[Federal Register Volume 63, Number 150 (Wednesday, August 5, 1998)]
[Rules and Regulations]
[Pages 41713-41715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20914]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Part 1951

RIN 0572-AB23


Servicing of Community and Insured Business Programs Loans and 
Grants

AGENCIES: Rural Housing Service; Rural-Business Cooperative Service; 
Rural Utilities Service; and Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) hereby amends the 
regulations utilized to service loans and grants. The final rule will 
permit loan reamortization with interest rate adjustment for eligible 
delinquent borrowers. The final rule will provide debt relief to 
troubled borrowers and encourage these organizations to remain in 
operation and resume scheduled loan payments. The final rule will also 
provide RUS greater flexibility to service problem loans and permit a 
viable, cost effective alternative to debt write-offs.

EFFECTIVE DATE: August 5, 1998.

FOR FURTHER INFORMATION CONTACT: John Purcell, Rural Utilities Service, 
Stop 1570, 1400 Independence Ave. SW, Washington, DC 20250, telephone 
(202) 720-9634.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and, therefore, has not been reviewed by the 
Office of Management and Budget.

Regulatory Flexibility Act

    Pursuant to Sec. 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 
605(b), the head of the Agencies certify that this rule will not have a 
significant economic impact on a substantial number of small entities.

Intergovernmental Review

    This program is listed in the Catalog of Federal Domestic 
Assistance under number 10.760, Water and Waste Disposal Systems for 
Rural Communities, subject to the provisions of Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials.

Environmental Impact Statement

    This action has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It has been determined that the 
action does not constitute a major Federal action significantly 
affecting the quality of the human environment and in accordance with 
the National Environmental Policy Act of 1969, Pub. L. 91-190, an 
Environmental Impact Statement is not required.

Civil Justice Reform

    This regulation has been reviewed under Executive Order 12988, 
Civil Justice Reform. When this regulation is adopted: (1) unless 
otherwise specifically provided all State and local laws and 
regulations that are in conflict with this rule will be preempted; (2) 
no retroactive effect will be given to this rule except as specifically 
prescribed in the rule; and (3) administrative proceedings of the 
National Appeals Division (7 CFR part 11) must be exhausted before 
bringing suit.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3507), 
the information collection requirements included in this rule have been

[[Page 41714]]

approved through 7 CFR part 1951, subpart E. The assigned OMB number is 
0575-0066. This rule does not revise or impose any new information 
collection or recordkeeping requirements from those approved by the 
Office of Management and Budget.

National Performance Review

    This regulatory action is being taken as part of the National 
Performance Review program to eliminate unnecessary regulations and 
improve those that remain in force.

Unfunded Mandate Reform Act

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

Discussion

    The Rural Utilities Service was formed in connection with the 
reorganization of programs administered by the former Farmers Home 
Administration and the former Rural Development Administration. As 
currently written, 7 CFR part 1951, subpart E does not permit loan 
reamortization with interest rate adjustment on outstanding loans. 
Accordingly, RUS is unable to provide an interest rate adjustment to 
borrowers that become seriously delinquent on their loan payments. This 
final rule will provide debt relief to troubled borrowers and encourage 
these organizations to remain in operation and resume scheduled loan 
payments. The final rule will also provide RUS greater flexibility to 
service problem loans and permit a viable, cost effective alternative 
to debt write-offs.

Comments on the Proposed Rule

    RUS published the proposed rule in the Federal Register on June 2, 
1997, (62 FR 29678) and asked for written comments on or before August 
1, 1997. The Agency received two comments from the public review 
process. All comments were considered when preparing the final rule. No 
changes have been made to the proposed rule as a result of the comments 
received. Responses to comments are listed according to corresponding 
sections of the rule and are as follows:
    1. Sec. 1951.223(d)--Define what a ``seriously delinquent'' 
borrower represents.
    Agency Response: The Agency made no change. The Agency believes the 
causes and circumstances attributed to borrower delinquencies will vary 
significantly and the number of borrowers to qualify under this rule 
will be limited. The Agency believes it would be prohibitive to include 
specific criteria for defining ``seriously delinquent''.
    2. Sec. 1951.223(d)(1)(ii)--Define what ``experiencing severe 
financial problems'' represents.
    Agency Response: The Agency made no change. The Agency believes the 
financial conditions and the degree of financial impact varies 
significantly between borrowers. Therefore, it would be prohibitive to 
include specific criteria.
    3. Sec. 1951.223 (d)(2)(i)--Define what a ``reasonable amount of 
cash or cash reserves represents.
    Agency Response: The Agency made no change. The Agency believes the 
financial resources necessary to adequately operate a water and 
wastewater facility vary significantly. Therefore, it would be 
prohibitive to include specific criteria.
    4. Sec. 1951.223 (d)(2)(ii)--The Agency should determine if the 
original interest rate can be restored if financial conditions improve; 
and the interest rate reduction should be for a limited period of time.
    Agency Response: The Agency made no change. The Agency has a loan 
provision that requires borrowers to refinance their RUS debt with 
commercial or private credit if financial conditions permit. Each 
borrower's financial condition is reviewed on a regular basis and those 
financially able to refinance their RUS debt are requested to do so.
    5. Sec. 1951.223(d)(3)--Does an eligible borrower have to comply 
with the health or sanitary standards and median household income 
conditions for poverty rate loans?
    Agency Response: The Agency made no change. Borrowers that qualify 
for an interest rate adjustment under this rule will not have to comply 
with the stated criteria for poverty interest rates.
    6. Sec. 1951.223(d)(3)--Include provision to review borrowers 
financial condition and restore original interest rate if a borrower's 
financial conditions permit.
    Agency Response: The Agency made no change. The Agency has a loan 
provision that requires borrowers to refinance their RUS debt with 
commercial or private credit if financial conditions permit. Each 
borrower's financial condition is reviewed on a regular basis and those 
financially able to refinance their RUS debt are requested to do so.

List of Subjects in 7 CFR Part 1951

    Accounting, Grant programs-housing and community development, 
Reporting and recordkeeping requirements, Rural areas.
    Accordingly, Chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1981; 42 U.S.C. 1480.

Subpart E--Servicing of Community and Direct Business Programs 
Loans and Grants

    2. Section 1951.223(d) is added to read as follows:


Sec. 1951.223  Reamortization.

* * * * *
    (d) Reamortization with interest rate adjustment--Water and waste 
borrowers only. A borrower that is seriously delinquent in loan 
payments may be eligible for loan reamortization with interest rate 
adjustment. The purpose of loan reamortization with interest rate 
adjustment is to provide relief for a borrower that is unable to 
service the outstanding loan in accordance with its existing terms and 
to enhance recovery on the loan. A borrower must meet the conditions of 
this subpart to be considered eligible for this provision.
    (1) Eligibility determination. The State Director, Rural 
Development, may submit to the Administrator for approval an adjustment 
in the rate of interest charged on outstanding loans only for those 
borrowers who meet the following requirements:

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    (i) The borrower has exhausted all other servicing provisions 
contained in this subpart;
    (ii) The borrower is experiencing severe financial problems;
    (iii) Any management deficiencies must have been corrected or the 
borrower must submit a plan acceptable to the State Office to correct 
any deficiencies before an interest rate adjustment may be considered;
    (iv) Borrower user rates must be comparable to similar systems. In 
addition, the operating expenses reported by the borrower must appear 
reasonable in relation to similar system expenses;
    (v) The borrower has cooperated with Rural Development in exploring 
alternative servicing options and has acted in good faith with regard 
to eliminating the delinquency and complying with its loan agreements 
and agency regulations; and
    (vi) The borrower's account must be delinquent at least one annual 
debt payment for 180 days.
    (2) Conditions of approval. All borrowers approved for an 
adjustment in the rate of interest by the Administrator shall agree to 
the following conditions:
    (i) The borrower shall agree not to maintain cash or cash reserves 
beyond what is reasonable at the time of interest rate adjustment to 
meet debt service, operating, and reserve requirements.
    (ii) A review of the borrower's management and business operations 
may be required at the discretion of the State Director. This review 
shall be performed by an independent expert who has been recommended by 
the State Director and approved by the National Office. The borrower 
must agree to implement all recommendations made by the State Director 
as a result of the review.
    (iii) If requested, a copy of the latest audited financial 
statements or management report must be submitted to the Administrator.
    (3) Reamortization. At the discretion of the Administrator, the 
interest rate charged on outstanding loans of eligible borrowers may be 
adjusted to no less than the poverty interest rate and the term of the 
loans may be extended up to a new 40 year term or the remaining useful 
life of the facility, whichever is less.

    Dated: June 18, 1998.
Jill Long Thompson,
Under Secretary Rural Development.
[FR Doc. 98-20914 Filed 8-4-98; 8:45 am]
BILLING CODE 3410-XV-U