[Federal Register: February 11, 2005 (Volume 70, Number 28)]
[Rules and Regulations]
[Page 7165-7167]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe05-1]
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Rules and Regulations
Federal Register
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[[Page 7165]]
DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 770
RIN 0560-AG87
Revision of Indian Tribal Land Acquisition Program Loan
Regulations
AGENCY: Farm Service Agency, USDA.
ACTION: Final rule.
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SUMMARY: This rule clarifies the Indian Tribal Land Acquisition Program
(ITLAP) regulations for borrowers who apply for a rental value write-
down. The rule clarifies the method for determining the rental value of
security for purposes of a write-down, adds a definition of ``rental
value,'' clarifies other write-down eligibility provisions, and limits
new loan eligibility for borrowers who have received a write-down in
the past. These clarifications are intended to reduce the borrower's
costs of applying for a rental value write-down, and reduce the burden
on Agency employees in processing requests.
EFFECTIVE DATE: March 14, 2005.
FOR FURTHER INFORMATION CONTACT: Mel Thompson, Senior Loan Officer,Farm
Service Agency; telephone: 202-720-7862; Facsimile: 202-690-1196; E-
mail: mel_thompson@wdc.usda.gov. Persons with disabilities who require
alternative means for communication (Braille, large print, audio tape,
etc.) should contact the USDA Target Center at (202) 720-2600 (voice
and TDD).
SUPPLEMENTARY INFORMATION:
Discussion of the Final Rule
This rule clarifies the write-down servicing policies of the Farm
Service Agency's (FSA) Indian Tribal Land Acquisition Loan Program
(ITLAP). The first change it makes is to clarify ``rental value'' by
adding a definition at section 770.2(b). The second change removes the
requirement for an appraisal needed to apply for a rental value write-
down and replaces it with a market value rent study report prepared by
a certified general appraiser. Currently a complete appraisal is
required to establish the rental value of the subject property. The
appraisal includes a comparable sales approach, an income approach and
a cost approach to determine the value of the property. For a rental
value write-down, the appraisal is excessive for the determination of
the rental value as only the income approach of the appraisal is
relevant. Therefore, the appraisal requirement is eliminated and
replaced with the requirement for a market value rent study. The market
value rent study compares the rental income of properties similar and
in the area of the subject property in order to establish the 5-year
average rental value of the land purchased with ITLAP funds. This
change will reduce the borrower's costs, reduce the appraiser's time
required to complete the report, and reduce FSA's application
processing time. The third change requires that write-down applicants
must establish that the delinquency is beyond their control and cannot
be brought current within one year, and that they cannot meet their
annual loan payments. These requirements will assure that write-downs
are provided to those borrowers faced with circumstances outside their
control.
For rental value write-downs, section 770.10(e)(4)(iv) of the
existing rule prohibits additional write-downs of the specific ITLAP
loan that has received the rental value write-down previously. It also
prohibits additional write-downs of the specific loan that has received
a land value write-down within the last five years. This limitation is
modified in this final rule to preclude an additional rental value
write-down of any loan when any loan has previously received a rental
value write-down. It also prohibits a write-down of any loan when the
borrower has received a land value write-down on any loan within the
last five years. This revision limits potential losses on future rental
value write-downs.
In addition, the final rule adds a loan eligibility requirement to
section 770.3. Since write-downs are the consequence of a borrower's
seriously deteriorating financial condition, the rule prohibits ITLAP
loans to borrowers that have received an ITLAP rental value or land
value write-down within the last five years. The additional eligibility
requirement enables FSA to make more creditworthy loans and decrease
the possibility of further Agency losses.
This rule will result in better service and substantial monetary
and time savings for borrowers who apply for a write-down based on
rental value. In addition, it will increase the protection of the
Government from potential loss and reduce the agency official's burden
in administering the servicing of the Indian Tribal Land Acquisition
Program.
Discussion of Comments on the Proposed Rule
On March 14, 2003, the Farm Service Agency published a Proposed
Rule (68 FR 12309) requesting comments regarding proposed changes to
ITLAP. One response was received from a Native American Tribe which
contained four comments that are addressed as follows:
The first comment states that FSA did not comply with the
provisions of Executive Order 13175 (E.O. 13175) and did not consult
with this Tribe prior to publishing the Proposed Rule. E.O. 13175
requires that Tribal officials be consulted early in the process of
developing regulations that are likely to affect them.
The Agency complied with the requirements of E.O. 13175. The
proposed rule resulted from requests for debt write-down and the
concern that the appraisal required was too costly. This rule was
proposed in part to address that concern. This rule will reduce the
cost to apply for a write-down by replacing the appraisal requirement
with a rental value market study. To comply further with E.O. 13175,
the proposed rule was sent in advance of final Agency approval and
publication to all Native American Tribes that have ITLAP loans. The
original debt write-down requirements published January 9, 2001,
resulted from requests from Tribes for debt relief. This rule results
from direct discussions with Tribes after publication of the 2001 rule,
consistent with the consultation requirement of 5(b)(2) of E.O. 13175.
Thus, the Agency has complied with the requirement in EO 13175 to
consult with Tribes on regulation changes.
[[Page 7166]]
The second and third comments state that requiring a market study
of the rental value of the land purchased with ITLAP funds is still
impractical for a Tribe to qualify for a write-down based on rental
value. The respondent states that the market study would be required
for over 8,000 interests in land acquired with ITLAP funds and the
costs would be prohibitive. As an alternative to the Agency's proposed
rule, the respondent suggests that the land's rental value be based on
the Tribe's ability to make payments on the loan and the past revenue
from the land purchased with ITLAP funds.
The Agency must utilize a valid method of valuation of the loan
collateral to determine if a write-down of the debt is warranted. An
analysis of the value of the land based on its rental value was
determined to be the most cost effective solution. A study of the
rental market in the subject area performed by a certified general
appraiser according to the Uniform Standards for Professional Appraisal
Practice (USPAP) meets this requirement. This substantially reduces the
cost to the debt write-down applicant by eliminating the full breadth
of requirements for a traditional appraisal by focusing only on the
rental value of the land. Basing the rental value on actual income from
a specific parcel may not be valid if that parcel is poorly managed,
not farmed, or rented for less than market rent in the area. The write-
down, and subsequently, the loss to the Government, would be more in
such case than it would be based on a valid rental market study. Using
historical revenues from rent, as proposed by the respondent, could
cause the debt on the land to be written off entirely if the borrower
simply did not farm or rent that parcel in recent years. Requiring the
market rental value study, on which to base rental value, will avoid
such a result. Therefore, the comment and the suggested alternative to
the Agency's proposal were not adopted.
The fourth comment suggests that FSA authorize certain Agency
officials to make an exception to the write-down regulation to avoid
appraisal requirements. The respondent asserts that ``FSA has exception
authority for those programs utilized by non-Indian borrowers and USDA
civil rights policies require that Native Americans be treated
equitably.''
A general exception authority is not necessary to address the
problem of appraisals intended to be corrected by this rule. The
appraisal requirement is being replaced with a market value rent study
requirement. Furthermore, typical exception authorities used in other
farm loan programs are contingent on the proposed action being
consistent with statutory authorities and in the best interests of the
Government. Given the fact that the Agency receives an assignment of
income from the Tribe through the Bureau of Indian Affairs to cover
loan payments, the Agency does not believe write-downs other than those
specifically authorized by part 770 would ever be in the best interests
of the Government. Therefore, the Agency does not adopt the suggestion.
Executive Order 13175
The requirements of Executive Order 13175 have been met with the
promulgation of this rule. The rule is the result of consultation with
a Tribe applicant for a write-down and all Tribes who currently have an
ITLAP loan were sent an advance copy of the proposed rule and requested
to comment. The impact of the rule is to reduce the cost to the
applicant for a write-down by removing the appraisal requirement and
replacing it with a market value rent study. In addition, due to the
time typically associated with the completion of an appraisal, the time
associated with processing the application is substantially reduced.
Executive Order 12866
This rule has been determined under Executive Order 12866 to be not
significant and was not reviewed by the Office of Management and
Budget.
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (RFA), 5 U.S.C.
601, the Agency has determined that there will be no significant
economic impact on a substantial number of small entities. There are
currently 25 ITLAP borrowers with 107 loans totaling $59 million who
may be affected by this rule. The RFA requires agencies to consider the
impact of their regulatory proposals on small entities, minimize small
entity impacts, and provide their analyses for public comment. This
rule affects Indian Tribes, and such Tribes are not small businesses as
defined by and subject to the Regulatory Flexibility Act. Nevertheless,
this rule provides a substantial reduction in cost to the debt write-
down applicant. Thus, to the extent an Indian Tribe may be affected by
this rule, there are no negative impacts. Further, FSA stated its
finding in the proposed rule at 68 FR 12309, March 14, 2003, that the
rule will not have a significant economic impact on a substantial
number of small entities, and received no comments on this finding.
Environmental Evaluation
The environmental impacts of this rule have been considered in
accordance with the provisions of the National Environmental Policy Act
of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council
on Environmental Quality (40 CFR Parts 1500-1508), and the FSA
regulations for compliance with NEPA, 7 CFR part 1940, subpart G. FSA
completed an environmental evaluation and concluded the rule requires
no further environmental review.
Executive Order 12988
This rule has been reviewed in accordance with E.O. 12988, Civil
Justice Reform. In accordance with that Executive Order: (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 requesting judicial review.
Executive Order 12372
As stated in the Notice related to 7 CFR part 3015, subpart V (48
FR 29115, June 24, 1983) the programs and activities within this rule
do not require consultation with state and local officials under the
scope of Executive Order 12372.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, requires Federal agencies to assess the effects of their
regulatory actions on state, local, and tribal governments or the
private sector of expenditures of $100 million or more in any one year.
This rule contains no Federal mandates, as defined by title II of the
UMRA; therefore, this rule is not subject to sections 202 and 205 of
the UMRA.
Executive Order 13132
The policies contained in this rule do not have any substantial
direct effect on states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on state and local
governments.
Paperwork Reduction Act
The information collections were previously approved under OMB
control number 0560-0198, but the package was retired since there are
less than ten respondents annually and the collections are, therefore,
not subject to
[[Page 7167]]
the Paperwork Burden Act. The number of estimated annual respondents is
not increased by this rule and the time burden on respondents is
decreased.
Federal Assistance Program
The changes affect the following program listed in the Catalog of
Federal Domestic Assistance: 10.421--Indian Tribes and Tribal
Corporation Loans.
List of Subjects in 7 CFR Part 770
Agriculture, Credit, Indians, Rural areas, Loan programs.
0
Accordingly, for the reasons stated in the preamble, 7 CFR part 770 is
amended as follows:
PART 770--INDIAN TRIBAL LAND ACQUISITION LOANS
0
1. The authority citation for part 770 continues to read as follows:
Authority: 5 U.S.C. 301, 25 U.S.C. 490.
0
2. Amend Sec. 770.2 by adding the abbreviation USPAP in alphabetical
order in paragraph (a) and a definition for Rental value in
alphabetical order in paragraph (b) to read as follows:
Sec. 770.2 Abbreviations and definitions.
(a) Abbreviations.
* * * * *
USPAP Uniform Standards of Professional Appraisal Practice.
(b) Definitions.
* * * * *
Rental value is the potential annual rental income of a parcel of
real estate as determined by a market analysis of annual rental incomes
of like real estate in the subject property area.
* * * * *
0
3. Amend Sec. 770.3 by adding paragraph (h) to read as follows:
Sec. 770.3 Eligibility requirements.
* * * * *
(h) Have not received a write-down as provided in Sec. 770.10(e)
within the preceding 5 years.
0
4. Amend Sec. 770.10 by revising paragraphs (e)(3)(iii) and
(e)(3)(iv), adding paragraph (e)(3)(v), revising paragraphs (e)(4)(iii)
and (e)(4)(iv) and adding paragraph (e)(4)(v), to read as follows:
Sec. 770.10 Servicing.
* * * * *
(e) Debt write-down.
* * * * *
(3) Land value write-down.
* * * * *
(iii) The loan was made more than 5 years prior to the application
for land value write-down;
(iv) The loan has not previously been written down under paragraph
(e)(4) of this section and has not been written down within the last 5
years under this paragraph, and
(v) The borrower must meet the eligibility requirements of
paragraphs (a)(1)(ii) or (iii) of this section.
(4) Rental value write-down.
* * * * *
(iii) The borrower provides a current market value rent study
report for the land for the preceding 5 years, which identifies the
average rental value. The report must be prepared by a certified
general appraiser and meet the requirements of USPAP;
(iv) The borrower has not previously received a write-down under
this paragraph and has not had a loan written down within the last 5
years under paragraph (e)(3) of this section, and
(v) The borrower must meet the eligibility requirements of
paragraph (a)(1)(ii) or (iii) of this section.
* * * * *
Signed in Washington, DC, on January 25, 2005.
James R. Little,
Administrator, Farm Service Agency.
[FR Doc. 05-2678 Filed 2-10-05; 8:45 am]
BILLING CODE 3410-05-P