[Federal Register: January 9, 2001 (Volume 66, Number 6)]
[Rules and Regulations]
[Page 1570-1573]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ja01-2]
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
7 CFR Parts 1910 and 1941
RIN 0560-AF71
Implementation of Low-Documentation Direct Operating Loan (Lo-
Doc) Regulations
AGENCIES: Farm Service Agency, Rural Business-Cooperative Service,
Rural Housing Service and Rural Utilities Service, USDA.
ACTION: Interim rule with request for comments.
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SUMMARY: This rule amends the regulations governing the Farm Service
Agency's direct operating loan (OL) program by simplifying the
application process for certain farmers requesting assistance of
$50,000 or less and for certain recurring OL applicants. By making
FSA's direct OL program application process more consistent with
standard industry practices, loan processing will be more efficient and
less time consuming. This will decrease the time-frame for family-size
farmers to receive their credit, thereby allowing them to conduct their
farming operations in a more timely manner.
DATES: Effective January 9, 2001. Comments on this rule and the
information collections must be received on or before March 12, 2001 to
be given full consideration.
ADDRESSES: Submit written comments to the Farm Service Agency, U.S.
Department of Agriculture, Farm Loan Programs Loan Making Division,
Attention: Director, Room 5438-S, 1400 Independence Avenue, SW, STOP
0522, Washington, DC 20250-0522. All written comments received in
connection with this rule will be available for public inspection 8:15
a.m.-4:45 p.m., Eastern Standard Time, except holidays, at 1400
Independence Avenue, SW, Washington, DC 20250-0522.
FOR FURTHER INFORMATION CONTACT: Michael Hinton, Branch Chief, Farm
Service Agency; telephone: 202-720-1472; Facsimile: 202-690-1117; E-
mail: Mike--Hinton@wdc.fsa.usda.gov.
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
This rule will not have a significant economic impact on a
substantial number of small entities as defined in the Regulatory
Flexibility Act, Public Law 96-534, as amended (5 U.S.C. 601) and does
not impact small entities to a greater extent than large entities.
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
It is the determination of the issuing agency that this action is
not a major Federal action significantly affecting the environment.
Therefore, in accordance with the National Environmental Policy Act of
1969, Public Law 91-190, 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 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 unless those regulations specifically allow
bringing suit at an earlier time.
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 and activities within this
rule are excluded from the scope of Executive Order 12372, which
requires intergovernmental consultation with State and local officials.
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. Agencies generally must prepare a written statement,
including a cost benefit analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures of $100 million or
more in any 1 year 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.
The 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.
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. Therefore, consultation with the States is not required.
Paperwork Reduction Act
This interim rule does not impose any new information collection or
recordkeeping requirements; however, the provisions of the rule do
eliminate the need for some information previously collected and result
in a revision to the number of estimated respondents from whom
information will be collected. Therefore, the Agency is revising the
information collection currently approved in support of the Direct
Operating Loan program under the Office of Management and Budget (OMB)
control number 0560-0178. OMB emergency clearance has been obtained to
allow continued use of the affected regulations and forms under OMB
control number 0560-0178.
SUPPLEMENTARY INFORMATION:
Title: Receiving and Processing Applications.
OMB Control Number: 0560-0178.
Expiration Date of Approval: April 30, 2000.
Type of Request: Revision and Extension of Currently Approved
Information Collection.
Abstract: The information collected under OMB Control Number 0560-
0178 is used in processing applications for direct FLP loans.
Specifically, the Agency uses the information in making eligibility and
financial feasibility determinations for direct operating, farm
ownership, and emergency loans, as authorized under the Consolidated
Farm and Rural Development Act. The specific information collected is
business and entity supporting documentation on organizational
structure and financial information,
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documentation of farm experience and training, verification that the
applicant is unable to obtain credit elsewhere, historical financial
and production records, and copies of any lease agreements or legal
descriptions of real estate they own. The Lo-Doc application process
will decrease collections required from applicants requesting operating
loans of $50,000 or less, or recurring annual operating loans. Lo-Doc
will decrease the burden on both FSA employees and customers.
Specifically, for Lo-Doc application processing only the entity
supporting documentation information from this collection may be
required.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 1.7 hours per response.
Respondents: Individuals or households, businesses or other for
profit, and farms.
Estimated Number of Respondents: 34,970.
Estimated Number of Responses: 73,708.
Estimated Total Annual Burden on Respondents: 119,412.
Comments are sought on these requirements including: (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
collections techniques or other forms of information technology.
These comments should be sent to the Desk Officer for Agriculture,
Office of Information and Regulatory Affairs, Office of Management and
Budget, Washington, DC 20503 and to Michael Hinton, USDA, FSA, Farm
Loan Programs, Loan Making Division, 1400 Independence Avenue, SW, STOP
0522, Washington DC 20250-0522. 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.
Discussion of the Interim Rule
Stress in the farm economy has significantly increased demand for
FSA farm loans. The Agency must take steps to focus resources on
larger, more complex cases that pose the highest risk to the
government. The changes in documentation requirements will reduce the
time for loan officials to review application information and make the
necessary determinations. Decreasing the time required for FSA
employees to reach both eligibility and feasibility determinations on
lower risk loans increases the time available to concentrate on larger,
higher risk loan applicants.
In fiscal year 1999, FSA made more than 16,000 direct OL's to
farmers for a total of nearly $800 million. According to recent studies
of FSA offices nationwide, the average FSA OL applicant expends 14.05
hours to complete the application to be submitted to FSA. Once this
complete application is submitted to FSA another 39.55 hours is
expended by FSA employees to reach both eligibility and feasibility
determinations on each OL application.
Approximately 10,500, or 65 percent, of these applications are for
loans of $50,000 or less. This group of applicants represents only 26
percent of the total direct OL dollars loaned in fiscal year 1999 and
only 20 percent of the total FSA direct OL delinquency in dollars.
These figures reflect the substantially lower risk involved with FSA
direct OL's under $50,000 as compared to those FSA loans above this
amount. The Lo-Doc loan regulations will primarily affect this group of
FSA current and potential customers.
Reducing the application burden on both potential FSA customers and
FSA employees will result in more timely assistance, so applicants will
receive their FSA operating funds earlier in the production year. The
most critical time period for farming operations nationwide is from
pre-planting through planting seasons. This is also the peak demand
period for operating capital in many types of farming operations.
Without this proposed reduction in the application process many farmers
would receive assistance so late in the year their production would be
adversely affected, or they would otherwise go without credit for an
extended period of time. For two years the farm economy has been in a
continuing state of crisis due to excess supplies, weak foreign
markets, and regional weather disasters. With the current financial
difficulties facing agriculture, it is imperative that producers
receive operating credit early in the spring season. Historical records
reflect that the Agency approves the majority of OL's in the months of
March and April. In order to meet the needs of farmers, the Agency is
publishing this rule as an interim rule effective on date of
publication. A delayed effective date, or publication of a proposed
rule would adversely impact farmers as Lo-Doc OL's would not be
available for the current operating season. Farmers eligible for FSA
farm loans are unable to obtain credit elsewhere at reasonable rates
and terms. Therefore, the Lo-Doc program needs to be effective upon
publication. FSA, however, will accept comments for a 60 day comment
period after publication to determine if the program should be
subsequently modified.
General Changes
FSA is revising its direct OL program regulations to reduce the
application requirements for certain operating loan requests of $50,000
or less and for certain annual OL requests from recurring applicants.
Under current regulations, the application requirements are the
same for all OL requests regardless of the amount of the loan or
whether it is an initial or subsequent loan for the applicant. For
example, an applicant requesting an OL of $5,000 is required to submit
the same amount of information as an applicant requesting a $200,000
OL. An FSA customer who has received several OL loans is required to
submit the same information as a new applicant requesting an initial
OL. This excess paperwork is time-consuming for both the farmer and the
FSA employee, who could be helping less experienced farmers whose loans
pose a higher risk to the Government. Less experienced farmers normally
need more personal attention to make financial progress and be
successful in graduating to commercial credit.
Loan applicants and Agency field personnel have identified several
application requirements that are repetitive or do not significantly
contribute to the Agency's ability to make a credit decision, such as
always requiring verifications of employment and verifying the same
debt in numerous ways. The Agency is amending its regulation to
eliminate requirements that are repetitive or do not contribute
significantly to a sound credit decision in light of the financial risk
involved.
In addition, application requirements and loan purpose requirements
are being amended as follows:
Application Requirements
Certain loan applicants submitting requests for operating loans of
$50,000 or less will only be required to submit the following: a signed
and dated FSA 410-1, ``Request for Direct Loan
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Assistance,'' a check or money order for credit report and lien filing
fees, a Farm and Home Plan for the next operating cycle, acreage and
lease information, and conservation compliance information.
Additionally, applicants which are entities will be required to submit
a list of owners, personal financial statements from the owners, and
copies of the entities legal documents.
The FSA 440-32,``Statement of Debts and Collateral'' form will no
longer be required because several weeks often pass before creditors
return them to FSA, thereby increasing the time required for
determination of feasibility. Most of the information supplied by
creditors on this form can be obtained by FSA from credit reports. The
required use of the verification of employment form will also be
eliminated. Employment, salary, and wage information is quickly and
easily verified by credit reports, current payroll statements or IRS
Forms W-2.
Certain recurring applicants requesting annual OL assistance will
be required to submit a signed and dated FSA 410-1, a check or money
order for credit report and lien filing fees, a Farm and Home Plan for
the next operating cycle, and any information that has changed from the
previous loan application, including acreage and lease information, and
conservation compliance documentation.
For all applicants who apply under the Lo-Doc process, the Agency
reserves the right to request additional information that would be
required of a loan applicant under the normal process. The Agency will
not require information beyond Lo-Doc requirements as a matter of
course, but will request supporting documentation when information
submitted deviates from local norms, conflicts with other available
information, or otherwise creates the need for further documentation.
Qualification Requirements
Lo-Doc applicants requesting a loan of $50,000 or less must meet
current eligibility requirements for FSA direct OL's listed in section
1941.12. In addition, the applicant must be current on all loan
payments to FSA and all other creditors, must not have received primary
loan servicing or disaster set-aside on any FSA debt within the past 5
years, and must owe FSA less than $100,000, including the new loan.
These additional requirements are necessary to sufficiently lower the
risk from an FSA credit standpoint to make a sound credit decision
based on the reduced documentation.
Lo-Doc applicants requesting a recurring annual OL assistance must
meet all current eligibility requirements for FSA direct operating
loans as listed in Sec. 1941.12 and, must have at least 2 years of
annual OL history with FSA where the loans were timely repaid, be
current on payments to all other creditors, and have not received
primary loan servicing or disaster set-aside on any FSA debt within the
past 5 years.
Applicants who cannot meet the criteria for these new application
procedures may receive a regular OL provided they meet the current
requirements in Sec. 1941.12.
Loan Purposes
Lo-Doc OL's for $50,000 or less can be used for any authorized
operating expense allowed in Sec. 1941.16, except paragraph (i) for
refinancing debts. This limitation is necessary because the need for
refinancing is an indication of financial stress and, thus, a greater
credit risk than other OL loan purposes. The Agency must perform
additional analysis on those cases to help borrowers become successful
and better understand the risk associated with each request.
Lo-Doc OL's issued to recurring applicants requesting annual OL
assistance can only be used for any authorized annual operating expense
allowed in paragraphs (c) and (h) of Sec. 1941.16. Because these
applicants have demonstrated that they are good operators who have
repaid their annual operating loans, the Agency is reducing the
paperwork requirements for them to obtain subsequent annual operating
credit. Also, if they want operating credit for purposes other than
annual operating they may qualify for the Lo-Doc OL under $50,000 loan
purposes. For applicants that do not qualify under either of the Lo-Doc
programs, the Agency feels that there is sufficient risk to warrant the
Agency's continued collection of the same application materials
currently required.
List of Subjects
7 CFR Part 1910
Agriculture, Credit, Loan programs-housing and community
development, Low and moderate income housing, Sex discrimination.
7 CFR Part 1941
Agriculture, Crops, Livestock, Loan programs-rural areas, Youth.
Accordingly, 7 CFR chapter XVIII is amended as follows:
PART 1910--GENERAL
1. The authority citation for part 1910 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Receiving and Processing Applications
2. Amend Sec. 1910.1 to add a new paragraph (f) to read as follows:
Sec. 1910.1 General.
* * * * *
(f) As used in this subpart, the abbreviation ``Lo-Doc'' means Low-
Documentation and the abbreviation ``OL'' means Operating Loan.
3. Amend Sec. 1910.4 as follows:
a. Revise the third sentence from the end of paragraph (b);
b. Redesignate paragraphs (c) through (k) as paragraphs (d) through
(l); and
c. Add a new paragraph (c).
The addition and the revision read as follows:
Sec. 1910.4 Processing Applications.
* * * * *
(b) * * * A complete Farm Loan Programs application requires
fulfillment of both the applicant and FSA responsibilities, except as
provided in paragraph (c) of this section. ***
(c) Low-Documentation (Lo-Doc) Operating Loans:
(1) To qualify for loan processing under Lo-Doc provisions, an
applicant must:
(i) Be current on all payments to all creditors including FSA (if
an FSA borrower);
(ii) Have not received primary loan servicing or disaster set-aside
on any FSA debt within the past 5 years; and
(iii) Meet one of the following criteria:
(A) The loan requested is $50,000 or less and the total outstanding
FSA operating loan debt at the time of loan closing will be less than
$100,000; or
(B) The loan is requested to pay annual operating expenses and the
applicant is an existing FSA borrower who has received and repaid as
scheduled, at least two previous annual operating loans from the
agency.
(2) A complete Lo-Doc OL application will consist of the items
listed in paragraphs (b)(1), (b)(2), (b)(9), (b)(10), and (b)(16) of
this section. The Agency may require a Lo-Doc applicant to submit any
other information listed under paragraph (b) of this section as needed
to make a determination on the loan application.
* * * * *
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PART 1941--OPERATING LOANS
4. The authority citation for part 1941 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--Operating Loan Policies, Procedures, and Authorizations.
5. Revise the introductory paragraph of Sec. 1941.16 to read as
follows:
Sec. 1941.16 Loan purposes.
An applicant who obtained a write-down under direct or guaranteed
loan authorities is restricted to the purposes listed under paragraphs
(c), (g), and (h) of this section. An applicant who qualifies for a
Low-Documentation operating loan under Sec. 1910.4(c)(1)(iii)(A) of
subpart A of part 1910 may use loan funds for all authorized loan
purposes except paragraph (i) of this section. An applicant who
qualifies for a Lo-Doc loan under Sec. 1910.4(c)(1)(iii)(B) 7 CFR may
only use the loan funds for purposes listed under paragraphs (c) and
(h) of this section. All other eligible applicants may request OL funds
for any of the following purposes:
* * * * *
Signed in Washington, D.C., on December 21, 2000.
August Schumacher,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 01-101 Filed 1-8-01; 8:45 am]
BILLING CODE 3410-05-U
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