender’s cash flow 

budget for the guaranteed loan applicant 

must reflect the need for interest 

assistance and the ability to cash flow 

with the subsidy. Interest assistance is 

available only on new guaranteed 

Operating Loans (OL). 

(b) Eligibility requirements. The 

lender must document that the 

following conditions have been met for 

the loan applicant to be eligible for 

interest assistance: 

(1) A feasible plan cannot be achieved 

without interest assistance, but can be 

achieved with interest assistance. 

(2) If significant changes in the 

borrower’s cash flow budget are 

anticipated after the initial 12 months, 

then the typical cash flow budget must 

demonstrate that the borrower will still 

have a feasible plan following the 

anticipated changes, with or without 

interest assistance. 

(3) The typical cash flow budget must 

demonstrate that the borrower will have 

a feasible plan throughout the term of 

the loan. 

(4) The borrower, including members 

of an entity borrower, does not own any 

significant assets that do not contribute 

directly to essential family living or 

farm operations. The lender must 

determine the market value of any such 

non-essential assets and prepare a cash 

flow budget and interest assistance 

calculations based on the assumption 

that these assets will be sold and the 

market value proceeds used for debt 

reduction. If a feasible plan can then be 

achieved, the borrower is not eligible for 

interest assistance. 

(5) A borrower may only receive 

interest assistance if their total debts 

(including personal debts) prior to the 

new loan exceed 50 percent of their 

total assets (including personal assets). 

An entity’s debt to asset ratio will be 

based upon a financial statement that 

consolidates business and personal 

debts and assets of the entity and its 

members. Beginning farmers and 

ranchers, as defined in § 762.102, are 

excluded from this requirement. 

(c) Maximum assistance. The 

maximum total guaranteed OL debt on 

which a borrower can receive interest 

assistance is $400,000, regardless of the 

number of guaranteed loans 

outstanding. This is a lifetime limit. 

(d) Maximum time for which interest 

assistance is available. (1) A borrower 

may only receive interest assistance for 

one 5-year period. The term of the 

interest assistance agreement executed 

under this section shall not exceed 5 

consecutive years from the date of the 

initial agreement signed by the loan 

applicant, including any entity 

members, or the outstanding term of the 

loan, whichever is less. This is a 

lifetime limit. 

(2) Beginning farmers and ranchers, as 

defined in § 762.102, however, may be 

considered for two 5-year periods. The 

applicant must meet the definition of a 

beginning farmer or rancher and meet 

the other eligibility requirements 

outlined in paragraph (b) of this section 

at the onset of each 5-year period. A 

needs test will be completed in the fifth 

year of IA eligibility for beginning 

farmers, to determine continued 

eligibility for a second 5-year period. 

(3) Notwithstanding the limitation of 

paragraph (d)(1) of this section, a new 

interest assistance agreement may be 

approved for eligible borrowers to 

provide interest assistance through June 

8, 2009, provided the total period does 

not exceed 10 years from the effective 

date of the original interest assistance 

agreement. 

(e) Multiple loans. In the case of a 

borrower with multiple guaranteed 

loans with one lender, interest 

assistance can be applied to each loan, 

only to one loan or any distribution the 

lender selects, as necessary to achieve a 

feasible plan, subject to paragraph (c) of 

this section. 

(f) Terms. The typical term of 

scheduled loan repayment will not be 

reduced solely for the purpose of 

maximizing eligibility for interest 

assistance. A loan must be scheduled 

over the maximum term typically used 

by lenders for similar type loans within 

the limits in § 762.124. An OL for the 

purpose of providing annual operating 

and family living expenses will be 

scheduled for repayment when the 

income is scheduled to be received from 

the sale of the crops, livestock, and/or 

livestock products which will serve as 

security for the loan. An OL for 

purposes other than annual operating 

and family living expenses (i.e. 

purchase of equipment or livestock, or 

refinancing existing debt) will be 

scheduled over 7 years from the 

effective date of the proposed interest 

assistance agreement, or the life of the 

security, whichever is less. 

(g) Rate of interest. The lender may 

charge a fixed or variable interest rate, 

but not in excess of what the lender 

charges its average agricultural loan 

customer. 


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Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Rules and Regulations 17359 

(h) Agreement. The lender and 

borrower must execute an interest 

assistance agreement as prescribed by 

the Agency. 

(i) Interest assistance claims and 

payments. To receive an interest 

assistance payment, the lender must 

prepare and submit a claim on the 

appropriate Agency form. The following 

conditions apply: 

(1) Interest assistance payments will 

be four (4) percent of the average daily 

principal loan balance prorated over the 

number of days the loan has been 

outstanding during the payment period. 

For loans with a note rate less than four 

(4) percent, interest assistance payments 

will be the weighted average interest 

rate multiplied by the average daily 

principal balance. 

(2) The lender may select at the time 

of loan closing the date that they wish 

to receive an interest assistance 

payment. That date will be included in 

the interest assistance agreement. 

(i) The initial and final claims 

submitted under an agreement may be 

for a period less than 12 months. All 

other claims will be submitted for a 12- 

month period, unless there is a lender 

substitution during the 12-month period 

in accordance with this section. 

(ii) In the event of liquidation, the 

final interest assistance claim will be 

submitted with the estimated loss claim 

or the final loss claim if an estimated 

loss claim was not submitted. Interest 

will not be paid beyond the interest 

accrual cutoff dates established in the 

loss claims according to § 762.149(d)(2). 

(3) A claim should be filed within 60 

days of its due date. Claims not filed 

within 1 year from the due date will not 

be paid, and the amount due the lender 

will be permanently forfeited. 

(4) All claims will be supported by 

detailed calculations of average daily 

principal balance during the claim 

period. 

(5) Requests for continuation of 

interest assistance for agreements dated 

prior to June 8, 2007 will be supported 

by the lender’s analysis of the 

applicant’s farming operation and need 

for continued interest assistance as set 

out in their Interest Assistance 

Agreements. The following information 

will be submitted to the Agency: 

(i) A summary of the operation’s 

actual financial performance in the 

previous year, including a detailed 

income and expense statement. 

(ii) A narrative description of the 

causes of any major differences between 

the previous year’s projections and 

actual performance, including a detailed 

income and expense statement. 

(iii) A current balance sheet. 

(iv) A cash-flow budget for the period 

being planned. A monthly cash-flow 

budget is required for all lines of credit 

and operating loans made for annual 

operating purposes. All other loans may 

include either an annual or monthly 

cash-flow budget. 

(v) A copy of the interest assistance 

needs analysis portion of the 

application form which has been 

completed based on the planned 

period’s cash-flow budget. 

(6) Interest Assistance Agreements 

dated June 8, 2007 or later do not 

require a request for continuation of 

interest assistance. The lender will only 

be required to submit an Agency IA 

payment form and the average daily 

principal balance for the claim period, 

with supporting documentation. 

(7) Lenders may not charge or cause 

a borrower with an interest assistance 

agreement to be charged a fee for 

preparation and submission of the items 

required for an annual interest 

assistance claim. 

(j) Transfer, consolidation, and 

writedown. Loans covered by interest 

assistance agreements cannot be 

consolidated. Such loans can be 

transferred only when the transferee 

was liable for the debt on the effective 

date of the interest assistance 

agreement. Loans covered by interest 

assistance can be transferred to an entity 

if the entity is eligible in accordance 

with § 762.120 and § 762.150(b) and at 

least one entity member was liable for 

the debt on the effective date of the 

interest assistance agreement. Interest 

assistance will be discontinued as of the 

date of any writedown on a loan 

covered by an interest assistance 

agreement. 

(k) Rescheduling and deferral. When 

a borrower defaults on a loan with 

interest assistance or the loan otherwise 

requires rescheduling or deferral, the 

interest assistance agreement will 

remain in effect for that loan at its 

existing terms. The lender may 

reschedule the loan in accordance with 

§ 762.145. For Interest Assistance 

Agreements dated June 8, 2007 or later 

increases in the restructured loan 

amount above the amount originally 

obligated do not require additional 

funding; however, interest assistance is 

not available on that portion of the loan 

as interest assistance is limited to the 

original loan amount. 

(l) Bankruptcy. In cases where the 

interest on a loan covered by an interest 

assistance agreement is reduced by 

court order in a reorganization plan 

under the bankruptcy code, interest 

assistance will be terminated effective 

on the date of the court order. 

Guaranteed loans which have had their 

interest reduced by bankruptcy court 

order are not eligible for interest 

assistance. 

(m) Termination of interest assistance 

payments. Interest assistance payments 

will cease upon termination of the loan 

guarantee, upon reaching the expiration 

date contained in the agreement, or 

upon cancellation by the Agency under 

the terms of the interest assistance 

agreement. In addition, for loan 

guarantees sold into the secondary 

market, Agency purchase of the 

guaranteed portion of a loan will 

terminate the interest assistance. 

(n) Excessive interest assistance. 

Upon written notice to the lender, 

borrower, and any holder, the Agency 

may amend or cancel the interest 

assistance agreement and collect from 

the lender any amount of interest 

assistance granted which resulted from 

incomplete or inaccurate information, 

an error in computation, or any other 

reason which resulted in payment that 

the lender was not entitled to receive. 

(o) Condition for Cancellation. The 

Interest Assistance Agreement is 

incontestable except for fraud or 

misrepresentation, of which the lender 

or borrower have actual knowledge at 

the time the interest assistance 

agreement is executed, or which the 

lender or borrower participates in or 

condones. 

(p) Substitution. If there is a 

substitution of lender, the original 

lender will prepare and submit to the 

Agency a claim for its final interest 

assistance payment calculated through 

the effective date of the substitution. 

This final claim will be submitted for 

processing at the time of the 

substitution. 

(1) Interest assistance will continue 

automatically with the new lender. 

(2) The new lender must follow 

paragraph (i) of this section to receive 

their initial and subsequent interest 

assistance payments. 

(q) Exception Authority. The Deputy 

Administrator for Farm Loan Programs 

has the authority to grant an exception 

to any requirement involving interest 

assistance if it is in the best interest of 

the Government and is not inconsistent 

with other applicable law. 

Signed in Washington, DC, on March 15, 

2007. 

Teresa C. Lasseter, 

Administrator, Farm Service Agency. 

[FR Doc. 07–1748 Filed 4–4–07; 3:38 pm] 

BILLING CODE 3410–05–P 


rwilkins on PROD1PC63 with RULES