Servicing of Community and Insured Business Programs Loans and Grants

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

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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