Rural Development Guaranteed Loans

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1779

Rural Housing Service

7 CFR Part 3575

Rural Business--Cooperative Service

Rural Utilities Service

7 CFR Parts 4279 and 4280

Rural Business--Cooperative Service

Rural Housing Service

Rural Utilities Service

7 CFR Part 5001

[FR Doc. E8-29151]

RIN 0570-AA65

Rural Development Guaranteed Loans

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

Rural Utilities Service, USDA.

ACTION: Interim final rule; withdrawal.

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SUMMARY: On December 17, 2008, USDA Rural Development published an

interim rule with request for comments establishing a unified

guaranteed loan platform for the enhanced delivery of four existing

Rural Development guaranteed loan programs--Community Facility; Water

and Waste Disposal; Business and Industry; and Renewable Energy Systems

and Energy Efficiency Improvement Projects. Having considered the

comments received on the interim rule and for the reasons explained

below, Rural Development is withdrawing the interim rule for Rural

Development Guaranteed Loans.

DATES: The interim final rule published on December 17, 2008 (73 FR

76698), delayed until February 17, 2009 (74 FR 2823), further delayed

until March 9, 2009 (74 FR 7179), further delayed until June 1, 2009

(74 FR 9759), and further delayed until October 1, 2009 (74 FR 25617)

is withdrawn as of September 21, 2009.

FOR FURTHER INFORMATION CONTACT: Mr. Michael Foore, Rural Development,

Business and Cooperative Programs, U.S. Department of Agriculture, 1400

Independence Avenue, SW., Stop 3201, Washington, DC 20250-3201; e-mail:

[email protected]; telephone (202) 690-4730.

SUPPLEMENTARY INFORMATION:

[[Page 48006]]

I. Background

On September 14, 2007, Rural Development proposed (72 FR 52618) to

combine four of its guaranteed loan programs into a unified regulatory

platform. These four regulations are Community Facility; Water and

Waste Disposal; Business and Industry; and Renewable Energy Systems and

Energy Efficiency Improvement Projects. The regulations for these four

programs developed over time and, in some aspects, independently of

each other. As a result, certain operational and administrative issues

associated with the utilization of Agency resources and risk management

developed when looking at all four program regulations as a whole as

well as individually. The intent of the interim rule was to eliminate

or mitigate these issues, enable the Agency, administratively, to

better manage its guaranteed loan making and servicing activities, and

to reduce the cost of operating the guaranteed loan programs.

In response to comments received on the proposed rule, Rural

Development made significant changes to the unified guaranteed loan

regulatory platform. Because of the level and number of changes made to

the proposed rule, Rural Development issued an interim rule, which was

published in the Federal Register on December 17, 2008 (73 FR 76698),

with request for comments, with an effective date of January 16, 2009.

Subsequent to the December 17, 2008 Federal Register notice, Rural

Development issued a series of notices delaying the effective date of

the interim rule (74 FR 2823, January 16, 2009; 74 FR 7179, February

13, 2009; 74 FR 9759, March 6, 2009; and 74 FR 25617, May 29, 2009)

such that the effective date was delayed to October 1, 2009. USDA Rural

Development identified the need for delaying the effective date of the

interim rule in each of these notices. Reasons cited included the

necessity for additional time in order to:

Make changes to accounting and financial control

information technology systems critical to the delivery of these

programs;

Prepare the best guidance for its field staff and to train

the field staff; and

Finish considering the public comments received during the

comment period for the interim rule as well as the public comments

received on delaying the effective date of the interim rule.

In light of the pending October 1, 2009, effective date for the

interim rule and the need to review of the interim rule, as described

in the January 20, 2009, memo from the Assistant to the President and

Chief of Staff, entitled ``Regulatory Review'', Rural Development

conducted a review of the interim rule and the comments received on it.

Rural Development received a total of 71 public comment letters at

various stages during the development of the interim rule--when it was

proposed, when it was published, and when its effective date was first

proposed to be extended. Comment letters were received from Rural

Development personnel, attorneys, financial institutions, trade groups,

lender associations, and individuals.

Comments on the proposed rule were made on both the proposed

guaranteed loan platform and on specific provisions contained in the

proposed rule. While a number of commenters stated that they

``commend'' or ``support'' the unified guaranteed loan platform, others

expressed strong concerns, with some suggesting that, if adopted as

proposed, the rule would impose unnecessary burden on both borrowers

and lenders, and could result in lenders not participating in the

program. Numerous comments were also received on specific proposed

requirements (e.g., the threshold level at which audited financial

statements would be required; inclusion of lines of credit as an

eligible loan purpose under the Business and Industry program). Many

commenters requested that the Agency continue the current policies

found in the current regulations, most frequently referring to the

Business and Industry regulations (7 CFR part 4279, subpart A and

subpart B, and 7 CFR 4287, subpart B). In many, if not most, instances,

the Agency agreed with the commenters and made revisions as reflected

in the interim rule.

In commenting on the interim rule, most commenters were still very

concerned about the effect of the interim rule on lenders and

borrowers, urging Rural Development to either withdraw the rule or to

further delay its effective date until substantial improvements could

be made. Concerns expressed included, but were not limited to:

Because the interim rule is a new program with new

procedures, Rural Development staff and commercial lenders will spend

significant time and effort re-learning programs that are currently

well-understood and fluently operated. Thus, at a time when additional

funding will be available through the forthcoming stimulus and disaster

funds, implementing the interim rule could endanger a successful

program and impede delivery of funds.

The interim rule adds unnecessary confusion and complexity

to the delivery of these programs, creating not only a confusing

regulatory maze for borrowers to navigate in order to access program

funds provided in the 2008 Farm Bill, but a tremendous drag on Rural

Development and lender productivity at a time when all efforts should

be directed to delivering stimulus funds.

The interim rule could significantly curtail the ability

of these programs to maintain continuous operation because all loan

guarantees will halt until such time as there is a new ``supply'' of

approved lenders. This is not appropriate customer service given the

current economic downturn when the programs are most needed and the

additional economic stimulus funding authority.

As noted previously, several commenters concurred with the general

goals of unified platform for guaranteed loans, which include

streamlining the regulatory framework of these programs, minimizing the

time and effort of dealing with separate sets of regulations and

requirements, and making them easier to use for lenders and borrowers.

Implemented correctly, such a reorganization could free up agency

personnel to spend their time in more constructive pursuits to enhance

the administration and effectiveness of these programs. One commenter

encouraged Rural Development to implement this program without

substantial changes to the process that is currently in place, with

several commenters encouraging Rural Development to work with the

lending community to improve program delivery.

Based on its review of the interim rule and its consideration of

the comments received, Rural Development has determined that a better

alternative exists to the implementation of its guaranteed loan

programs than would be achieved under the interim rule. While Rural

Development supports a ``common regulatory platform'' as a desirable

structure, it now believes the platform found in 7 CFR part 5001 is not

the best approach. In general, Rural Development believes that the

platform created under 7 CFR part 5001 is ``too broad'' in its scope,

attempting to provide for programs whose primary focus includes both

commercial lending activities (i.e., business and industry and

renewable energy) and community development activities (i.e., community

facilities and water and waste).

Further, Rural Development believes that implementing 7 CFR part

5001 would impose excessive and burdensome requirements on lenders by

requiring them to seek approval to do business with the Agency and

submit summaries of their lending policies as

[[Page 48007]]

well as on non traditional lenders. Such provisions would discourage

the participation of many lenders in the program, which would

jeopardize the utilization of funds in these programs. Rural

Development agrees with the commenters that this is of particular

concern in light of the need of Rural Development's Rural Business--

Cooperative Service to process the applications for Business and

Industry Loan Guarantees funded with American Recovery and Reinvestment

Act (Recovery Act) funds pursuant to the Notice of Funds Availability

published on July 24, 2009 (74 FR 36649).

Instead, Rural Development believes that it is better to narrow the

scope of a common regulatory platform to the activities associated with

its commercial lending activities. In doing so, Rural Development will

be able to shift the focus of the common regulatory platform from a

broad array of guaranteed loan activities to those commercial lending

activities associated with its Business Program, including renewable

energy.

Focusing on commercial lending activities within its Business

Program provides Rural Development the option of developing a common

regulatory structure based on its current Business and Industry

guaranteed loan regulations (7 CFR part 4279, subparts A and B, and 7

CFR part 4287, subpart B) and on its current Rural Energy for America

Program regulation (7 CFR part 4280, subpart B) and incorporating the

Biorefinery Assistance guaranteed loan program into this regulatory

structure. By adopting, leveraging, and refining these existing

regulations, Rural Development believes that this approach to

developing a common regulatory structure for its commercial lending

activities is preferable to implementing 7 CFR Part 5001 for several

reasons, as suggested by the commenters, including, but not necessarily

limited to:

In contrast to 7 CFR part 5001, the framework of the

current Business and Industry Loan Guarantee regulations is well

established with stakeholders and has a proven program delivery track

record.

Implementing 7 CFR part 5001 would require both lenders

and Rural Development staff to be re-trained in order to learn a new

system. Because such a complete overhaul of the Business Program

regulations is not required, it is not appropriate to burden the Rural

Development staff to learn and implement a completely new system.

Implementing 7 CFR part 5001 would impede Business Program

funding utilization. The lack of familiarity with the interim rule

would cause a 60 to 90 day standstill in program delivery at a time

when the program level is at record levels. Furthermore, implementation

of the interim rule will seriously impede the Administration's

initiative to use Recovery Act funds to improve the Nation's economy.

In summary, based on its review and re-examination of 7 CFR Part

5001 and the comments received, Rural Development takes the position

that, with some refinement and enhancement, a common regulatory

structure for guaranteed loans utilizing the current Business Program

regulations will result in a better and more efficient regulatory

structure than would be achieved through the implementation of 7 CFR

part 5001.

II. Withdrawal of Interim Rule

Accordingly, the interim final rule published on December 17, 2008

(73 FR 76698), delayed until February 17, 2009, (74 FR 2823), further

delayed until March 9, 2009 (74 FR 7179), further delayed until June 1,

2009 (74 FR 9759), and further delayed until October 1, 2009 (74 FR

25617) is withdrawn as of September 21, 2009.

Dated: September 14, 2009.

Dallas Tonsager,

Under Secretary.

[FR Doc. E9-22527 Filed 9-18-09; 8:45 am]

BILLING CODE 3410-XY-P