Suspension of Collection of Recapture Amount for Borrowers With Certain Shared Appreciation Agreements

DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 1951

RIN 0560-AF80

Suspension of Collection of Recapture Amount for Borrowers With

Certain Shared Appreciation Agreements

AGENCY: Farm Service Agency, USDA.

ACTION: Interim rule.

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SUMMARY: The Farm Service Agency (FSA) is amending the shared

appreciation agreement requirements to allow certain Farm Loan Program

(FLP) borrowers with such agreements that end prior to December 31,

2000, to have the obligation to pay all or part of the recapture amount

due under the agreement suspended for up to 3 years. This rule will

allow those borrowers to suspend their obligation to pay the recapture

amount to give them time to recover from the current situation of

depressed commodity prices.

DATES: Effective April 23, 1999. Comments on this rule and on the

information collections must be submitted by June 22, 1999 to be

assured consideration.

ADDRESSES: Submit written comments to the Director, Farm Loan Programs,

Loan Servicing and Property Management Division, United States

Department of Agriculture, Farm Service Agency, STOP 0523, 1400

Independence Avenue, SW, Washington, DC 20250-0523.

FOR FURTHER INFORMATION CONTACT: David Spillman, Branch Chief, or

Veldon Hall, telephone (202) 720-0900; electronic mail: david

[email protected]gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant under Executive

Order 12866 and has been reviewed by the Office of Management and

Budget.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 and

602), the undersigned has determined and certified by signature of this

document that this rule will not have a significant economic impact on

a substantial number of small entities. New provisions included in this

rule will not impact a substantial number of small entities to a

greater extent than large entities. Therefore, a regulatory flexibility

analysis is not required and was not performed.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940,

subpart G, ``Environmental Program.'' The issuing agency has determined

that this action does not affect the quality of 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 12988

This rule has been reviewed in accordance with Executive Order

12988, Civil 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 because it will not affect agreements, entered into prior to the

effective date of the rule, to pay the shared appreciation amount due

under a shared appreciation agreement; 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.

This rule will only allow certain borrowers who are obligated to pay a

sum certain at the maturity date of the shared appreciation agreement

to delay that payment.

Executive Order 12372

For reasons set forth in the Notice related to 7 CFR part 3015,

subpart V (48 FR 29115, June 24, 1983), the programs within this rule

are excluded from the scope of E.O. 12372, which requires

intergovernmental consultation with State and local officials.

The Unfunded Mandates Reform Act of 1995

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 of $100 million or more in any 1 year. When such a

statement is needed for a rule, section 205 of the UMRA requires FSA to

prepare a written statement, including a cost benefit assessment, for

proposed and final rules with ``Federal mandates'' that may result in

such expenditures 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 under 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 of 1995

The amendments to 7 CFR part 1951 set forth in this interim rule

require a revision to the information collection requirements that were

previously approved by OMB under the provisions of chapter 35 of title

44 of the United States Code. Since this interim rule will be effective

as soon as it is published, FSA has submitted a request for emergency

approval of the information collections of this rule to OMB. Still, the

agency is seeking public comments on the information collection

estimates and subsequent revisions may be made based on the comments

received.

Title: 7 CFR 1951-S, Farmer Program Account Servicing Policies.

OMB Control Number: 0560-0161.

Expiration Date of Approval: March 31, 2001.

Type of Request: Extension and revision of a currently approved

information collection.

Abstract: The information collected under OMB Number 0560-0161, as

identified above, is needed for FSA to effectively administer the

regulations relating to the servicing of delinquent

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direct FSA farm loans. The information is collected by the loan

official in order to document the borrower's eligibility for specific

loan servicing actions. The reporting requirements imposed on the

public by the regulations contained in 7 CFR part 1951-S are necessary

to administer the loan program in accordance with statutory

requirements, are consistent with commonly performed lending practices,

and are necessary to protect the Government's financial interest.

This rule, which provides for the suspension of the borrower's

obligation to pay the recapture payment due under a shared appreciation

agreement in 1999 and 2000, will result in an information collection

burden for borrower's seeking such a suspension. Each borrower who

wishes to suspend a recapture payment obligation will be required to

request a suspension, read and sign a suspension agreement, and provide

cash flow projections documenting that they are unable to pay for 2

years subsequent to the suspension. The revision to the information

collection requirements approved under 0560-0161 also requests approval

of an existing requirement associated with this program. The currently

approved information collection contains no burden estimates for the

information collection requirements contained in 7 CFR 1951.914(e).

Specifically, paragraphs 1951.914(e)(1) and (8) require a borrower that

wishes to amortize the recapture due to present a feasible plan

documenting their ability to pay the recapture in installments plus

interest and to execute a promissory note for the amount due.

Estimate of Burden: Public reporting burden for this collection of

information is estimated to average 1.51 hours per response.

Respondents: Individuals or households, businesses or other for

profit and farms.

Estimated Number of Respondents: 9,453.

Estimated Number of Responses per Respondent: 1.

Estimated Total Annual Burden on Respondents: 14,309 hours.

Proposed topics for comment include: (a) Whether the collection of

information is necessary for the proper performance of the functions of

the agency, including whether the information will have practical

utility; (b) the accuracy of the agency's estimate of burden including

the validity of the methodology and assumptions used; (c) ways to

enhance the quality, utility and clarity of the information to be

collected; (d) ways to minimize the burden of the collection of

information on those who are to respond, including through the use of

appropriate automated, electronic, mechanical, or other technological

collection techniques or other forms of information technology.

Comments regarding this information collection should be sent to the

Desk Officer for Agriculture, Office of Information and Regulatory

Affairs, Office of Management and Budget, Washington, D.C. 20503 and to

David Spillman, Branch Chief, USDA, FSA, Farm Loan Programs Loan

Servicing Division, Farm Service Agency, USDA, 1400 Independence

Avenue, SW, STOP 0523, Washington, D.C. 20250-0523. A copy and

explanation of the information collection requirements of this rule may

be obtained from Mr. Spillman at the above address. Comments regarding

paperwork burden will be summarized and included in the request for OMB

approval of the information collection. All comments will also become a

matter of public record.

Federal Assistance Programs

These changes affect the following FSA programs as listed in the

Catalog of Federal Domestic Assistance.

10.407--Farm Ownership Loans

Discussion of the Interim Rule

The Farm Service Agency (FSA) publishes this amendment to subpart S

of part 1951 for immediate affect because of the emergency nature of

the program and the eligibility requirements involved. Publication as a

proposed rule for notice and comment is impractical and contrary to the

public interest as discussed below.

In late 1988, the Agricultural Credit Act of 1987 amended Sec. 353

of the Consolidated Farm and Rural Development Act (Con Act) by

inserting subsection (e) (7 U.S.C. 2001(e)) to allow the Farmers Home

Administration (which later became part of FSA), to begin restructuring

debts with debt write-downs and entering into shared appreciation

agreements with borrowers. Under these agreements, a borrower is

required to make a recapture payment equal to a specified portion of

any appreciation in the value of the real estate between the date of

the agreement and the earlier of the following dates: (1) The date the

real estate securing the borrower's loan with the agency is sold, (2)

the repayment of the loan, (3) the date the borrower ceases farming

operations, or (4) the date 10 years after the borrower and the agency

entered into the agreement. The recapture payment is 75% of the

appreciation in the case of agreements that lasted 4 years or less and

50% of the appreciation in the case of all other agreements.

Many of these agreements have now matured. However, the prices for

many agricultural commodities for the 1998 crop are at depressed

levels. Such depressed prices are expected to continue for at least

another year. In certain cases, the prices farmers are receiving for

the agricultural commodities they produce have fallen by more than 50%

over the last 3 years. This situation has led to a substantial fall in

farm income across nearly all sectors of production agriculture. Thus,

a significant percentage of the approximately 3,300 borrowers with

shared appreciation agreements that are coming to an end during the

1999 and 2000 calendar years are not able to repay the recapture

amounts.

This rule will allow those borrowers to suspend their obligation to

pay the recapture amount to give them time to recover from the current

situation of depressed commodity prices. Accordingly, there is a good

cause to make the rule effective immediately upon publication. FSA will

accept public comments on the rule for 60 days after publication in the

Federal Register.

The shared appreciation agreement regulations codified at 7 CFR

1951.914, generally provide the procedures for the servicing of shared

appreciation agreements, including the procedure for determining and

collecting recapture amount of any appreciation in the secured real

estate.

The rule would amend the regulation by adding paragraph (h) to give

a borrower with a shared appreciation agreement that becomes due on or

before December 31, 2000, provided there has been no agreement for

payment of the recapture amount, a period of 30 days to apply for a 1

year suspension of the borrower's obligation to pay the recapture

amount if the borrower certifies in writing the inability to pay the

recapture amount. In order to protect the Government's lien position,

FSA must determine that its mortgage on the secured real estate will

not expire prior to the end of the suspension period plus an additional

3 years, or FSA must be advised that under State law the mortgage can

be extended for an additional 3 years.

A suspension may be renewed twice. At each renewal, the borrower

will receive a suspension limited to the portion of the recapture

amount FSA determines, based on a Farm and Home Plan, that the borrower

is still unable to pay at the time of the renewal request. The amount

of the recapture payment subject to a suspension will accrue

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interest at a rate equal to the applicable Federal borrowing interest

rate, as determined by the FSA Administrator.

Thirty days before the suspension period FSA will notify the

borrower that the suspension of the shared appreciation agreement will

end in the near future. This notification is separate and apart from

the notification required by Sec. 807 of the Agriculture, Rural

Development, Food and Drug Administration, and Related Agencies

Appropriations Act, 1999 (1999 Appropriations Act). Section 807 of the

1999 Appropriations Act requires FSA, beginning in fiscal year 2000, to

send an FLP borrower notice of the provisions of the agreement not

later than 12 months before the end of the term of a shared

appreciation agreement. Under additional FSA procedures all borrowers

whose agreements were due, even if the payment obligation is suspended,

were notified of the agreements' provisions in the timeframe required

by Sec. 807. The requirement in this regulation that borrowers be

notified 30 days before the end of the suspension is not intended to

apply under Sec. 807 of the 1999 Appropriations Act.

If the real estate is conveyed during the suspension period, the

recapture amount plus any applicable interest will become immediately

due and payable under the notice procedures explained in the notice to

the borrowers.

List of Subjects in 7 CFR Part 1951

Accounting, Credit, Loan programs-agriculture.

Accordingly, 7 CFR part 1951 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. 1989; 31 U.S.C. 3716; 42

U.S.C. 1480.

Subpart S--Farmer Program Account Servicing Policies

2. Section 1951.914 is amended by revising the heading and

introductory text of paragraph (b) and by adding paragraph (h) to read

as follows:

Sec. 1951.914 Servicing of accounts restructured under Primary Loan

Service Program.

* * * * *

(b) Recapture under Shared Appreciation Agreements. Except as

provided in paragraph (h), recapture of any appreciation will take

place at the end of the term of the agreement, or sooner, if the

following occurs: * * *

* * * * *

(h) Suspension of Recapture Payment Obligation under a Shared

Appreciation Agreement.

(1) A borrower may request from a Farm Loan Program (FLP) servicing

official, a suspension of the obligation to pay the recapture amount

under a shared appreciation agreement, if:

(i) The shared appreciation agreement recapture payment is now due

but there has been no agreement to pay the recapture payment;

(ii) The 10 year term of the agreement ends on or before December

31, 2000;

(iii) The secured real estate has not yet been conveyed so that the

entire amount of the shared appreciation agreement recapture payment is

due;

(iv) The borrower has complied with the other terms of the

agreement;

(v) The borrower certifies in writing that the borrower is not able

to pay the recapture amount;

(vi) The agreement or the obligations thereunder have not been

accelerated and there are pending servicing rights under this subpart

still available to the borrower; and

(vii) The Agency's mortgage which secures the agreement remains in

effect for a period not less than the suspension period under this

paragraph plus 3 additional years or the Agency determines that the

mortgage can be extended for an additional 3 years beyond the

suspension period.

(2) A request for suspension of the obligation to pay the recapture

amount must be submitted in writing to the FLP servicing official after

the borrower has received notification of the recapture amount due by

the later of:

(i) 30 days after the borrower has received notification of the

recapture amount due; or

(ii) May 24, 1999.

(3) The term of the suspension of the obligation to pay the

recapture amount is 1 year.

(4) A suspension may be renewed by the Agency at the request of a

borrower in writing not more than twice. Prior to renewal of a

suspension, the Agency will determine, based on a Farm and Home Plan,

the portion of the recapture amount the borrower is still unable to

pay, or obtain credit to pay, from any other source (including

nonprogram loans from the Agency, in accordance with this part), the

suspension will be limited to such an amount. The Agency must also

determine that the conditions prescribed in paragraphs (h)(1)(i)

through (h)(1)(vi) are still met.

(5) The amount of the recapture payment suspended will accrue

interest at a rate equal to the applicable rate of interest of Federal

borrowing, as determined by the Agency.

(6) Thirty days before the end of the suspension period, the FLP

Servicing Official shall inform the borrower by letter of the suspended

amount, including accrued interest that is owed and the date such

payment is due.

(7) At the end of the suspension period, the borrower will be

obligated to pay the amount suspended, plus any accrued interest and

the borrower will be so notified.

(8) If the real estate that is the subject of the shared

appreciation agreement during the suspension period is conveyed, the

suspended amount, plus any accrued interest shall become immediately

due and payable by the borrower in accordance with the procedures

established under paragraph (c), except that an appraisal is not

required on the real estate.

Signed in Washington, DC, on April 20, 1999.

August Schumacher, Jr.,

Under Secretary for Farm and Foreign Agricultural Services.

[FR Doc. 99-10258 Filed 4-21-99; 8:45 am]

BILLING CODE 3410-05-P