Loans to Indian Tribes and Tribal Corporations

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 770

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1823 and 1956

RIN 0560-AF43

Loans to Indian Tribes and Tribal Corporations

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed Rule.

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SUMMARY: This rule proposes to consolidate into one part and to revise

the Indian Tribal Land Acquisition Program (ITLAP) regulations to allow

borrowers to use the loan reserve accounts to purchase additional real

estate and to give borrowers additional servicing options. The proposed

rule also would allow ITLAP funds to be used for certain refinancing

activities; limit the requirement for reserve accounts to loans not

secured by a general assignment of Tribal income; expand the uses

borrowers may make of land purchased with ITLAP funds; require ITLAP

loan applications, in most cases, include a copy of the borrower's

option to purchase the land; and provide for subsequent loans to be

made to ITLAP borrowers.

DATES: Comments on the proposed rule must be received on or before

December 2, 1999 to be assured of consideration. Comments on the

information collection requirements of this rule must be received on or

before January 3, 2000 to be assured of consideration.

ADDRESSES: Mail comments on the proposed rule to: Veldon Hall,

Director, Farm Loan Programs, Loan Servicing and Property Management

Division, Farm Service Agency, USDA, 1400 Independence Avenue, S.W.,

STOP 0523, Washington, D.C. 20250-0523, fax number: (202) 690-0949, or

hand deliver them to room 5449-South at that address during normal

business hours.

FOR FURTHER INFORMATION CONTACT: Gary West, Senior Loan Officer, Farm

Loan Programs, Loan Servicing and Property Management Division, Farm

Service Agency, USDA, 1400 Independence Avenue, S.W., STOP 0523,

Washington, D.C. 20250-0523, telephone (202) 690-4008, facsimile (202)

690-0949, electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant under E.O. 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-

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. Thus, large entities are subject to

these rules to the same extent as small entities. Therefore, a

regulatory flexibility analysis 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 E.O. 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; 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.

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 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 one year. When such a

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

agencies 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 creation of 7 CFR part 770 set forth in this proposed rule

requires review and approval of the information collection requirements

by OMB under the provisions of chapter 35 of title 44 of the United

States Code.

Title: 7 CFR 770 Indian Tribal Land Acquisition Program.

OMB Control Number: 0560-NEW

Type of Request: Approval of a new information collection.

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

identified above, is needed for Farm Service Agency (FSA) to

effectively administer the regulations relating to the making and

servicing of loans under the Indian Tribal Land Acquisition Program.

The information is collected by the loan official in order to document

the borrower's eligibility for loans and specific loan servicing

actions. The

[[Page 59132]]

reporting requirements imposed on the public by the regulations

contained in 7 CFR part 770 are necessary to administer the Indian

Tribal Land Acquisition Program (ITLAP) loan program in accordance with

statutory requirements (25 U.S.C. 488-494) consistent with commonly

performed lending practices.

The proposed rule imposes information collection requirements on

Native American Tribes seeking ITLAP loans or borrowers seeking loan

servicing actions. In order to apply for an ITLAP loan, the applicant

must provide information regarding its financial condition, ability to

obtain other credit, plans for use of the land being purchased, plans

for how it intends to repay the loan, loan security and purchase

agreement for the land. If the borrower seeks loan servicing, the

borrower must provide information regarding the financial condition of

the tribe.

Estimate of Burden: Public reporting burden for this collection of

information is estimated to average 18.50 hours per loan application,

.25 hours per request for a reamortization, .25 hours per request for

an interest rate reduction, and 2 hours per request for a debt write

down.

Respondents: Native American Tribes.

Estimated Number of Respondents: 12.

Estimated Number of Responses per Respondent: 1.

Estimated Total Annual Burden on Respondents: 83 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

Craig Nehls, Branch Chief, Farm Loan Programs Loan Servicing Division,

FSA, USDA, 1400 Independence Avenue, S.W., STOP 0523, Washington, D.C.

20250-0523. 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.

10.421--Indian Tribes and Tribal Corporation Loans

Discussion of the Advanced Notice of Proposed Rulemaking

On March 3, 1999, the Rural Housing Service, Rural Business-

Cooperative Service, Rural Utilities Service, and Farm Service Agency

published an Advance Notice of Proposed Rulemaking (ANPR) (64 FR 10235)

soliciting comments to six issues relating to a possible revision of

the debt relief regulations for ITLAP. In response to this request for

public comment, 49 comments were received from ten commenters. Six

commenters represented Native American Tribes, two commenters were

individuals representing themselves, one commenter represented an

Intertribal water rights coalition, and one commenter represented

another Federal Government agency. The following is a summary of the

comments received for each of the six issues:

1. Cancel the ITLAP debts in full. What criteria would be used to

determine if a debt should be canceled?

Fourteen comments were received in response to this issue. One

comment opposed reducing or canceling any ITLAP debt that is fully

secured and collectable. Nine comments supported the cancellation of

debt in some unspecified form; four comments supported a broad based

cancellation of the debt; and two comments indicated that their Native

American Tribes had already repaid more than they had originally

borrowed and therefore should not have to pay any additional amounts.

2. Reduce the principal amount of the outstanding ITLAP debt to the

present value of expected future annual rental value of the land

purchased with ITLAP loan funds and set the annual ITLAP loan payment

at the annual rent received or that could be received from this land.

Five comments were received in response to this issue. Two comments

stated that the principal balance of such loans should be reduced to

present value of future annual rents that could be generated on the

land purchased with loan funds; two comments supported the concept that

loan payments should be adjusted to equal rental income received from

land purchased with loan funds; and one comment supported a reduction

in loan payments to equal 85 percent of the rents received on the land

purchased by loan funds.

3. Restructure the loan by lowering the interest rate and

reamortizing the balance of the loan over the remaining loan term.

Five comments were received in response to this issue which

suggested that borrowers should be eligible for reamortizations,

deferrals, and servicing options which are available to Farm Loan

Program borrowers.

4. Release the assignment of income and substitute real estate

mortgages on the land purchased with ITLAP funds. The regulation could

provide that payment terms of the loans would be restructured at such

time.

Two comments were received in response to this issue which

indicated that the Agency should take mortgages as security for these

in exchange for the general assignments of income that currently secure

many of these loans.

5. Consider the changes in Tribal revenues from all sources and

grant a corresponding reduction in the loan principal.

Six comments were received on this issue. Five comments supported

the provisions of debt relief based on socio-economic condition of the

Tribe; and one comment proposed that debt relief should be based on

decreases in Federal funding.

6. Grant deferrals of annual payments if the income loss is

temporary.

One comment was received on this issue which recommended that debt

relief should be provided when a producer who rents land from the

borrower suffers a reduction in commodity prices.

In addition to the above listed comments, the Agency received 16

comments on other issues related to ITLAP. One comment suggested that

debt relief should be provided, if the making of the loan payments by

the borrower will impede the borrower's ability to resolve fractional

land interests on the reservation; one comment stated that debt relief

should be provided if the making of loan payments impedes the

borrower's ability to repay other loans or meet other Tribal needs;

three comments indicated that debt relief should not be conditioned on

whether the loan has been accelerated; one comment suggested that

independent legislation would be needed to authorize additional

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debt relief options; seven comments indicated that the Agency should

take action without promulgating new regulations since such regulations

are not necessary and would violate Executive Order (E.O.) 13084; two

comments indicated that the Agency's concerns regarding the budgetary

impacts of providing debt relief to borrowers were misplaced because

such relief would enable borrowers to purchase more fractional

interests and thus reduce the overall Federal Government's costs in

tracking these fractional interests; and one comment indicated that

funding for the loan program should be provided to the full program

authorization level of $50 million.

Based on a review of the comments, the Agency has reached the

following conclusions which, in part, formed the basis for the proposed

changes to the debt relief provisions of ITLAP contained in this

proposed rule:

In response to the comments that suggested the Agency adopt a

policy of canceling ITLAP debt, the Agency cannot justify the simple

cancellation of ITLAP debt with respect to the program's current

borrowers. Such an action would be inconsistent with the intent of the

program which is to provide loan financing to Native American Tribes

for the purchase of reservation land. Such a change would move the

program from a loan program to a grant program. When Congress amended

the ITLAP legislation to authorize debt relief, it tied such relief to

changes in the value of the land. (Sec. 303 of Pub. L. 101-82) In this

amendment, Congress did not suggest or encourage the Agency use its

debt settlement authorities to provide broad debt relief. Further, none

of the comments provided specific criteria to support when such

cancellations of debt should take place and none of the comments

addressed the issue that providing such relief to those with recent

loans would be unfair to those who have already repaid substantial

portions of their debt. Finally, providing such relief could jeopardize

the future of this program. At a minimum, as indicated in the ANPR, if

such relief is not clearly limited, it could substantially increase the

projected costs for future ITLAP loans which would mean that under the

Credit Reform Act of 1990 the Agency would have fewer program loan

funds available for such loans, even if the appropriation level of the

program remains unchanged. Therefore, the Agency has concluded that at

this point, the option of broadly canceling ITLAP debts should not be

pursued. However, the Agency will accept more comments on this issue in

response this proposed rule.

In response to the comments that recommended the Agency allow an

ITLAP borrower whose loan is secured by an assignment of income to

substitute as security for the loan a mortgage on the land purchased

with ITLAP funds, the Agency does not, at this point, propose a change

to the ITLAP regulations to allow for such a substitution. The Agency

has experienced a very low delinquency rate with respect to ITLAP loans

secured by an assignment of income. Further, before an ITLAP loan may

be secured with an assignment of income, the Agency must first

determine that such security would be superior to taking a mortgage on

the purchased land. In many of these cases taking security in the form

of a mortgage is not practical because the ITLAP funds are being used

to purchase fractional interests in land. A mortgage on such fractional

interests would not provide the Agency with adequate security for the

loan. Therefore, the Agency, at this time, does not believe that such a

change would be in the best interests of the program. However, the

Agency will take additional comments on this issue in response to this

proposed rule.

The Agency received comments with respect to issues 2, 5, and 6

that suggested in a variety of ways that the ITLAP regulations should

be changed to allow for debt relief if rental value of the land could

not generate enough income to equal the ITLAP loan payments. In

addition, the Agency received comments that debt relief should be

provided to borrowers that are suffering a loss of revenue, facing

severe socio-economic problems and having difficulties in meeting the

basic needs of its members. Specifically, these comments taken together

indicate that some Native American Tribes, over an extended period of

time, are having to take funds needed from other high priority

activities to make ITLAP loan payments. The Agency has determined that

debt relief to an ITLAP borrower could be extended to those borrowers

forced to use scarce Tribal assets needed to fight long term socio-

economic problems to make ITLAP loan payments. The proposed rule

contains a provision that would allow, under certain circumstances, an

ITLAP loan be written down once to a level where ITLAP annual loan

payments equal the previous five year average annual rental payment for

the land purchased by loan funds, if the Native American Tribe is

facing certain socio-economic problems. However, a Native American

Tribe could receive the benefit of such a write down regarding its

ITLAP loans only once. Such a write down could involve as many ITLAP

loans of the Tribe as meet the criteria under this regulation at the

time of the write down application. Further, in response to comments

received, the availability of this proposed form of debt relief will

not be conditioned on the acceleration of the loan.

The Agency received comments that ITLAP borrowers should have the

same servicing options (codified at 7 CFR part 1951, subpart S) and

debt settlement options (codified at 7 CFR part 1956) as Farm Loan

Program (FLP) borrowers with Farm Ownership, Farm Operating, and

Emergency loans.

Based on a review of the FLP loan making and servicing procedures,

we have determined that loan making and servicing procedures for

farmers and ranchers are not consistent with the statutorily

established purposes of ITLAP. The purpose of FLP loans is to assist

farming and ranching operations in becoming economically successful.

Conversely, the statutory purpose of ITLAP loans is to assist Native

American Tribes in the purchase of land and interests in land for the

purpose of consolidating their ownership of land within their

reservations regardless of the economic use such Tribe may make of the

land. Thus, FLP loans made to farmers and ranchers versus ITLAP loans

made to Native American Tribes are substantially different in the types

of borrowers being targeted, the importance of how the borrower's

operation is structured, and the importance of the economic viability

of the project being funded. In order to accomplish the purpose of

these respective loan programs, the servicing options offered to

borrowers under each program must be different and tailored to the

distinct purposes of these programs.

With respect to debt settlement, the security for most ITLAP loans

is a general assignment against Tribal income and not a mortgage on the

property purchased with ITLAP funds. Therefore, since the security for

these loans in most cases has nothing to do with the purchased land or

the operations on the purchased land, the debt settlement regulations

at 7 CFR part 1956 which are premised, to the extent possible, on

maintaining the economic viability of operations on the land will not

work with ITLAP borrowers. Based on this analysis, in the proposed rule

we have created loan servicing and debt settlement provisions that are

specially tailored and unique to ITLAP.

[[Page 59134]]

The Agency received comments that it should proceed with

consideration of additional debt relief options for ITLAP borrowers

through informal rulemaking, because such actions violate E.O. 13084.

These comments indicated that this E.O. obligates the Secretary of

Agriculture to take actions to assist Native American Tribes while

waiving the normal regulatory requirements to take such actions. The

Agency agrees with these comments that the E.O. does place an

obligation on the Secretary of Agriculture to take steps wherever

possible to assist Native American Tribes. As indicated in the ANPR the

Agency is re-examining ITLAP to determine if there are ways in which

the Agency can provide more debt relief options to borrowers. The

Agency, however, does not agree that the E.O. would allow the Agency to

implement such policy changes in violation of the requirements of

notice and comment rulemaking requirements in section 553 of title 5,

United States Code or the Statement of Policy of the Secretary of

Agriculture relating to notices of proposed rulemaking and public

participation (36 FR 13804). Further, while the notice and comment

informal rulemaking process may take additional time, this process will

give all interested parties, including affected Native American Tribes,

the opportunity to participate in the development of this regulation to

ensure their interests and concerns are heard prior to the

implementation of any policy change. Therefore, the Agency has

determined to proceed with the consideration and development of ITLAP

debt relief changes through the notice and comment rulemaking process.

In response to the concerns expressed that any additional debt relief

changes to ITLAP should be made as soon as possible, the comment period

for this proposed rule has been reduced from the standard 60-day time

frame to 30 days to expedite the implementation of this rule.

The Agency received several comments that disagreed with the

Agency's concerns expressed in the ANPR that the consideration of the

impact on the Federal budget any ITLAP debt relief proposal is

important. These comments indicated that any additional costs to the

Federal Government by providing additional debt relief to ITLAP

borrowers, which would enable such borrowers to purchase more

fractional interests, would be offset by the reduction in costs to the

Federal Government to administer programs on Native American

reservations. We do not have any information that would support the

contention that the costs of providing additional ITLAP debt relief

would be offset by other reductions in the cost of administering

Federal Government programs on Native American reservations.

Therefore, the Agency is proposing to allow certain ITLAP loans to

be written down to a value where the annual loan payment will equal the

average annual rental income that could be generated from the land if

the borrower can demonstrate based on criteria established in the

proposed rule that over an extended period of time, the Native American

Tribe is facing other economic burdens which are being exacerbated as a

result of the fact that the ITLAP loan payments exceed the long term

income producing value of the land.

Discussion of the Proposed Rule

Pub. L. 91-229 (25 U.S.C. 488-494) authorized the Secretary of

Agriculture to establish ITLAP. This program was administered by the

former Farmers Home Administration (FmHA) to make loans to Native

American Tribes and Tribal corporations to acquire land and fractional

interests in land on the Tribes' reservations. Under the authority of

the Department of Agriculture Reorganization Act of 1994, Pub. L. 103-

354, on October 20, 1994, FmHA's ITLAP functions were transferred to

the FSA. Regulations for implementing this program are found at 7 CFR

part 1823, subpart N for loan making; 7 CFR part 1951, subpart E for

loan servicing; and 7 CFR part 1956, subpart C, for debt settlement.

The proposed rule would consolidate the ITLAP regulations into one part

and clarify that this program is exclusively administered by FSA.

The proposed rule would limit the circumstances when a reserve

account would be required to secure an ITLAP loan to those loans not

adequately secured by a general assignment of Tribal income. With

respect to loans that are not delinquent and that are presently

adequately secured by a general assignment of Tribal income, the Agency

will release its interest in such funds and allow them to be returned

to the Native American Tribe or Tribal corporation. During our review

of ITLAP in preparation of this proposed rule, the Agency determined

that a general assignment of Tribal income may provide the Agency

sufficient security for ITLAP loans. The additional security provided

by the reserve account is unnecessary. ITLAP loans secured by an

assignment of income have a very low delinquency rate. Only in a

handful of cases has the Agency sought to recover an ITLAP loan payment

from the reserve account.

The proposed rule also would allow Native American Tribes and

Tribal corporations with remaining ITLAP loans secured by a mortgage to

use their reserve accounts to purchase additional land consistent with

ITLAP, which would be added to the mortgage securing the loan. With

this change, the Agency would allow borrowers the use of this reserve

account to purchase additional land that could increase its future

income. The proposed rule would require the reserve funds be placed in

Federally insured interest bearing accounts. We believe that these

changes are consistent with the intent of ITLAP to assist Native

American Tribes and Tribal corporations to consolidate their ownership

in reservation lands and to encourage the rapid build up of the reserve

accounts in those cases when they are required.

The proposed rule would also expand the use of ITLAP loan funds to

include refinancing of an existing debt incurred by the Native American

Tribe or Tribal corporation to purchase land provided: (1) The loan

application was received and the Agency approved a land acquisition

proposal for the land at issue, prior to the purchase of the land, (2)

the Native American Tribe or Tribal corporation was not able to obtain

an option on the land, (3) the debt to be refinanced is short term debt

with a balloon payment that cannot otherwise be refinanced with the

creditor, and (4) the debt secured by the land subject to the

refinancing must otherwise meet the requirements of ITLAP.

The proposed rule would allow certain ITLAP loans to be written

down to a value where the annual loan payment would equal the 5-year

average rental value for the land purchased with such loan funds if the

borrower could establish that the Native American Tribe was facing

economic hardships based on a combination of certain criteria. Such a

write down could involve as many ITLAP loans of the Tribe as meet the

criteria under this regulation at the time of the write down

application. This proposed amendment is based on comments received in

response to the ANPR published on March 3, 1999, previously discussed.

The proposed rule would clarify the process under which the Agency

will reduce the interest rate of an ITLAP loan to the interest in

effect at the time of application for such a reduction. Such a

reduction will take place if the ITLAP loan has been in effect for more

than 5 years.

The proposed rule would make several other changes to the ITLAP.

The

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proposed rule would clarify the approved uses of land that are the

subject of an ITLAP loan to ensure that the Agency's mortgage on the

land is protected by requiring Agency approval prior to such land being

either leased, sold, or exchanged. The proposed rule would clarify that

a subsequent ITLAP loan may be made to a borrower for the same purposes

and under the same conditions as a prior loan. The proposed rule would

require that prior to obtaining an ITLAP loan, the Native American

Tribe or Tribal corporation obtain an option or other acceptable

purchase agreement to purchase the land at issue and that a copy of

such agreement accompany the ITLAP loan application. The purpose for

this change is to allow the Agency to have all relevant information

regarding the land purchase for which ITLAP loan funds are being

sought. The proposed rule would, under limited circumstances, allow a

reamortization of an ITLAP loan beyond 40 years. Debt settlement of

ITLAP loans will be handled in accordance with the general government-

wide debt collection standards at 4 CFR parts 101-105 and the USDA

regulations at 7 CFR part 3, subpart B.

List of Subjects

7 CFR Part 770

Credit, Indians, Loan programs--agriculture.

7 CFR Part 1823

Credit, Grazing lands, Indians, Loan programs--agriculture, Rural

areas, Soil conservation.

7 CFR Part 1956

Accounting, Loan programs--agriculture, Rural areas.

Accordingly, for the reasons stated in the preamble, the Farm

Service Agency proposes to add 7 CFR part 770 and amend 7 CFR parts

1823 and 1956 as follows:

1. Part 770 is added to read as follows:

PART 770--INDIAN TRIBAL LAND ACQUISITION LOANS

Sec.

770.1 Purpose

770.2 Definitions.

770.3 Eligibility for a loan.

770.4 Eligible uses of loan funds.

770.5 Loan limitations.

770.6 Rates and terms.

770.7 Security.

770.8 Use of acquired land.

770.9 Special Requirements.

770.10 Servicing.

Authority: 5 U.S.C. 301, 25 U.S.C. 490.

Sec. 770.1 Purpose.

This part contains policies and procedures of the Agency for making

and servicing loans to assist a Native American Tribe with the

acquisition of land interests within the Tribal reservation or Alaskan

community.

Sec. 770.2 Definitions.

Agency means the Farm Service Agency and includes any successor

agency.

Appraisal means an appraisal for the purposes of determining the

market value of land (less value of any existing buildings that pass

with the land) that meets the requirements of the Uniform Standards of

Professional Appraisal Practice consistent with part 1922 of this title

and by an appraiser approved by the Agency.

Applicant means a Native American Tribe or Tribal corporation

seeking a loan under this part.

Loan funds means money loaned under this part.

Native American Tribe means:

(1) An Indian Tribe recognized by the Department of the Interior;

or

(2) A community in Alaska incorporated by the Department of the

Interior pursuant to the Indian Reorganization Act.

Reservation means lands or interests in land within:

(1) The Native American Tribe's reservation as determined by the

Department of the Interior; or

(2) A community in Alaska incorporated by the Department of the

Interior pursuant to the Indian Reorganization Act.

Tribal corporation means a corporation established pursuant to the

Indian Reorganization Act.

Sec. 770.3 Eligibility for a loan.

To be eligible for a loan under this part, an applicant shall:

(a) File an application with the Agency on a form approved by the

Agency;

(b) Be a Native American Tribe or a Tribal corporation of a Native

American Tribe without adequate uncommitted funds, based on Generally

Accepted Accounting Principals, to acquire lands or interests therein

within the Native American Tribe's reservation for the use of the

Native American Tribe or Tribal corporation or the members of either;

(c) Be unable to obtain sufficient credit elsewhere at reasonable

rates and terms;

(d) Waive immunity from suit or liability and provide necessary

information to private, commercial and government lenders in order to

determine if the applicant meets the credit requirements of this part;

and

(e) Demonstrate reasonable prospects of success in the proposed

operation of the land to be purchased with funds provided under this

part by providing:

(1) A feasibility plan for the use of the Native American Tribe's

land and other enterprises and funds from any other source from which

payment will be made;

(2) A satisfactory management and repayment plan; and

(3) A satisfactory record for paying obligations.

Sec. 770.4 Eligible uses of loan funds.

(a) Land. Loan funds may be used to acquire land and interests

therein (including fractional interests, rights-of-way, water rights,

easements, and other appurtenances (excluding buildings) that would

normally pass with the land or are necessary for the proposed operation

of the land) located within the Native American Tribe's reservation

which will be used for the benefit of the Tribe or its members.

(b) Costs of acquiring the land. Loan funds may be used to pay

costs incidental to land acquisition, such as those for title

clearance, legal services, land surveys, and loan closing.

(c) Refinancing existing debt. Loan funds may be used to refinance

non-United States Department of Agriculture preexisting debts the

Native American Tribe or Tribal corporation incurred to purchase the

land if the following conditions exist:

(1) Prior to the acquisition of such land, the Native American

Tribe or Tribal corporation shall file a loan application regarding the

purchase of such land and receive the Agency's approval for the land

purchase;

(2) The Native American Tribe or Tribal corporation could not have

acquired an option on such land;

(3) The debt for such land is a short term debt with a balloon

payment that cannot be paid by the Native American Tribe or the Tribal

corporation and that cannot be extended or modified to enable the

Native American Tribe or Tribal corporation to satisfy the obligation;

and

(4) The purchase of such land must be consistent with all other

applicable requirements of this part.

(d) Appraisal costs. Loan funds may be used to pay for the costs of

any appraisals that may be conducted pursuant to this part.

Sec. 770.5 Loan limitations.

(a) Land improvement and development costs. Loan funds may not be

used for any land improvement or development purposes, acquisition or

repair of buildings or personal property,

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payment of operating costs, payment of finder's fees, or similar costs,

or for any purpose that will contribute to excessive erosion of highly

erodible land or to the conversion of wetlands to produce an

agriculture commodity as further explained in exhibit M of subpart G of

part 1940 of this title.

(b) Loan funds may not exceed value of the land. The amount of loan

funds used to acquire land may not exceed the market value of the land

(excluding the value of any improvements) as determined by the Agency.

(c) Time limit for loan disbursal. Loan funds for a land purchase

must be disbursed over a period not to exceed 24 months from the date

of loan approval.

(d) Sale of non-renewable assets. The sale of assets that are not

renewable within the life of the loan will require a reduction in loan

principal equal to the value of the assets sold.

Sec. 770.6 Rates and terms.

(a) Term. Except as provided in Sec. 770.10(c), each loan will be

scheduled for repayment over a period not to exceed 40 years from the

date of the note.

(b) Interest rate. The interest rate charged by the Agency will be

the lower of the interest rate in effect at the time of the loan

approval or loan closing. Except as provided Sec. 770.10(b), the

interest rate will be constant for the life of the loan.

Sec. 770.7 Security.

A mortgage or deed of trust on the land to be purchased by the

applicant will be taken as security for a loan under this part unless

the Agency determines that an assignment of income from the applicant

provides as good or better security. If an assignment of income is to

be taken as the sole security for the loan, the prior approval of the

Administrator is required.

Sec. 770.8 Use of acquired land.

(a) In general. Land acquired with loan funds, or other property

serving as the security for a loan under this part, may be leased,

sold, exchanged, or subject to a subordination of the Agency's

interests, provided the Agency provides prior written approval of the

action, if the Agency determines that the borrower's loan obligations

to the Agency are adequately secured and the borrower's ability to

repay the loan is not impaired.

(b) Land exchanges. In the case where the borrower proposes to

exchange any portion of land securing a loan for other land, title

clearance and a new mortgage on the land received by the borrower in

exchange, which adequately secures the unpaid principal balance of the

loan, will be required unless the Agency determines any remaining land

or other loan security is adequate security for the loan.

Sec. 770.9 Special requirements.

(a) Loan authorizations. The Native American Tribe or Tribal

corporation will take appropriate action to obtain and prove security

for the loan.

(b) Right to mortgage. If a mortgage is to be obtained on trust or

restricted land with respect to a loan under this part and the Native

American Tribe's or Tribal corporation's constitution or charter does

not specifically authorize mortgage of such land, the mortgage must be

authorized by Tribal referendum. All mortgages of trust or restricted

land must be approved by the Department of the Interior.

(c) Waiver of immunity. Prior to loan closing, the appropriate

Tribal officials will execute on behalf of the Native American Tribe or

Tribal corporation and in favor of the Agency, a waiver of immunity for

the loan being made, which waiver has been approved by the Department

of the Interior.

(d) Reserve accounts. (1) Creation of reserve account. In the case

of a loan not adequately secured by a general assignment of Tribal

income, funds will be collected from the borrower and deposited into a

Federally insured, interest bearing reserve account at the rate of 10

percent of the annual payment per year under each loan authorized under

this part until the reserve account has accumulated an amount equal to

one year's installment for each loan made to the borrower under this

part.

(2) Use of reserve funds. (i) Loan security. The funds in the

reserve account will be available to further secure the loan made to

the borrower under this part.

(ii) Purchase additional land. The Agency shall allow a borrower to

use some or all of the reserve account for additional land purchases

under terms and conditions consistent with the requirements of this

part provided the loan is not delinquent or likely to become delinquent

and any land purchased shall be added to the property that secures the

loan.

(iii) Make an installment payment. Reserve funds may be used to

make an installment payment for a loan made under this part, if the

borrower lacks other financial resources to make such a payment.

(e) Subsequent loan. A subsequent loan may be made to a borrower

for the same purposes and under the same conditions as the initial loan

made to the borrower under this part.

(f) Options. Except for refinancing activities authorized in

Sec. 770.4(c), the applicant shall obtain an option or other acceptable

purchase agreement for land to be purchased with loan funds, and such

agreement shall be included with the application for loan funds.

(g) Cost of appraisals. The applicant or the borrower, as

appropriate, will pay the cost of all appraisals required under this

part.

Sec. 770.10 Servicing.

(a) Reamortization. (1) Eligibility for reamortization. The Agency

may approve a reamortization of a loan under this part if:

(i) The account is delinquent and cannot be brought current within

1 year; or

(ii) The account is current, but due to circumstances beyond the

control of the borrower, the borrower will be unable to meet the annual

loan payments.

(2) Terms of reamortization. The term of a loan may not be extended

unless:

(i) Reamortization within the remaining term of the loan would

increase the annual payment to such an extent that the borrower cannot

meet its obligations; and

(ii) No intervening lien exists on the security for the loan.

(3) Consolidation of Notes. If one or more notes are to be

reamortized, consolidation of the notes is authorized.

(b) Interest rate reduction. The Agency shall, at the borrower's

request, reduce the interest rate for an existing loan made under this

part to the current interest rate for such loans if the loan was made

more than 5 year prior to the application for the interest reduction

and the Department of the Interior and the borrower certify that the

borrower meets at least one of the criteria contained in paragraph

(c)(2)(ii) of this section.

(c) Debt write down. (1) Application. A borrower may apply for a

write down under either the land value or rental value option or both

options provided in this paragraph. If the borrower applies for a land

value write down, the borrower must provide a current appraisal of the

land purchased with the loan funds at the time of application. If the

borrower applies and is determined eligible for a land value and a

rental value write down, the borrower will receive a write down based

on the write down option that provides the greatest debt reduction.

(2) Eligibility. To be eligible for a write down under this

paragraph, the borrower (in the case of a Tribal corporation, the

Native American Tribe of the borrower) must:

[[Page 59137]]

(i) Be located in a county which is listed as a persistent poverty

county by the Economic Research Service pursuant to the most recent

data from the Bureau of the Census; and

(ii) Have a socio-economic condition over the immediately preceding

5 year period that meets at least two of the following factors as

certified by the Native American Tribe and the Department of the

Interior:

(A) The Native American Tribe has experienced a decrease, on a per

capita basis, in State and Federal funding of more than 15 percent;

(B) The Tribal gross income, on a per capita basis, has declined by

more than 20 percent;

(C) The Native American Tribe has incurred increased costs

associated with unfunded or partially funded mandates from Federal or

State Governments equal to more than 15 percent of the total amount

received from Federal or State sources; and

(D) The Native American Tribe has incurred an increase in costs of

meeting the public health and safety needs of Tribal members of more

than 20 percent.

(3) Land value write down. The Agency may adjust the unpaid

principal and interest balance on any loan made under this part to the

current market value of the land that was purchased with loan funds,

if:

(i) The market value of such land has declined by at least 25

percent since the land was purchased with loan funds as established by

an appraisal;

(ii) Land value decrease is not attributed to the depletion of

resources contained on or under the land;

(iii) The land on which the principal write down is requested has

been held by the borrower for at least 5 years; and

(iv) The loan has not been written down under paragraph (d)(3) of

this section within the last 5 years.

(4) Rental value write down. The Agency may write down loans made

under this part so the annual loan payment for the remaining term of

each loan equals the average of annual rental value of the land

purchased by each such loan for the immediately preceding 5-year period

if:

(i) The land that was purchased with loan funds was purchased more

than 5 years prior to the application for such writedown;

(ii) The description of the land purchased with the loan funds and

the rental values used to calculate the 5 year average annual rental

value of the land have been certified by the Department of the

Interior;

(iii) The borrower provides a current appraisal of the land; and

(iv) The borrower (in the case of a Tribal corporation, the Native

American Tribe of the borrower) has not previously benefitted from a

write down under paragraph (d)(3) of this section.

PART 1823--[REMOVED AND RESERVED]

2. Remove and reserve part 1823.

PART 1956--DEBT SETTLEMENT

3. The authority citation for part 1956 continues to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42

U.S.C. 1480.

Subpart C--Debt Settlement--Community and Business Programs

Sec. 1956.101 [Amended]

4. Amend Sec. 1956.101 to remove the phrase ``and Indian Tribal

Land Acquisition loans;''

Sec. 1956.137 [Removed and Reserved]

5. Remove and reserve Sec. 1956.137.

Signed at Washington, D.C., on October 21, 1999.

August Schumacher, Jr.,

Under Secretary for Farm and Foreign Agricultural Services.

[FR Doc. 99-28368 Filed 11-01-99; 8:45 am]

BILLING CODE 3410-05-P