Farm Loan Programs Account Servicing PoliciesServicing Shared Appreciation Agreements

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1951

RIN 0560-AF78

Farm Loan Programs Account Servicing Policies--Servicing Shared

Appreciation Agreements

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,

Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) is proposing to amend the Shared

Appreciation Agreement and the servicing of Shared Appreciation

Agreements. The Shared Appreciation Agreement ensures that FSA shares

in any appreciation of real estate security when a farm borrower has

received a writedown of a portion of his or her FSA debt. The amount

due can be paid in full or amortized when the Shared Appreciation

Agreement matures or is triggered during the term of the agreement. The

changes will allow the value of some capital improvements made during

the term of the Shared Appreciation Agreement to be deducted from

recapture, change the maturity period of future Shared Appreciation

Agreements from 10 years to 5 years, and reduce the interest rate on

Shared Appreciation loans to the Farm Program Homestead Protection

rate. These changes will give borrowers an opportunity to repay a

portion of the FSA debt that was written off, while still ensuring that

the Government promptly recaptures some appreciation of the collateral.

This rule will also improve Agency security during the term covered by

the Shared Appreciation Agreement.

DATES: Comments on this rule and on the information collections must be

submitted by January 10, 2000 to be assured consideration.

ADDRESSES: Submit written comments to 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: Michael C. Cumpton, telephone (202)

690-4014; electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

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. Therefore, a regulatory flexibility

analysis was not performed.

Environmental Evaluation

It is the determination of FSA that this action is not a major

Federal action significantly affecting the environment. Therefore, in

accordance with the National Environmental Policy Act of 1969, and 7

CFR part 1940, subpart G, 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) except as specifically stated in this rule,

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 seeking judicial review.

Executive Order 12372

For reasons contained 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),

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

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

require no revisions to the information collection requirements that

were previously approved by OMB under the provisions of 44 U.S.C.

chapter 35.

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

OMB Number: 0560-0161.

Expiration Date of Approval: January 31, 2001.

Type of Request: Revision of a currently approved information

collection.

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

identified above, is needed in order for FSA to effectively administer

the regulation relating to the servicing of delinquent direct FSA farm

loans. The information is collected by the loan official in order to

document the

[[Page 61222]]

borrower's eligibility for specific loan servicing actions. The

reporting requirements imposed on the public by the regulations set out

in 7 CFR 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 proposed rule--to provide for the exclusion of the value of

some capital improvements when determining the amount of shared

appreciation recapture due, reduce the term of the Shared Appreciation

Agreement, and reduce the interest rate on amortized shared

appreciation amounts--is expected to result in no increase in the

number of applicants for loan servicing nor increase the time required

to apply. The other information collection requirements approved under

this control number will not change. Therefore, no request for revision

is being made.

Estimate of Burden: Public reporting burden for this collection of

information is estimated to average 1.4 hours per response.

Respondents: Individuals or households, businesses or other for

profit and farms.

Estimated Number of Respondents: 6,100.

Estimated Number of Responses per Respondent: 1.

Estimated Total Annual Burden on Respondents: 8,588 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 should be sent to the, Office of Information and Regulatory

Affairs, Office of Management and Budget, Attention: Desk Officer for

Agriculture, Washington, DC 20503 and to Michael C. Cumpton, Senior

Loan Officer, USDA, FSA, Farm Loan Programs Loan Servicing Division,

Farm Service Agency, USDA, 1400 Independence Ave., SW, STOP 0523,

Washington, DC 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:

10.407--Farm Ownership Loans

Discussion of the Proposed Rule

The Shared Appreciation Agreement was first issued by the Farmers

Home Administration (now the Farm Service Agency (FSA)) as an exhibit

to 7 CFR part 1951, subpart S in accordance with the Agricultural

Credit Act of 1987 to enable the Agency to recapture a portion of the

government debt that was written down from farm loan programs that

assisted delinquent or financially distressed family farmers. Writedown

options include partial debt forgiveness if the borrower can show a

positive cash flow on the ongoing farm operation and the action is in

the best financial interest of the Government. In those instances where

FSA forgives debt through a debt writedown and has real estate

security, the borrower enters into a Shared Appreciation Agreement with

the Government so FSA can share in any future appreciation of the real

estate. Currently, over 11,900 Shared Appreciation Agreements have been

executed on debt writedown of over $1.7 billion. Approximately 6,500 of

these agreements are currently in effect and will become due over the

next 10 years. The agreement states that if repayment is triggered

within 4 years of entering into the agreement, the borrower owes the

Agency 75 percent of any positive appreciation of the real estate

security and 50 percent if the agreement is triggered after 4 years. In

its present form, the Shared Appreciation Agreement states that

repayment can be triggered if the Agency accelerates the promissory

notes or the borrower pays in full, stops farming, or conveys the

property. If none of these actions occurs in a 10 year period and the

Shared Appreciation Agreement reaches maturity, then repayment is

automatically due. The maximum amount to be recaptured cannot exceed

the amount of the writedown received by the borrower. Currently under

Sec. 1951.914(e) (63 FR 6627, 6629, February 10, 1998), if the Shared

Appreciation Agreement is triggered by some action other than

acceleration, satisfaction of the debt, or the cessation of farming,

the amount due can be amortized for up to 25 years at nonprogram rates

if the borrower can develop a farm business plan with a positive cash

flow.

FSA proposes three changes to 7 CFR part 1951, subpart S. The term

of new Shared Appreciation Agreements will be reduced to 5 years. This

will reduce the burden of the Agency in monitoring the Shared

Appreciation Agreements and allow the farmer to plan for the future

without a contingent liability in the distant future. Next, allowances

will be made for certain capital improvements made to property covered

by an existing or future Shared Appreciation Agreement. The

contributory value of capital improvements will be deducted from the

appraised value calculated at the time of the triggering event or at

the end of the agreement and will reduce the amount due. The Agency

proposes that this rule will allow a deduction for the value of certain

improvements involved in all Shared Appreciation Agreements that have

matured, provided that there has been no agreement or resolution to pay

the amount due, and all future agreements. The proposal allows farmers

to develop and better maintain their real estate. This proposed rule

intends changes to FSA direct loans only. The term reduction and value

of capital improvement exclusion may be considered in a separate

rulemaking document involving the FSA Guaranteed Loan Program. However,

any comments on this modification as it applies to the Guaranteed Loan

Program will also be considered. Finally, the agency proposes that the

interest rate charged on Shared Appreciation loans, which are approved

when a borrower cannot pay the shared appreciation due, will be reduced

from the current nonprogram rate to near the Federal borrowing rate.

This will allow borrowers easier access to the amortization option and,

in turn, allow greater government recapture on debt writedowns.

List of Subjects in 7 CFR Part 1951

Account servicing, Credit, Debt restructuring, Loan programs--

agriculture, Loan programs--housing and community development.

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.

[[Page 61223]]

Subpart S--Farm Loan Programs Account Servicing Policy

2. Amend Sec. 1951.914 by revising paragraphs (b) introductory

text, (c)(1), (e)(6) and (e)(9) to read as follows:

Sec. 1951.914 Servicing shared appreciation agreements.

* * * * *

(b) When shared appreciation is due. Shared Appreciation is due at

the end of the 5 year term of the Shared Appreciation Agreement, or

sooner, if one of the following events occurs:

* * * * *

(c) * * *

(1) The current market value of the real estate property will be

determined based on a current appraisal. If a dwelling, barn, grain

storage bin, or silo was constructed on the property during the term of

the Shared Appreciation Agreement, its contributory value, as

determined by an FSA appraisal, will be deducted from the value of the

property for calculation of appreciation. If the new item is a

replacement for a like item that existed when the Shared Appreciation

Agreement was executed or the original item was notably expanded, such

as the addition of rooms to a home, only the value added by the new or

expanded item that increases the value of the original item will be

deducted from the current market value. If only a portion of the real

estate is being sold, or has been sold, an appraisal will be done only

on the real estate being considered for release. In the event of a

partial sale, an appraisal may be required to determine the market

value of the property at the time the Shared Appreciation Agreement was

signed if such value cannot be obtained through another method.

* * * * *

(e) * * *

(6) The interest rate will be the Farm Program Homestead Protection

rate contained in RD Instruction 440.1 (available in any FSA office.)

* * * * *

(9) Unless serviced in accordance with this paragraph, the loan for

the repayment of the shared appreciation amount will be closed and

serviced in accordance with subpart J of this part. If the borrower has

outstanding Farm Loan Programs loans, and becomes delinquent or

financially distressed in accordance with Sec. 1951.906, the loan for

the repayment of the Shared Appreciation Agreement may be considered

for reamortization as set forth in Sec. 1951.909(e).

Signed in Washington, DC, on October 31, 1999.

August Schumacher, Jr.,

Under Secretary for Farm and Foreign Agricultural Services.

[FR Doc. 99-29396 Filed 11-9-99; 8:45 am]

BILLING CODE 3410-05-P