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Rules and Regulations Federal Register

56105 

Vol. 70, No. 185 

Monday, September 26, 2005 

DEPARTMENT OF AGRICULTURE 

Farm Service Agency 

7 CFR Part 762 

RIN: 0560–AG65 

Guaranteed Farm Ownership and 

Operating Loan Requirements 

AGENCY: Farm Service Agency, USDA. 

ACTION: Final rule. 

SUMMARY: The Farm Service Agency 

(FSA) is amending its regulations 

governing loans made under the 

guaranteed farm loan program to 

specifically allow lenders to use the 

loans as security for loans to the 

lenders, remove certain documentation 

and designation requirements for 

lenders, and modify security restrictions 

as to refinancing and junior liens. 

DATES: This rule is effective September 

26, 2005. 

FOR FURTHER INFORMATION CONTACT: 

Galen VanVleet, Senior Loan Officer, 

Farm Service Agency; telephone: (202) 

720–3889; Facsimile: (202) 720–6797; Email: 

Galen.VanVleet@wdc.usda.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

FSA published a proposed rule on 

May 4, 2004, (69 FR 24537–24539) to 

amend its regulations governing loans 

made under the guaranteed farm loan 

program. The comment period ended 

July 6, 2004. 

Summary of Public Comments 

In response to the proposed rule, 125 

respondents from 25 States and the 

District of Columbia commented. The 

following is a summary of the comments 

and the changes made in the final rule 

in response to the comments. 

Certified Lender Program 

FSA proposed to remove the 

requirement that lenders applying for 

Certified Lender Program (CLP) status 

submit copies of forms to be used for 

farm loan processing and servicing, 

such as financial statements, cash-flow 

plans, and budgets. One respondent 

noted that the existing requirement was 

of little burden and recommended that 

no change be made. However, 75 

respondents endorsed the change; based 

on this response, the Agency adopts its 

proposed rule on CLP as final. 

Preferred Lender Program 

FSA proposed to remove the 

requirement that Preferred Lender 

Program (PLP) lenders designate a 

person or persons, approved by the 

Agency, to process and service PLP 

loans. Under the proposed rule PLP 

lenders would designate the responsible 

party by name, title, or position. All 

respondents supported this change, 

therefore, the Agency adopts its 

proposed rule on PLP as final. 

Interest Rates and Fees 

The existing rule at § 762.124(e)(1) 

provides that the lender may charge fees 

provided they are no greater than those 

charged to unguaranteed customers for 

similar transactions. FSA proposed that 

the lender not charge, or cause to be 

charged, any processing, servicing, or 

packaging fees that are not charged to 

nonguaranteed customers for similar 

transactions. Only three respondents 

supported the change, while 100 

respondents opposed it because they 

interpreted that the change would 

disallow ‘‘packager’’ fees and they 

believed fewer guaranteed loans would 

be made as a result. Because of the 

overwhelming opposition, the proposal 

was not adopted nor the existing 

regulation changed. 

Security Requirements 

The existing rule at § 762.126(e) 

establishes restrictions on acceptable 

lien positions for security on guaranteed 

loans. The Agency proposed removing a 

restriction requiring that, when a loan is 

made for refinancing purposes, the 

guaranteed loan must hold a security 

position no lower than that on the 

refinanced loan. One respondent 

expressed concern that removal of the 

restriction would greatly increase the 

Government’s risk of loss without any 

direct benefit to the loan applicant. That 

respondent suggested that in any case 

where the guaranteed loan debt is 

greater than or equal to 75 percent of the 

proposed security, the security position 

must be the same or better lien position 

than on the refinanced loan. Another 

respondent recommended that removal 

of the restriction be limited to situations 

where real estate loans are made to 

refinance operating carry-over debt. 

Another respondent recommended that 

the lender must hold a security position 

in the same or better collateral than on 

the refinanced loan. The other 74 

respondents who commented on this 

section supported the change because it 

will help reduce confusion about proper 

lien positions and give lenders 

additional flexibility. The Agency does 

not agree that the removal of this 

restriction will greatly increase the risk 

of loss since the lenders are still 

responsible for ensuring that proper and 

adequate security is obtained to fully 

secure the loan, protect the interest of 

the lender and the Agency and assure 

repayment of the loan. Accordingly, the 

proposal is adopted as final. 

Another restriction under the same 

section limits junior lien positions to 

situations where equity position is 

strong. Because this restriction has been 

confusing due to varying interpretations 

of ‘‘strong,’’ the Agency proposed 

clarifying the equity requirement by 

limiting junior liens to situations where 

the amount of debt is less than or equal 

to 75 percent of the value of the 

security. One respondent, who strongly 

supported the revision, recommended 

that the Agency clarify that this change 

applies to all lender types, including 

PLP. The Agency agrees with the point 

of this comment, but made no specific 

change to the regulation because all of 

§ 762.126 already applies to all lender 

types. 

Five respondents opposed the 

establishment of the 75-percent 

criterion. One respondent expressed 

concern that the requirement was too 

restrictive and recommended that no 

specific requirement be required for real 

estate, and a less restrictive requirement 

of 20 percent equity (80 percent debt-tovalue of security) be established for 

chattels. Similarly, another respondent 

stated that the proposed requirement 

would be excessive when dealing with 

real estate security. A third respondent 

pointed out that the 75-percent loan-toVerDate Aug<31>2005 12:27 Sep 23, 2005 Jkt 205001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\26SER1.SGM 26SER1
56106 Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Rules and Regulations 

value limit is more restrictive than 

supervisory limits established by 

Federal banking regulatory agencies. 

The fourth respondent opposed the 

change because it would be, in their 

view, detrimental to borrowers. The 

respondent stated that they, as a lender, 

would not take a second lien behind a 

large guaranteed loan. The final 

opposing respondent expressed concern 

that the establishment of a 75 percent 

requirement overemphasizes collateral 

while capacity and capital evaluation 

should be the deciding factors. The 

Agency agrees that the 75 percent 

requirement may be too restrictive and 

has increased the maximum loan to 

value limit to 85 percent accordingly. 

Restructuring Guaranteed Loans 

The existing regulation at § 762.145 

(b)(6)(i) contains an incorrect citation to 

the loan limits, which the proposed rule 

corrected. No respondent commented 

on this provision and the proposed 

correction is adopted as final. 

Sale, Assignment, and Participation 

A new section, § 762.159, was 

proposed to address the use of 

guaranteed loans as security for lender 

funding. Many lenders routinely borrow 

money from Federal Home Loan Banks 

or Federal Reserve Banks to meet 

funding or liquidity needs. They are 

usually required to pledge loan assets, 

which may include guaranteed loans, as 

security for the loans. The existing 

regulation’s restrictions on assignments 

have led to confusion as to how or 

whether a lender can pledge guaranteed 

loans. The proposed rule explicitly 

allowed the pledging to Federal Home 

Loan Banks or Federal Reserve Banks. 

The Agency received 93 comments 

concerning this proposal. While all 

respondents supported the goal of 

clarifying that guaranteed loans can be 

pledged as security for collateral, they 

also expressed some concerns. The 

respondents recommended that the 

proposed language saying that the 

guarantee would be unenforceable until 

a new eligible lender is substituted be 

removed. They correctly pointed out 

that other parts of the regulation provide 

protection to the Agency due to 

negligent servicing. The lender will 

remain responsible for properly 

servicing the account until an eligible 

lender is substituted, and deductions 

otherwise will be made according to 

§ 762.149 as appropriate. The Agency 

agrees and has deleted the last two 

sentences in the final rule as 

unnecessary. 

Respondents also recommended that 

the Agency provide users with any 

information about how to make the 

pledge; specifically, the respondents 

recommended that there be a proposed 

format to follow. The Agency 

determined that it is not appropriate to 

dictate a format or advise the lenders 

how to make a pledge because the 

Agency will not be a direct party to the 

pledging activity. Therefore, no change 

has been made in response to these 

comments. 

Two respondents recommended that 

additional language be added to provide 

that a Federal Home Loan Bank or 

Federal Reserve Bank, as pledgee, be 

deemed a ‘‘holder.’’ These respondents 

correctly pointed out that, under the 

regulations, a holder may enforce the 

guarantee even if it is contestable, or 

unenforceable by the lender. There are 

other rights that holders have, in 

particular, the right to require purchase, 

however, that cannot accrue to a 

pledgee. Therefore, the Agency did not 

add language to deem the pledgee a 

holder. 

One respondent pointed out that Farm 

Credit System institutions are required 

to, and routinely do, pledge all their 

loan assets, including those with 

Federal guarantees, to their funding 

bank. For clarity and consistency, in the 

final rule Farm Credit System Banks 

were added to the institutions that may 

pledge guaranteed loans, as well as 

other funding sources determined 

acceptable by the Agency. 

Section § 762.160 deals with the sale, 

assignment, and participation of 

guarantees. The proposed rule clarified 

confusing portions and removed 

unnecessarily restrictive provisions. As 

used in the existing section and as 

defined in § 762.102, ‘‘sale of guarantee’’

and ‘‘assignment of guarantee’’ are 

synonymous. To reduce confusion, 

reference to ‘‘sale of guarantee’’ is 

removed. The one respondent who 

commented on the proposed changes to 

§ 762.160 supported the changes; 

therefore, the Agency adopts this 

portion of the proposed rule as final. 

Executive Order 12866 

This rule has been determined to be 

not significant for purposes of Executive 

Order 12866 and, therefore, was not 

reviewed by the Office of Management 

and Budget. 

Regulatory Flexibility Act 

FSA certifies that this rule will not 

have a significant economic effect on a 

substantial number of small entities and 

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). An insignificant number of 

guaranteed loan borrowers and no 

lenders are small entities. This rule does 

not impact the small entities to a greater 

extent than large entities. 

Environmental Impact Statement 

FSA has determined that this action is 

not a major Federal action significantly 

affecting the environment. Therefore, in 

accordance with the National 

Environmental Policy Act of 1969 (42 

U.S.C. 4321 et. seq.), neither an 

Environmental Impact Statement nor an 

environmental assessment is required. 

Executive Order 12988 

This rule has been reviewed in 

accordance with E.O. 12988, Civil 

Justice Reform. All State and local laws 

and regulations that are in conflict with 

this rule will be preempted. No 

retroactive effect will be given to this 

rule. It will not affect agreements 

entered into prior to the effective date 

of the rule. The administrative appeal 

provisions published at 7 CFR parts 11 

and 780 must be exhausted before 

bringing any action for judicial review. 

Executive Order 12372 

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, which requires 

intergovernmental consultation with 

state and local officials. 

Unfunded Mandates 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) (Pub. L. 

104–4), requires Federal agencies to 

assess the effects of their regulatory 

actions on State, local, and tribal 

governments or the private sector. 

Agencies generally must prepare a 

written statement, including a costbenefit assessment, 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 the 

UMRA, for State, local, and tribal 

governments or the private sector. Thus, 

this rule is not subject to the 

requirements of sections 202 and 205 of 

UMRA. 

Paperwork Reduction Act 

The amendments to 7 CFR part 762 

contained in this final rule require no 

Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Rules and Regulations 56107 

revisions to the information collection 

requirements that were previously 

approved by OMB under control 

number 0560–0155. 

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—

Agriculture. 

■ Accordingly, 7 CFR chapter VII is 

amended as follows: 

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. 

§ 762.102 [Amended] 

■ 2. In § 762.102 remove the definitions 

of ‘‘Financially viable operation’’, 

‘‘Participation’’ and ‘‘Sale of guaranteed 

portion.’’

■ 3. Amend § 762.106 by removing 

paragraph (b)(8) and revising paragraph 

(c)(8) to read as follows: 

§ 762.106 Preferred and certified lender 

programs. 

* * * * * 

(c) * * * 

(8) Designate a person or persons, 

either by name, title, or position within 

the organization, to process and service 

PLP loans for the Agency. 

* * * * * 

■ 4. In § 762.126, remove paragraph 

(e)(1), redesignate paragraphs (e)(2), 

(e)(3), and (e)(4) as (e)(1), (e)(2), and 

(e)(3), respectively, and revise newly 

designated (e)(2) to read as follows: 

§ 762.126 Security requirements. 

(e) * * * 

(2) Junior lien positions are acceptable 

only if the total amount of debt with 

liens on the security, including the debt 

in junior lien position, is less than or 

equal to 85 percent of the value of the 

security. Junior liens on crops or 

livestock products will not be relied 

upon for security unless the lender is 

involved in multiple guaranteed loans 

to the same borrower and also has the 

first lien on the collateral. 

* * * * * 

■ 5. Revise § 762.145 (b)(6)(i) to read as 

follows: 

§ 762.145 Restructuring guaranteed loans. 

* * * * * 

(b) * * * 

(6) * * * 

(i) As a result of the capitalization of 

interest, a rescheduled promissory note 

may increase the amount of principal 

the borrower is required to pay. 

However, in no case will such principal 

amount exceed the statutory loan limits 

contained in § 761.8 of this chapter. 

* * * * * 

■ 6. Add § 762.159 to read as follows: 

§ 762.159 Pledging of guarantee. 

A lender may pledge all or part of the 

guaranteed or unguaranteed portion of 

the loan as security to a Federal Home 

Loan Bank, a Federal Reserve Bank, a 

Farm Credit System Bank, or any other 

funding source determined acceptable 

by the Agency. 

■ 7. Revise § 762.160 to read as follows: 

§ 762.160 Assignment of guarantee. 

(a) The following general 

requirements apply to assigning 

guaranteed loans: 

(1) Subject to Agency concurrence, 

the lender may assign all or part of the 

guaranteed portion of the loan to one or 

more holders at or after loan closing, if 

the loan is not in default. However, a 

line of credit cannot be assigned. The 

lender must always retain the 

unguaranteed portion in their portfolio, 

regardless of how the loan is funded. 

(2) The Agency may refuse to execute 

the Assignment of Guarantee and 

prohibit the assignment in case of the 

following: 

(i) The Agency purchased and is 

holder of a loan that was assigned by the 

lender that is requesting the assignment. 

(ii) The lender has not complied with 

the reimbursement requirements of 

§ 762.144(c)(7), except when the 180 

day reimbursement or liquidation 

requirement has been waived by the 

Agency. 

(3) The lender will provide the 

Agency with copies of all appropriate 

forms used in the assignment. 

(4) The guaranteed portion of the loan 

may not be assigned by the lender until 

the loan has been fully disbursed to the 

borrower. 

(5) The lender is not permitted to 

assign any amount of the guaranteed or 

unguaranteed portion of the loan to the 

loan applicant or borrower, or members 

of their immediate families, their 

officers, directors, stockholders, other 

owners, or any parent, subsidiary, or 

affiliate. 

(6) Upon the lender’s assignment of 

the guaranteed portion of the loan, the 

lender will remain bound to all 

obligations indicated in the Guarantee, 

Lender’s Agreement, the Agency 

program regulations, and to future 

program regulations not inconsistent 

with the provisions of the Lenders 

Agreement. The lender retains all rights 

under the security instruments for the 

protection of the lender and the United 

States. 

(b) The following will occur upon the 

lender’s assignment of the guaranteed 

portion of the loan: 

(1) The holder will succeed to all 

rights of the Guarantee pertaining to the 

portion of the loan assigned. 

(2) The lender will send the holder 

the borrower’s executed note attached to 

the Guarantee. 

(3) The holder, upon written notice to 

the lender and the Agency, may assign 

the unpaid guaranteed portion of the 

loan. The holder must assign the 

guaranteed portion back to the original 

lender if requested for servicing or 

liquidation of the account. 

(4) The Guarantee or Assignment of 

Guarantee in the holder’s possession 

does not cover: 

(i) Interest accruing 90 days after the 

holder has demanded repurchase by the 

lender, except as provided in the 

Assignment of Guarantee and 

§ 762.144(c)(3)(iii). 

(ii) Interest accruing 90 days after the 

lender or the Agency has requested the 

holder to surrender evidence of debt 

repurchase, if the holder has not 

previously demanded repurchase. 

(c) Negotiations concerning 

premiums, fees, and additional 

payments for loans are to take place 

between the holder and the lender. The 

Agency will participate in such 

negotiations only as a provider of 

information. 

Signed in Washington, DC, on September 

1, 2005. 

James R. Little, 

Administrator, Farm Service Agency. 

[FR Doc. 05–19126 Filed 9–23–05; 8:45 am] 

BILLING CODE 3410–05–P 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Parts 916 and 917 

[Docket No. FV05–916–3 FR] 

Nectarines and Peaches Grown in 

California; Increased Assessment 

Rates 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Final rule. 

SUMMARY: This rule increases the 

assessment rates established for the 

Nectarine Administrative Committee