96-21236. Future Recovery of Losses Paid on Liquidated Guaranteed Loans  

  • [Federal Register Volume 61, Number 163 (Wednesday, August 21, 1996)]
    [Rules and Regulations]
    [Pages 43147-43149]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-21236]
    
    
    -----------------------------------------------------------------------
    
    DEPARTMENT OF AGRICULTURE
    Rural Housing Service
    Rural Business-Cooperative Service
    Rural Utilities Service
    Farm Service Agency
    
    7 CFR Part 1980
    
    RIN 0575-AB29
    
    
    Future Recovery of Losses Paid on Liquidated Guaranteed Loans
    
    AGENCY: Farm Service Agency, USDA.
    
    ACTION: Final rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: The Agency is amending its guaranteed farm credit program 
    regulations to establish new policies and procedures on the release of 
    guaranteed loan borrowers and cosigners from liability. This action 
    will define guaranteed lenders' release authorities and standardize 
    procedures for reporting post loss claim collection results to the 
    Agency. The intended effect is to maximize collections from unsatisfied 
    guaranteed accounts and to minimize the financial loss to the 
    Government.
    
    EFFECTIVE DATE: September 20, 1996.
    
    FOR FURTHER INFORMATION CONTACT: Phillip Elder, Senior Loan Officer, 
    Farm Service Agency (FSA), Farm Credit Programs Loan Servicing 
    Division, U.S. Department of Agriculture, P.O. Box 2415, Ag Box Code 
    0523, Washington, D.C. 20013-2415, or at (202) 720-9053.
    
    SUPPLEMENTARY INFORMATION:
    
    Executive Order 12866
    
        This rule has been reviewed under E.O. 12866 and has been 
    determined to be a significant regulatory action.
    
    Executive Order 12372
    
        1. For the reasons set forth in the final rule related to Notice 7 
    CFR Part 3015, Subpart V (48 FR 29115, June 24, 1983) and FmHA 
    Instruction 1940-J, Farm Ownership Loans, Farm Operating Loans, and 
    Emergency Loans are excluded from the scope of E.O. 12372, which 
    requires intergovernmental consultation with state and local officials.
        2. The Soil and Water Loan Program is subject to and has met the 
    provisions of E.O. 12372 and FmHA Instruction 1940-J.
    
    Federal Assistance Program
    
        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
    10.416--Soil and Water Loans
    
    Environmental Impact Statement
    
        This document has been reviewed in accordance with 7 CFR Part 1940, 
    Subpart G, ``Environmental Program.'' It is the determination of the 
    issuing agencies that this 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.
    
    Executive Order 12778
    
        This final rule has been reviewed in accordance with E.O. 12778, 
    Civil
    
    [[Page 43148]]
    
    Justice Reform. In accordance with this rule: (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; and 
    (3) administrative proceedings in accordance with 7 CFR parts 11 and 
    780 must be exhausted before bringing suit in court challenging action 
    taken under this rule unless those regulations specifically allow 
    bringing suit at an earlier time.
    
    Paperwork Reduction Act
    
        In accordance with the Paperwork Reduction Act of 1995 (Pub. L. 
    104-13), a notice and request for comments (61 FR 11183, March 19, 
    1996) was published announcing the Agency's request for an addendum to 
    an approved information collection for the farm credit programs 
    guaranteed loan regulations required by the amendments to 7 CFR part 
    1980 set forth in this rule. No comments were received. The existing 
    information collection requirements were previously approved by OMB 
    under the provisions of 44 U.S.C. 35 and assigned OMB control number 
    0575-0079, which was later renumbered 0560-0155. A revised information 
    collection submission will be submitted to OMB for their approval.
    
    Unfunded Mandates
    
        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 of Final Rule
    
        This final rule establishes standardized procedures for following 
    up with lenders for future collections on loans that resulted in a loss 
    to the Government. These policy changes will strengthen Agency 
    regulations on monitoring loan accounts and will maximize recoveries on 
    liquidated accounts. The proposed rule was published on May 5, 1994, 
    (59 FR 23173-74) with a comment period ending July 5, 1994.
        This change is being made in response to recommendations from the 
    USDA, Office of Inspector General (OIG). OIG found that the Farmers 
    Home Administration (FmHA) had no procedures to monitor subsequent 
    recoveries by lenders from defaulted guaranteed loan borrowers (OIG 
    Audit Number 04099-118-Te, June 11, 1987). The audit recommendations 
    involved guaranteed farmer programs loans of FmHA. The FmHA Farmer 
    Programs loans are now administered as Farm Credit Programs by FSA. The 
    other guaranteed loan programs of FmHA are now administered by various 
    agencies. Water and Waste disposal facility loans are administered by 
    the Rural Utilities Service (RUS), Housing and Community Programs loans 
    are administered by the Rural Housing Service (RHS) and Business and 
    Industrial loans and Nonprofit National Corporations loans are 
    administered by the Rural Business-Cooperative Service (RBS). This 
    reorganization was authorized by the Federal Crop Insurance Reform and 
    Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354). 
    The proposed rule contained changes to 7 CFR part 1980 subpart A, in 
    addition to subpart B. Since USDA has been reorganized, the rule has 
    been revised to delete the proposed changes to subpart A. FSA, RUS, 
    RHS, and RBS are jointly issuing this rule due to joint ownership of 
    chapter XVIII, title 7, Code of Federal Regulations, although FSA will 
    be affected only. RUS, RHS, and RBS are in the process of revising the 
    regulations for their respective agencies.
        Five comment letters were received by the close of business on July 
    5, 1994. Comments were received from several groups representing the 
    farming and lending community, including a State Commissioner of 
    Agriculture, FSA employees, the American Bankers Association and the 
    Farm Credit Council.
        One commenter suggested that the reporting requirements would place 
    additional burdens upon the County Office and that the FSA St. Louis 
    KCMO Finance Office (formerly FmHA National Finance Office) has the 
    capability to generate these reports. However, the County Office is 
    currently required to follow up with lenders for a 5-year period. This 
    regulation simply provides a specific method of reporting. Requiring 
    the County Supervisor to perform the follow-up contact assures that a 
    response will be provided and direct contact is assured. This commenter 
    also stated that the regulation should address what happens after the 
    3-year period of follow-up with the lender is completed. Consequently, 
    the Agency has clarified the rule. Also, the Agency plans to use 
    internal Administrative directives and instructions to address 
    additional issues concerning actions after the 3-year follow-up is 
    complete.
        One commenter was concerned about the additional reporting burden 
    that this rule will place on lenders. However, the regulation simply 
    provides for a standardized method of reporting; information lenders 
    are already responsible for gathering. Lenders are currently required 
    to monitor liquidated guaranteed loan accounts for a 5-year period. 
    This regulation simply provides a format for reporting their findings, 
    where none existed previously. The internal use forms are not 
    published, but are available for public viewing by contacting the FSA 
    Management Services Division, Information Management Branch, PO Box 
    2415, Washington, D.C. 20013-2415.
        A commenter suggested that ``Adequate Compensation/Consideration'' 
    in the proposed rule be removed and replaced with a reference to FmHA 
    Instruction 1956-B, ``Debt Settlement--Farmer Programs and Housing.'' 
    This same commenter stated that the Agency would save a considerable 
    amount of cost and time if the borrower was encouraged to apply for 
    debt settlement at the time the loss claim is submitted. FmHA 
    Instruction 1956-B applies to debts owed the Federal Government for 
    certain USDA loan programs. However, under a Loan Note Guarantee or 
    Contract of Guarantee, the debt is owed to the lender and guaranteed 
    debts are settled by the lender. FSA as guarantor only reviews 
    information provided by the lender to determine whether or not a 
    release request will be concurred with. FSA, in its role as loan 
    guarantor, does not work directly with the borrower. After a loss claim 
    is paid, the Government does not become a creditor of the farmer or 
    rancher. If the debt is not released, the lender has the responsibility 
    to follow up with the borrower after a loss claim is paid and remit the 
    correct percentage back to the Government in accordance with their 
    guarantee. Success with recoveries after liquidation and findings of 
    OIG audits discourage a simultaneous loss claim payment, settlement and 
    release. Therefore, this suggestion was not adopted.
        Another commenter noted that the proposed rule stated in part ``A 
    lender may, with FmHA's concurrence, release a borrower and/or cosigner 
    from liability only when adequate compensation/consideration is 
    received.'' This commenter recommended that this statement be changed 
    to the following: ``A lender may, with FSA's concurrence, release a 
    borrower or cosigner from liability only when adequate compensation is 
    received or it is mutually agreed that there is very little probability 
    of recovery from the borrower or cosigner.'' We have adopted this 
    comment in the final rule. This same commenter stated that the intended 
    effect of the proposed rule is a positive move to minimize losses 
    incurred by
    
    [[Page 43149]]
    
    FSA and ensure lenders continue collection efforts on those loans in 
    which the borrower has not been released from liability.
        Another interested party commented that the annual audit rules are 
    an expense and a burden to them. This respondent indicated a desire for 
    removal of all loss claim follow-up requirements from guaranteed loan 
    regulations. The Agency has determined that current requirements will 
    be reduced by this rule and the requirements of this rule are justified 
    by the benefits of program participation.
        As discussed above, administrative procedures in the proposed rule 
    will be included in internal Agency instructions. Also, as part of this 
    final rule, the agencies are removing some administrative provisions 
    from the Federal Register and are changing references from ``FmHA or 
    its successor agency under Public Law 103-354'' to ``the Agency.'' 
    Other minor wording changes are also being made.
    
    List of Subjects in 7 CFR Part 1980
    
        Administrative practice and procedures, Agriculture, Business and 
    Industry, Community Facilities, credit, Loan programs--Agriculture, 
    Loan Programs--Business and industry, Loan programs--Housing and 
    community development, low and moderate income housing, reporting and 
    recordkeeping requirements, rural areas.
        Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
    amended as follows:
    
    PART 1980--GENERAL
    
        1. The authority citation for part 1980 is revised to read as 
    follows:
    
        Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; 7 CFR 
    2.23 and 2.70.
    
    Subpart B--Farmer Programs Loans
    
        2. Section 1980.146 is amended by:
        a. removing the words ``FmHA or its successor agency under Public 
    Law 103-354'' wherever it appears in paragraphs (e)(2)(iv)(B) and 
    (e)(4) and adding the words ``the Agency'' in its place;
        b. removing the words ``FmHA or its successor agency under Public 
    Law 103-354'' in the title, second sentence, and the last place it 
    appears in the last sentence of paragraph (e)(5) and adding the words 
    ``the Agency'' in its place;
        c. removing the words ``Form FmHA or its successor agency under 
    Public Law 103-354'' in the first place it appears in the last sentence 
    of paragraph (e)(5) and adding the words ``Form FmHA'' in its place;
        d. removing the words ``FmHA or its successor agency under Public 
    Law 103-354'' wherever it appears in paragraphs (e)(7) and (e)(8) and 
    adding the words ``the Agency'' in its place; and
        e. revising paragraphs (e)(2)(iv)(A) and (e)(3) to read as follows:
    
    
    Sec. 1980.146  Liquidation.
    
    * * * * *
        (e) * * *
        (2) * * *
        (iv) * * *
        (A) If the loss is greater than the estimated loss, the Agency will 
    pay the additional amount owed to the lender.
        (B) * * *
        (3) Future Recovery. The lender will remit any future recoveries to 
    the Agency in proportion to the percentage of guarantee in accordance 
    with the Lender's Agreement until the account is paid in full or 
    otherwise satisfied. A lender may, with Agency concurrence, release a 
    borrower or cosigner from liability when adequate compensation is 
    received or it is mutually agreed that there is very little probability 
    of future recovery from the borrower or cosigner.
    * * * * *
    
    
    Sec. 1980.174  [Removed and Reserved.]
    
        3. In part 1980 Sec. 1980.147 is removed and reserved.
    
        Signed in Washington, DC, on August 12, 1996.
    Eugene Moos,
    Under Secretary for Farm and Foreign Agricultural Services.
    [FR Doc. 96-21236 Filed 8-20-96; 8:45 am]
    BILLING CODE 3410-05-P
    
    
    

Document Information

Effective Date:
9/20/1996
Published:
08/21/1996
Department:
Farm Service Agency
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-21236
Dates:
September 20, 1996.
Pages:
43147-43149 (3 pages)
RINs:
0575-AB29
PDF File:
96-21236.pdf
CFR: (2)
7 CFR 1980.146
7 CFR 1980.174