E7-18032. Indian Tribal Land Acquisition Program Loan Writedowns

AGENCY:

Farm Service Agency, USDA.

ACTION:

Final rule.

SUMMARY:

This rule revises the Farm Service Agency (FSA) Indian Tribal Land Acquisition Program (ITLAP) regulations as required by the Native American Technical Corrections Act of 2006. The regulations pertaining to rental value write-down of ITLAP loans will not require a market value rent study where the land is actually rented. The actual rents received shall be used to determine the rental value of the property for write-down purposes.

DATES:

Effective Date: October 12, 2007.

FOR FURTHER INFORMATION CONTACT:

Mel Thompson, Senior Loan Officer, Farm Service Agency; telephone: [phone]; Facsimile: 202-690-1196; E-mail: [e-mail]. Persons with disabilities who require alternative means for communication (Braille, large print, audio tape, etc.) should contact the USDA Target Center at [phone] (voice and TDD).

SUPPLEMENTARY INFORMATION:

Discussion of the Final Rule

This rule revises the write-down servicing regulations of the Farm Service Agency's (FSA) Indian Tribal Land Acquisition Loan Program (ITLAP) to comply with section 203 of the Native American Technical Corrections Act of 2006, Public Law 109-221 (25 U.S.C. 494a) (“NATCA”).

A. Background

ITLAP loans assist Native American tribes or tribal corporations with the acquisition of land interests within the tribal reservation or in an Alaskan community as set out in 7 CFR part 770. Loan funds may be used to acquire land, land interests and appurtenances which will be used for the benefit of the tribe or its members, pay costs for loan closing, and refinance non-USDA debts the applicant incurred to purchase the land in certain situations. During the life of the ITLAP loan the borrower has a number of servicing options available based on changes in their loan status. The servicing options available depend on each borrower's circumstances and can include reamortization, consolidation, interest rate reduction, deferral, land exchanges, debt writedown, release of reserve accounts, or a combination thereof.

B. Writedown Requirements

Under 7 CFR 770.10(e) the Agency may reduce the unpaid principal and interest on an ITLAP loan based, in part, on the land sale value or rental value of the ITLAP property. The option used is as requested by the borrower or, if it requests both, the write-down is based on which option provides the greatest debt reduction. To be eligible for either writedown option the borrower must be in a persistent poverty county, have a per capita income for individual enrolled tribal members of less than 50 percent of the Federal poverty income rate, and have a tribal unemployment rate in excess of 50 percent.

In a rental value write-down, FSA reduces the unpaid principal and interest on the loan approved for the writedown so that the annual loan payment for the remaining term of each loan equals the average of annual rental value of the land purchased with the loan. The rental value writedown option was provided along with a few other changes to ITLAP regulations in a final rule published on February 11, 2005 (70 FR 7165). For determining the value of the property, that rule replaced the requirement for a full appraisal (i.e., combining comparable sales, income, and cost approaches) with a requirement for a study of the rental income of properties similar to and near the land purchased with ITLAP funds. See 7 CFR 770.2 and 770.10(e)(4).

C. Changes Required by the NATCA

Section 203 of the NATCA (effective May 12, 2006) provides:

Notwithstanding any other provision of law, any actual rental proceeds from the lease of land acquired under * * * [ITLAP program authority] (25 U.S.C. 488) certified by the Secretary of the Interior shall be deemed—

(1) To constitute the rental value of that land; and

(2) To satisfy the requirement for appraisal of that land.

Thus, this rule amends the definition of “rental value”, as it pertains to ITLAP, to provide that actual rents received will be used to determine the average rental value and the amount of write-down, rather than market rent, in accordance with the statute. Five years of data will be requested and yield the most reliable average, but the Agency will accept fewer years data if that is all that is available. If no actual rents have been received, then the borrower must provide a 5-year market value rent study. The economic and other effects of this change are difficult to estimate; however, it likely will reduce the borrower's costs, eliminate the time required to complete an appraisal, and reduce FSA's application processing time. On the other hand, the administrative costs to the Government will likely increase due to the change in calculating the amount of debt to be forgiven by rental value write-down.

D. Summary of Economic Impacts

Under the new write-down rules required under Section 203 of the NATCA, ITLAP borrowers will be able to use a 5-year average of actual rental income received on the land purchased with the ITLAP loan to determine any write-down amount requested. This provision increases the likelihood that principal and accrued interest write-downs will occur in the program and that higher ITLAP loan subsidy rates will follow. FSA estimates that a total of 3 current ITLAP borrowers will meet the new write-down criteria and the estimated costs of this rule are based upon the assumption that all 3 borrowers are likely to take advantage of the lower standards imposed by NATCA. These 3 borrowers owe approximately $20 million on loans that originally totaled $31 million. FSA estimates the taxpayer costs will increase by as much as $5 million as a result of write-downs to these 3 borrowers. Furthermore, future taxpayer costs are expected to increase slightly as a result of higher subsidy costs resulting from higher loan losses.

Notice and Comment

The notice and comment provisions of 5 U.S.C. 553 and the Statement of Policy of the Secretary of Agriculture effective July 24, 1971, (36 FR 13804), relating to notices of proposed rulemaking and public participation in rulemaking, provide that certain rules may go forward without public notice and comment when they are in the public interest. This regulation adopts changes mandated in the NATCA Section 203. Accordingly, this rule is published without requesting public comment and will be effective 30 days after publication in the Federal Register.

Executive Order 12866

This rule has been determined under Executive Order 12866 to be significant and was reviewed by the Office of Management and Budget.

Regulatory Flexibility Act

In accordance with the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, the Agency has determined that there will be no significant economic impact on a substantial number of small entities. There are currently 24 ITLAP borrowers with 105 loans totaling $52 million. However, only about four are likely to be affected by this rule. The RFA requires agencies to consider the impact of their regulatory proposals on small entities, minimize small entity impacts, and provide their analyses for public comment. This rule affects Indian Tribes, and such Tribes are not small businesses as defined by and subject to the Regulatory Flexibility Act. Nevertheless, this rule provides a substantial reduction in cost to Tribes applying for debt write-down. Thus, to the extent an Indian Tribe may be affected by this rule, there are no negative impacts.

Environmental Evaluation

The environmental impacts of this 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 has determined that this rule will not have a significant impact on the human or natural environment and therefore requires no further environmental review.

Executive Order 12988

This rule has been reviewed in accordance with E.O. 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; and (3) administrative proceedings in accordance with 7 CFR parts 11 and 780 must be exhausted before requesting judicial review.

Executive Order 12372

As stated in the Notice related to 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983) the programs and activities within this rule do not require consultation with state and local officials under the scope of Executive Order 12372.

Unfunded Mandates

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, requires Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments or the private sector of expenditures of $100 million or more in any one year. This rule contains no Federal mandates, as defined by title II of the UMRA; therefore, this rule is not subject to sections 202 and 205 of the 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.

Paperwork Reduction Act

The information collections were previously approved under OMB control number 0560-0198, but the package was retired since there are less than ten respondents annually and the collections are, therefore, not subject to the Paperwork Burden Act. The number of estimated annual respondents is not increased by this rule.

Federal Assistance Program

The changes affect the following program listed in the Catalog of Federal Domestic Assistance: 10.421—Indian Tribes and Tribal Corporation Loans.

List of Subjects in 7 CFR Part 770

• Agriculture
• Credit
• Indians
• Rural areas
• Loan programs

Accordingly, for the reasons stated in the preamble, 7 CFR part 770 is amended as follows:

PART 770—INDIAN TRIBAL LAND ACQUISITION LOANS

1. The authority citation for part 770 is revised to read as follows:

Authority: 5 U.S.C. 301, 25 U.S.C. 488.

2. Amend § 770.2 by revising the definition of “rental value” in paragraph (b) to read as follows:

§ 770.2

Abbreviations and definitions.

* * * * *

(b) * * *

Rental value for the purpose of rental value write-downs, equals the average actual rental proceeds received from the lease of land acquired under ITLAP. If there are no rental proceeds, then rental value will be based on market data according to § 770.10(e)(4).

* * * * *

3. Amend § 770.10 by revising paragraph (e)(4)(iii) to read as follows:

§ 770.10

Servicing.

* * * * *

(e) * * *

(4) * * *

(iii) The borrower provides a record of any actual rents received for the land for the preceding 5 years, which will be used to calculate the average rental value. This record must be certified by the Department of the Interior. For land that has not been leased or has not received any rental income, the borrower must provide a market value rent study report for the preceding 5 years, which identifies the average annual rental value based on the market data. The market value rent study report must be prepared by a certified general appraiser and meet the requirements of USPAP.

* * * * *

Signed in Washington, DC, on September 6, 2007.

Teresa C. Lasseter,

Administrator, Farm Service Agency.