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      Rules and Regulations                                                                                             Federal Register
                                                                                                                        Vol. 69, No. 46

                                                                                                                        Tuesday, March 9, 2004



      This section of the FEDERAL REGISTER                    I. Objectives                                             Farm Credit Council (FCC) on behalf of
      contains regulatory documents having general                                                                      the Farm Credit institutions they
                                                                 The objectives of the final rule are to:
      applicability and legal effect, most of which                                                                     represent. The commenters generally
                                                                 • Provide the protections required by
      are keyed to and codified in the Code of                                                                          supported the proposed rule; however,
      Federal Regulations, which is published under           the Act to applicants and borrowers
                                                              with distressed loans;                                    they asked us to change or clarify
      50 titles pursuant to 44 U.S.C. 1510.
                                                                 • Avoid placing unnecessary burdens                    certain aspects of our proposal. We
      The Code of Federal Regulations is sold by              on System institutions; and                               discuss those aspects, the individual
      the Superintendent of Documents. Prices of                 • Use plain language in a question-                    comments associated with them, and
      new books are listed in the first FEDERAL               and-answer format.                                        our responses below. Those areas of the
      REGISTER issue of each week.                                                                                      proposed rule that did not receive
                                                              II. Background
                                                                                                                        comments are finalized as proposed.
                                                                 In the Farm Credit Amendments Act
      FARM CREDIT ADMINISTRATION                              of 1985 1 and the Agricultural Credit Act                 V. General Issues
                                                              of 1987,2 Congress gave particular rights                 A. Waiver of Borrower Rights
      12 CFR Parts 609, 611, 612, 614, 615,                   to borrowers with distressed loans who
      and 617                                                                                                              Four System associations commented
                                                              borrow from System institutions
                                                                                                                        that FCA should interpret the Act to
                                                              operating under titles I and II of the Act.
                                                                                                                        allow the waiver of borrower rights by
      RIN 3052–AB69                                           These rights include notice when a loan
                                                                                                                        certain borrowers, such as large and
                                                              becomes distressed; the opportunity to
      Electronic Commerce; Organization;                      request a restructuring of a distressed                   sophisticated borrowers. They argued
      Standards of Conduct and Referral of                    loan; review of certain loan decisions;                   that these borrowers are represented by
      Known or Suspected Criminal                             and the right of first refusal on                         experienced counsel and are at equal-
      Violations; Loan Policies and                           purchasing or leasing agricultural real                   bargaining strength with qualified
      Operations; Funding and Fiscal                          estate acquired by a System institution                   lenders. They also commented that
      Affairs, Loan Policies and Operations,                  through foreclosure or voluntary                          borrower rights prevent qualified
      and Funding Operations; Borrower                        conveyance. Collectively, these rights                    lenders from acting as lead or agent
      Rights                                                  are referred to as borrower rights. We                    lenders in commercial transactions.
                                                              published a proposed rule (69 FR 5595)                       We continue to believe that waivers of
      AGENCY:    Farm Credit Administration.                  on February 4, 2003, to clarify our                       borrower rights should be authorized
      ACTION:   Final rule.                                   expectations for compliance with                          only on a limited basis. Wholesale
                                                              borrower rights. This final rule                          waiver provisions, such as ones for all
      SUMMARY: The Farm Credit                                                                                          large and sophisticated borrowers,
                                                              addresses the comments received on the
      Administration (FCA) issues this final                  proposed rule.                                            would not be consistent with the intent
      rule to clarify the rights provided in the                                                                        of Congress.
      Farm Credit Act of 1971, as amended                     III. Redesignate Portions of Part 614 to                     A System association also commented
      (Act), for loan applicants and borrowers                Part 617                                                  that prohibiting waivers of borrower
      of the Farm Credit System (FCS or                          We are redesignating § 614.4336 and                    rights deprives borrowers of a potential
      System). The final rule further explains                all of subparts L and N of part 614 to                    ‘‘tool’’ for use in negotiating concessions
      the responsibilities of the System in                   a new part 617 to make the borrower                       or some other economic value in a
      providing these rights, responds to                     rights rules more readily identifiable.                   workout situation. The association
      comments, and places all borrower                       We are also redesignating § 612.2130                      stated that without this ‘‘tool’’ the
      rights provisions in one part of our                    through § 612.2270 to a new subpart A                     institution has no incentive to listen to
      regulations.                                            in part 612 and § 617.1 through § 617.4                   such loan-servicing proposals. The
      EFFECTIVE DATE: This regulation will be                 to § 612.2300 through § 612.2303. In                      institution’s position is not in keeping
      effective 30 days after publication in the              addition, we are making conforming                        with the legislative intent of borrower
      Federal Register during which time                      changes to §§ 609.910(c), 611.1223(d)(6),                 rights. Borrower rights are not
      either or both Houses of Congress are in                611.1290, 614.4560(d), 615.5280(h), and                   bargaining tools. They are statutory
      session. We will publish a notice of the                615.5290(a) and (b) to reflect the                        rights designed to protect borrowers
      effective date in the Federal Register.                 redesignation. As a result of finalizing                  with distressed loans who generally are
                                                              this rule before we finalize the proposed                 in unequal-bargaining positions with
      FOR FURTHER INFORMATION CONTACT:                                                                                  qualified lenders. The Act and our
                                                              Effective Interest Rate Disclosure rule
      Mark L. Johansen, Policy Analyst, Office                                                                          regulations do not consider these rights
                                                              (68 FR 5587), we are also including
         of Policy and Analysis, Farm Credit                                                                            to be ‘‘tools’’ for obtaining concessions
                                                              amendatory and conforming changes to
         Administration, McLean, VA 22102–                                                                              in restructuring discussions, and neither
                                                              §§ 611.1223(d)(6), 611.1290, and
         5090, (703) 883–4479, TTY (703) 883–                                                                           should the System.
                                                              614.4560(d) here.
         4434;
           or                                                 IV. Comments and Our Response                             B. Borrower Rights and Bankruptcy
      Joy Strickland, Senior Counsel, Office of                 We received 12 comments on our                            Six System associations and the FCC
         General Counsel, Farm Credit                         proposed rule from 10 System                              commented that the Bankruptcy Code
         Administration, McLean, VA 22102–                    associations, one System bank, and the                    supersedes all borrower rights and,
         5090, (703) 883–4020, TTY (703) 883–                                                                           therefore, no borrower rights should be
         2020.                                                     1 Pub.   L. 99–205, 99 Stat. 1678.                   offered once bankruptcy has been filed.
      SUPPLEMENTARY INFORMATION:                                   2 Pub.   L. 100–233, 101 Stat. 1568.                 The commenters offered several reasons


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      10902                Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

      to support this supposition, including                   may not be set aside as a result of the              as subject to CRC review. The FCC
      (1) A qualified lender may not always be                 arbitration process. The FCC stated that             compared reduced loan requests with
      able to satisfy both the Bankruptcy Code                 our position defeats the purpose of                  reduced restructuring requests when
      and our regulations in a way that is                     arbitration and creates a disincentive for           making this argument. The Act and our
      meaningful to the borrower; (2) a                        qualified lenders to use arbitration. We             proposed rule treat these two types of
      borrower who voluntarily files                           do not agree with the comment.                       actions differently. Sections 4.13B(a)(2)
      bankruptcy has made an ‘‘election of                     Arbitrators must work within the                     and 4.14(b)(1) of the Act specifically
      remedies’’ that effectively waives his                   framework of borrower rights and other               state that applicants may request CRC
      rights under the Act; (3) the process of                 prevailing laws when reaching                        reviews of decisions to deny or reduce
      debt restructuring under borrower rights                 decisions.                                           the amount of the loan applied for.
      should not be concurrent with the                                                                             Conversely, section 4.14(b)(2) provides
                                                               VI. Section-by-Section Analysis
      process of bankruptcy because it creates                                                                      CRC review rights for denied loan
      a conflict in jurisdiction and right of                  A. Definitions                                       restructurings, not reductions in
      review; and (4) the Bankruptcy Code                                                                           restructuring requests.
                                                               1. Adverse Credit Decision
      and the Act provide separate and                         [§ 614.4440(a) to New § 617.7000]                    2. Application for Restructuring
      distinct remedies to the borrowers.                                                                           [§§ 614.4440(c) and 614.4512(a) to New
         We do not agree that borrower rights                     A System association and the FCC
                                                               commented that the definition of an                  § 617.7000]
      and bankruptcy are mutually exclusive,
      but that the requirements of the Act and                 adverse credit decision excludes those                  A System association and the FCC
      the Bankruptcy Code can co-exist.                        situations where a loan request is                   commented that they disagreed with
      Further, the courts have ruled that our                  approved for less than the amount                    including a borrower’s bankruptcy plan
      borrower rights provisions apply to                      requested by the applicant. The System               of reorganization in our proposed
      debtors in bankruptcy.3 Borrower rights                  association commented that applicants                definition of an application for
      under the Act are generally compatible                   have been confused by receiving notices              restructuring. They expressed concern
      with filing for reorganization in                        of the adverse credit decision after                 that including a bankruptcy plan in the
      bankruptcy, as both laws are designed to                 agreeing to a loan in a lesser amount.               definition may make it difficult or
      resolve a borrower’s financial                           The System association further pointed               impossible for the qualified lender to
      difficulties. Additionally, bankruptcy                   out that the Federal Reserve Board’s                 comply with all borrower rights
      reorganization offers various remedies                   (FRB) Regulation B provides that a loan              provisions. We agree that the proposed
      to borrowers, many that are similar to                   in a reduced amount, if accepted by an               definition inadvertently created
      those provided under the Act. We                         applicant and closed, is not an adverse              confusion and are removing bankruptcy
      believe that borrowers filing for                        credit action. The System association                plans of reorganization from the
      bankruptcy do not waive their rights                     further commented that if an applicant               definition of ‘‘application for
      under the Act, nor make an election of                   does not accept a counter offer within               restructuring.’’ However, as a paperwork
      remedies resulting in a loss of those                    a set period of time the nonacceptance               reduction measure, a proposed
      rights.                                                  would be an adverse credit decision.                 bankruptcy plan may be considered as
         One of the associations commented                        The commenter correctly referenced                the application for restructuring if the
      that borrower rights impede the                          Regulation B and adverse credit                      bankruptcy filing contains all of the
      bankruptcy plan negotiation process.                     decisions; however, the plain language               information necessary for a
      We do not believe that notifying a                       of section 4.14 of the Act does not                  restructuring application, as required by
      borrower of restructuring opportunities                  support the commenter’s approach. The                section 4.14A(a)(1) of the Act.
      impedes a bankruptcy workout                             plain language of the Act clearly states                A System association commented that
      negotiation. Further, we do not believe                  that making a loan in an amount less                 it appeared that we had deleted the
      that informing a borrower in                             than requested is an adverse credit                  requirement contained in existing
      bankruptcy, and his counsel, of his                      decision. While it may appear confusing              § 614.4440(c) that an application for
                                                               for applicants to receive a notice of the            restructuring include a preliminary plan
      restructuring opportunities conflicts
                                                               adverse credit decision after agreeing to            of restructuring from the borrower. In
      with any bankruptcy provisions. We
                                                               a loan in a lesser amount, we believe                our plain language rewrite of the rule,
      recognize that combining borrower
                                                               this confusion is minimized by qualified             we deleted the specific phrase
      rights with bankruptcy reorganization
                                                               lenders appropriately counseling                     ‘‘preliminary restructuring plan
      may require additional effort by
                                                               applicants or by providing an                        proposed by the borrower’’ from
      qualified lenders, but believe no real
                                                               explanation of the requirements in the               existing § 614.4440(c)(1). That
      conflict exists between the Act and the
                                                               notice of the adverse credit decision.               requirement is contained in the Act at
      Bankruptcy Code.                                            The FCC commented that our                        section 4.14A(a)(1)(A); therefore a
      C. Borrower Rights and Arbitration                       treatment of reduced loan offers is                  regulatory provision with the same
        The FCC commented that it disagreed                    inconsistent with our discussion in the              requirement is unnecessary. Although
      with our position that borrower rights                   proposed rule on applications for                    we deleted the specific phrase, we did
                                                               restructuring. We stated that Congress               not delete the requirement that a
        3 In re Kvamme, 91 B.R. 77 (Bankr. D. N.D. 1988)       expected borrowers and lenders to                    borrower submit an application for
      (holding the Act merely provides for a restructuring     negotiate applications for restructuring.            restructuring that includes a
      opportunity and within bankruptcy that                   If negotiations result in a denial of the            preliminary plan.
      opportunity is no more nor less than what would          application for restructuring, the
      be available to a borrower outside of bankruptcy                                                              3. Independent Evaluator [§ 614.4440(f)
      (emphasis in original)).                                 borrower may appear before the credit
                                                               review committee (CRC). The FCC                      to New § 617.7000]
        Courts have also held that they are ‘‘not at liberty
      to pick and choose among congressional enactments        argues that we proposed an inconsistent                 Our proposed rule clarified the
      and when statutes are capable of coexistence, it is      definition of adverse credit decision                definition of ‘‘independent evaluator’’
      the duty of the courts, absent a clearly expressed
      congressional intention to the contrary, to regard
                                                               because we did not specifically identify             by specifically including the term
      each as effective.’’ See Morton v. Mancari, 417 U.S.     approved restructuring plans that are                ‘‘agent’’ in the definition instead of
      535, 551 (1974).                                         less than what the borrower applied for              referencing it through part 612. A


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                          10903

      System association commented that                       applicants and borrowers receiving                    decision. We do not see a conflict
      adding ‘‘agent’’ to the definition of an                notices of the adverse credit decision                between the applicant’s or borrower’s
      independent evaluator makes the term                    should not have the right to obtain an                right to include independent collateral
      too restrictive. The association                        independent collateral evaluation                     evaluations in CRC reviews and the
      recommended adding a time element to                    unless inadequate collateral was a basis              procedures for responding to the
      the definition so that an independent                   for the adverse credit decisions. We do               exercise of this right.
      evaluator would not be considered an                    not agree with the comment. The Act
      agent if he or she did not have a                       clearly states that applicants and                    3. When Must an Applicant or Borrower
      contractual relationship with a qualified               borrowers have the right to request                   Obtain the Independent Collateral
      lender within 1 year of being selected as               collateral evaluations without regard to              Evaluation? [New § 617.7310(d)(2)]
      an independent evaluator. We declined                   whether the evaluations are part of the                  Three System associations and the
      to make this change, as adding the term                 reasons for the adverse credit decision.              FCC disagreed with the proposed 30-day
      ‘‘agent’’ to new § 617.7000 does not                    We believe restricting this right might               time period for an applicant or borrower
      modify the existing definition.                         cause harm to an applicant or borrower.               to enter into a contractual arrangement
                                                              For example, a notice of the adverse                  with an independent evaluator. The
      4. Restructure and Restructuring of a
                                                              credit decision may not state that                    commenters instead requested that we
      Loan [§§ 614.4440(i) and 614.4512(h) to
                                                              collateral was a reason for an adverse                establish a time limit for completing the
      New § 617.7000]
                                                              credit decision, but the loan might have              independent evaluation, such as 30 or
         A System association commented that                  been approved if the collateral                       60 days. We do not believe a regulatory
      using ‘‘best opportunity’’ in the                       evaluation had resulted in a higher                   time limit to obtain an independent
      definition of ‘‘restructure’’ was                       value. We also want to preclude                       evaluation is appropriate. There may be
      troublesome. A borrower could argue                     institutions listing reasons other than               instances where an applicant or
      that the restructuring was not the best                 collateral for the adverse credit decision            borrower needs a longer time than the
      opportunity or suggest that the lender                  to avoid providing the right to an                    30 or 60 days suggested. Further, we do
      had somehow influenced the success of                   independent collateral evaluation.                    not believe that restricting a process that
      the plan. The association suggested                        A System bank also commented that                  is not in the complete control of the
      changing ‘‘best’’ to ‘‘reasonable.’’ The                section 4.14(d)(1) of the Act states that             qualified lender, applicant, or borrower
      purpose of restructuring is not                         a request for a CRC review of an adverse              is in keeping with the spirit of the
      necessarily to return the operation to                  credit decision ‘‘may include’’                       borrower rights provisions.
      viability. As such, we removed the                      independent appraisals. The bank                         Five System associations commented
      phrase referring to viability in the                    argued that ‘‘may include’’ is permissive             that the 30-day time period to contract
      proposed definition to focus the                        and may be interpreted to mean that the               with an independent evaluator is too
      definition on the loan terms.                           Act does not entitle every applicant or               long. Two of the associations provided
      B. What Happens to Borrower Rights                      borrower to an independent collateral                 alternative time periods ranging from 7
      When a Loan is Sold? [New § 617.7015]                   evaluation when requesting a CRC                      days to 2 weeks. One of the associations
                                                              review. We interpret the Act as                       also suggested that an applicant or
        A System association commented that                   expressly providing an applicant or                   borrower execute a written contract for
      the 180-day period for loans designated                 borrower the option of obtaining an                   services that complies with the qualified
      for sale into a secondary market should                 independent collateral evaluation when
      be changed to 365 days. We cannot                                                                             lender’s standards. We are maintaining
                                                              seeking a CRC review. Applicants and                  the 30-day period. However, we agree
      agree to this change since the 180-day                  borrowers, though not required to, may
      period is required by section                                                                                 that a written contract for appraisal
                                                              choose to obtain independent collateral               services should be executed and should
      4.14A(a)(5)(B)(ii) of the Act.                          evaluations and submit them as part of                comply with a qualified lender’s
      C. When Acting on a Loan Application,                   CRC review requests. We believe                       appraisal standards. We have amended
      What Are the Notice Requirements and                    complete disclosure of the reasons for                our proposal to reflect this change.
      Review Rights? [New § 617.7300 et seq.]                 an adverse credit decision will help
                                                              applicants and borrowers decide                       D. When and How Does a Qualified
      1. What Documents May the CRC                           whether the expenditure of time and                   Lender Notify a Borrower of the Right to
      Consider? [New § 617.7310(c)]                           money for an independent collateral                   Seek Loan Restructuring? [New
         A System association commented that                  evaluation will benefit their CRC                     § 617.7410]
      we limit a borrower’s or applicant’s                    reviews. We note, however, that                       1. What Notice Should the Qualified
      entitlement to a copy of a qualified                    Congress limited such requests to only                Lender Send to a Borrower Who Is a
      lender’s collateral evaluation to just the              collateral being offered to secure loans              Debtor in a Bankruptcy Proceeding?
      collateral in connection with the                       related to the adverse credit decision.               [New § 617.7410(c)]
      adverse credit decision under review.                      The FCC separately commented that
      We do not agree with this comment.                      permitting an applicant or borrower to                  A System association, a System bank,
      Section 4.13A of the Act provides                       obtain an independent collateral                      and the FCC commented that sending a
      borrowers the right to receive copies of                evaluation when inadequate collateral                 notice of restructuring to a borrower
      all appraisals of borrower assets made or               was not among the reasons for the                     who has filed bankruptcy violates the
      used by the qualified lender, not just the              adverse credit decision is at odds with               automatic stay of a bankruptcy
      independent collateral evaluation made                  section 4.14(d)(2) of the Act. Section                proceeding. The System bank also asked
      in connection with a CRC review.                        4.14(d)(2) requires the CRC to provide                that the notice be made optional to
                                                              an applicant or borrower with an                      address jurisdictional variations. The
      2. May an Applicant Obtain a New                        approved list of appraisers within 30                 FCC argued that some bankruptcy
      Collateral Evaluation Even if Collateral                days after request, instructs the                     judges have viewed any such letters as
      Was Not a Reason for the Adverse Credit                 applicant or borrower to bear the cost of             a violation of the automatic stay. We do
      Decision? [New § 617.7310(d)]                           the evaluation, and requires the CRC to               not agree that sending notice of a
         Five System associations, a System                   include the evaluation in its                         restructuring opportunity is a violation
      bank, and the FCC commented that                        reconsideration of an adverse credit                  of the automatic stay. Debtors do not


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      10904               Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

      forfeit borrower rights, including notice               borrower has made all scheduled                       F. How Will a Decision on an
      of the opportunity to restructure under                 payments.                                             Application for Restructuring Be Issued?
      the Act, when filing for bankruptcy. The                                                                      [New §§ 617.7420 to 617.7425]
      automatic stay prohibits creditors from                 E. How Does a Qualified Lender Decide
      making collection efforts. The notice                   To Restructure a Loan? [New                           1. What Notice Is Required if the
      required by the Act is not a collection                 § 617.7415]                                           Restructuring Request Is Denied? [New
      effort. It is a means of informing a                                                                          § 617.7420(c)]
                                                              1. How Does a Qualified Lender Decide
      borrower of his rights under the Act. We                Whether To Restructure or Foreclose?                     A System association commented that
      believe a properly worded notice is not                 [New § 617.7415 (a), (b) and (d)]                     the notice of the adverse credit decision
      an effort to collect. However, if a
                                                                                                                    does not need to include every reason
      qualified lender is concerned about                        Two System associations commented
      potential misunderstandings, the                                                                              for the denial of an application for
                                                              that viability should be the deciding
      qualified lender should include                                                                               restructuring. The association stated
                                                              factor in determining whether to
      language in the notice that the notice is                                                                     that we have exceeded what is
                                                              restructure or foreclose, rather than least
      not a collection attempt. Qualified                                                                           necessary and have created an
                                                              cost. We disagree with the comment.
      lenders should check with their own                                                                           administrative burden. The commenter
                                                              Section 4.14A(f) requires that the least
      counsel for appropriate wording.                                                                              also stated that our proposal was
                                                              cost, that is, the lesser of the cost of
                                                                                                                    contradictory to the FRB’s staff
      2. Whom Should the Qualified Lender                     restructuring versus the cost of
                                                                                                                    commentary to Regulation B that a
      Notify? [New § 617.7410(d)]                             foreclosure, be used when determining
                                                                                                                    combination of more than four principal
                                                              whether to restructure or foreclose.
         Two System associations commented                                                                          reasons for an adverse action is not
                                                              Therefore, a restructured loan does not
      on our proposal to send distressed loan                                                                       likely to be helpful to applicants. We
                                                              have to restore the farming operation to
      notices to a borrower’s attorney in                                                                           disagree with the comment. Borrowers
                                                              viability; it only has to be the least-cost
      bankruptcy. Both associations stated                                                                          have the right to know all the reasons
      that not all debtors in bankruptcy have                 alternative. We note however, that
                                                                                                                    leading to a denial. Failure to provide
      legal representation, and one suggested                 viability is an important consideration
                                                                                                                    all reasons for a denial deprives
      that the notices be sent directly to the                when calculating the cost of restructure.
                                                                                                                    borrowers of complete information
      borrower. We agree that not all                            One association went on to comment                 needed to decide whether to request a
      borrowers retain counsel for a                          that our position on least cost is                    CRC review of an adverse credit
      bankruptcy proceeding and we have                       contrary to portions of the proposed                  decision. Although the FRB has noted in
      amended our rule accordingly. The final                 rule, where we stated that deficient                  staff commentary to Regulation B that
      rule allows for sending notice to the                   management should weigh heavily in                    more than four reasons may not be
      borrower and the borrower’s counsel, if                 determining the future viability of the               helpful, it does not limit disclosure to
      known.                                                  operation. We do not agree that our                   only four or less reasons. We believe
         A System association asked what                      position regarding viability and least                including all the reasons for a denial is
      notice is required when a borrower has                  cost is in conflict with our statement                not unreasonable.
      been discharged of debt in a Chapter 7                  that deficient management should
      bankruptcy. When a Bankruptcy Court                                                                              As a general rule, we encourage open
                                                              weigh heavily in determining the future
      has discharged a debt, the debt is                                                                            and complete communication with
                                                              viability of a borrower’s operation. Both
      eliminated. Thus, no borrower rights                                                                          borrowers and applicants at every stage
                                                              are relevant factors. The capability of
      obligations remain, absent the right of                                                                       of the loan-making process, especially
                                                              farm management weighs heavily in the
      first refusal that may apply.                                                                                 in ensuring that applicants and
                                                              potential viability of the operation, and
                                                                                                                    borrowers receive the rights intended by
      3. When Is a Qualified Lender Required                  determining viability is part of the
                                                                                                                    Congress. At the outset, System
      To Send Another Restructure Notice to                   overall least-cost analysis.
                                                                                                                    institutions should be open to accepting
      a Borrower Whose Loan Was Previously
                                                              2. What Should the Qualified Lender Do                loan applications from all eligible
      Restructed? [New § 617.7410(e)]
                                                              if the Borrower and the Qualified                     parties. We further encourage System
         Two System associations commented                    Lender Cannot Agree on the Financial                  institutions to process those
      that we should expand our definition of                 Inputs Used in the Application for                    applications, using open, helpful
      performance under a restructure                         Restructuring? [New § 617.7415(c)]                    communication. If the loan is denied,
      agreement beyond payment terms. One                                                                           qualified lenders should provide
      association suggested the definition                       A System association commented that                complete communication of the specific
      include nonperformance of contractual                   we define the term ‘‘financial inputs’’               reasons for denial so that applicants are
      requirements, such as liquidating a                     and allow benchmarks to include any                   able to determine whether to seek
      piece of equipment. The other                           source or mechanism regularly used by                 review of a denial. In the situation
      association suggested that a qualified                  a qualified lender. We agree that                     where a borrower has a distressed loan,
      lender and borrower be given the                        benchmarks include any objective                      qualified lenders should provide full
      latitude to define compliance. We                       source or mechanism regularly used by                 information on restructuring rights and
      recognize that loan restructuring often                 a qualified lender, which is why we use               then engage in meaningful, open
      includes performance criteria in                        the phrase ‘‘or other such support’’ in               negotiations with borrowers to identify
      addition to repayment. However,                         the rule. Further, to alleviate any
      nonpayment criteria cannot be used to                                                                         and evaluate restructuring
                                                              confusion, we have replaced the term                  opportunities. Again, complete
      determine default under the Act.                        ‘‘input’’ with ‘‘projections.’’
      Section 4.14D(c) of the Act prohibits a                                                                       communication of the specific reasons
      qualified lender from initiating                                                                              for restructuring denials enable
      foreclosure on a loan that is not past                                                                        borrowers to make informed decisions
      due. Thus, a qualified lender cannot                                                                          on whether to seek CRC reviews.
      accelerate a borrower’s loan if the


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                            10905

      G. What Type of Notice Should Be Given                  proposed, to implement our statutory                  to the previous owner. If the borrower
      to a Borrower Before Foreclosure? [New                  authority.                                            could have avoided foreclosure, then
      § 617.7425]                                                                                                   the previous owner would have no first
                                                              I. Right of First Refusal [New § 617.7600
         Two System associations and the FCC                                                                        refusal rights.
                                                              et seq.]
      provided comment on the treatment of                                                                          2. May a Previous Owner Waive the
      chronically delinquent borrowers.4 The                  1. What Are the Definitions Used in                   Right of First Refusal?
      two associations commented that we                      This Subpart? [New § 617.7600]
                                                                                                                       The FCC requested clarification on
      should change our regulations to require                   a. What Property Is Included in the                whether a waiver of the right of first
      only one distressed loan notice per 12-                 Term ‘‘Acquired Agricultural Real                     refusal may be obtained. The FCC stated
      month period. The FCC supported the                     Estate or Property’’? A System bank, an               that a borrower should be able to freely
      12-month comment and suggested                          association, and the FCC commented                    waive the right of first refusal as part of
      linking this requirement to the                         that the definition of ‘‘acquired                     a debt settlement. The FCC specified
      performance provision on restructuring                  agricultural real estate or property’’ does           that such a waiver would be appropriate
      in new § 617.7410(e). We do not agree                   not include property acquired through                 when there has been bona fide
      that chronically delinquent borrowers                   bankruptcy proceedings. All three                     consideration, the borrower has been
      should receive limited restructuring                    commenters claim that the right of first              specifically advised of his rights, and
      opportunities, but we recognize that                    refusal should not apply when a System                the borrower has had the opportunity to
      these borrowers can create a burden for                 institution obtains title to agricultural             obtain counsel. In addition, the FCC
      some institutions.                                      real estate in a Chapter 7 trustee sale               commented that a borrower should be
         A distressed loan is one where the                   because this type of sale is not a                    able to waive this right subsequent to
      borrower does not have the financial                    foreclosure or a voluntary conveyance.                the System institution acquiring the
      capacity to pay. In some instances, a                   The System bank also commented that                   property. We proposed no waiver of the
      chronically delinquent borrower has the                 a bankruptcy sale is outside the                      right of first refusal, and the Act does
      financial capacity to pay, so by                        language of the Act, and offering the                 not provide for a waiver. Further, we do
      definition the loan is not distressed. If               right of first refusal is inconsistent with           not believe a waiver in this situation is
      qualified lenders send distressed loan                  the Bankruptcy Court’s determination                  appropriate, nor should borrower rights
      notices in these cases, they may be                     that a debtor’s sale of property is                   be used as a basis for negotiation in the
      using the notices as servicing letters. By              conducive to reorganization or                        servicing of a loan. A borrower in a
      doing so, they invoke the requirements                  liquidation.                                          distressed loan situation, including debt
      of borrower rights, which are only                         We do not agree with these                         settlement, cannot be considered free of
      intended for distressed loans. We                       comments. Section 4.36 of the Act states              duress when the lender is initiating
      encourage qualified lenders to use                      that agricultural real estate acquired by             ‘‘waiver’’ discussions.
      caution when determining whether                        a System institution from loan
      chronically delinquent loans are                        foreclosure or a voluntary conveyance                 3. How Should System Institutions
      distressed, as defined by the Act.                      by a borrower is subject to the right of              Document Whether the Borrower Had
      However, if a loan is distressed, the                   first refusal. Because of the similarities            the Financial Resources To Avoid
      qualified lender must send a                            between a Bankruptcy Trustee sale and                 Foreclosure? [New § 617.7605].
      restructuring notice at least 45 days                   a loan foreclosure, property acquired by                 A System association and the FCC
      prior to beginning foreclosure.                         a System institution under these                      asked if a System institution would
                                                              circumstances would be subject to the                 violate our regulations by offering the
      H. Distressed Loan Restructuring                        right of first refusal.                               right of first refusal to a borrower who
      Directive [New § 617.7500 et seq.]                         b. Who is the Previous Owner? [New                 may have had the ability to avoid
         Two System associations and the FCC                  § 617.7600] The FCC commented that it                 foreclosure or voluntary conveyance.
      questioned the need for regulations on                  does not agree that a previous owner                  The Act requires System institutions to
      issuing borrower rights directives and                  includes a prior record owner of the                  provide the right of first refusal to
      stated that existing FCA enforcement                    property in question. They argue that                 borrowers who do not have the financial
      authorities are adequate. One                           the Act restricts the term previous                   resources to avoid foreclosure or
      association commented that these                        owner to the borrower on the loan for                 voluntary conveyance. It does not
      regulations would provide borrowers                     which the property served as collateral.              prohibit offering this opportunity to
      additional opportunities to delay the                   Further, the FCC contends our                         other borrowers. However, a System
      restructuring process. Another remarked                 definition complicates the process of                 institution should establish an objective
      that our examination process provides                   determining the previous owner’s                      standard for making such an
      an adequate check and balance on                        ability to avoid foreclosure since a                  opportunity available. The lack of
      borrower rights. The FCC commented                      previous owner who is not a borrower                  established standards poses a risk of
      that a distinct enforcement process for                 has little or no opportunity to prevent               perceived discrimination or favoritism.
      borrower rights does not provide any                    foreclosure. We do not agree that the                 Also, once the right of first refusal is
      additional benefit.                                     Act intended to restrict the term                     offered optionally by the institution, the
         We do not agree with the comments.                   ‘‘previous owner’’ to a borrower only.                provisions of the Act and regulations
      As discussed in the proposed rule,                      We believe the legislative history clearly            governing the means of processing the
      Congress expressly provided FCA with                    explains that the intention of the right              exercise of that right become applicable.
      directive authorities for distressed loan               of first refusal is to preserve the family
      restructurings. However, the Act does                   farm. Restricting the definition of                   4. What Should the System Institution
      not describe the procedures used when                   previous owner to individuals signing a               Do When It Decides To Sell Acquired
      issuing directives. Therefore, we are                   debt instrument may not achieve this                  Agricultural Real Estate? [New
      adopting the directive authority, as                    goal. We believe the System is able to                § 617.7610]
                                                              determine the ability of a borrower to                   A System association requested
        4 We refer to borrowers who repeatedly default as     avoid foreclosure and then, when                      guidance regarding a System
      chronically delinquent.                                 appropriate, to offer first refusal rights            institution’s ability to reject an offer to


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      10906               Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

      purchase agricultural real estate if the                Subpart A—General Rules                               s 8. Redesignate §§ 612.2130 through
      offer contains unusual or unacceptable                                                                        612.2270 as subpart A and add a heading
      contingencies, such as an unreasonable                  s 2. Amend § 609.910(c) by revising the               for new subpart A to read as follows:
      timeframe to settle. The association also               fourth sentence to read as follows:
      requested that we add a regulatory                                                                            Subpart A—Standards of Conduct
      provision requiring offers from previous                § 609.910 Compliance with the Electronic
                                                              Signatures in Global and National                     PART 614—LOAN POLICIES AND
      owners to be made in writing, dated,                    Commerce Act (Public Law 106–229)(E-
      and signed. We believe this comment                                                                           OPERATIONS
                                                              SIGN).
      has merit, and we are considering
      resoliciting comments on this issue.                    *     *    *      *    *                              s 9. The authority citation for part 614 is
                                                                (c) * * * Thus, System institutions                 revised to read as follows:
      VII. Regulatory Flexibility Act                         cannot use electronic notification to                   Authority: 42 U.S.C. 4012a, 4104a, 4104b,
         Pursuant to section 605(b) of the                    deliver some notices that must be                     4106, and 4128; secs. 1.3, 1.5, 1.6, 1.7, 1.9,
      Regulatory Flexibility Act (5 U.S.C. 601                provided under part 617, subparts A, D,               1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13,
      et seq.), the FCA hereby certifies that the             E, and G of this chapter. * * *                       2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28,
      final rule will not have a significant                  *     *    *      *    *                              4.12, 4.12A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D,
      economic impact on a substantial                                                                              4.14E, 4.18, 4.18A, 4.19, 4.25, 4.26, 4.27,
      number of small entities. Each of the                   PART 611—ORGANIZATION                                 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6,
                                                                                                                    7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act
      banks in the System, considered
                                                              s 3. The authority citation for part 611              (12 U.S.C. 2011, 2013, 2014, 2015, 2017,
      together with its affiliated associations,                                                                    2018, 2019, 2071, 2073, 2074, 2075, 2091,
      has assets and annual income in excess                  continues to read as follows:
                                                                                                                    2093, 2094, 2097, 2121, 2122, 2124, 2128,
      of the amounts that would qualify them                    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0,         2129, 2131, 2141, 2149, 2183, 2184, 2201,
      as small entities. Therefore, System                    3.21, 4.12, 4.15, 4.20, 4.21, 5.9, 5.10, 5.17,        2202, 2202a, 2202c, 2202d, 2202e, 2206,
      institutions are not ‘‘small entities’’ as              6.9, 6.26, 7.0–7.13, 8.5(e) of the Farm Credit        2206a, 2207, 2211, 2212, 2213, 2214, 2219a,
      defined in the Regulatory Flexibility                   Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121,          2219b, 2243, 2244, 2252, 2279a, 2279a–2,
      Act.                                                    2142, 2183, 2203, 2208, 2209, 2243, 2244,             2279b, 2279c–1, 2279f, 2279f–1, 2279aa,
                                                              2252, 2278a–9, 2278b–6, 2279a–2279f–1,                2279aa–5); sec. 413 of Pub. L. 100–233, 101
      List of Subjects                                        2279aa–5(e)); secs. 411 and 412 of Pub. L.            Stat. 1568, 1639.
                                                              100–233, 101 Stat. 1568, 1638; secs. 409 and
      12 CFR Part 609                                         414 of Pub. L. 100–399, 102 Stat. 989, 1003,          Subpart H—Loan Purchases and Sales
        Agriculture, Banks, banking,                          and 1004.
      Electronic commerce, Reporting and                                                                            § 614.4336   [Removed]
      recordkeeping requirements, Rural                       Subpart P—Termination of System
                                                              Institution Status                                    s   10. Remove § 614.4336.
      areas.
      12 CFR Part 611                                         s 4. Amend § 611.1223(d)(6) by revising               Subpart L—[Removed]
        Agriculture, Banks, banking, Rural                    the second sentence to read as follows:
                                                                                                                    s 11. Remove subpart L, consisting of
      areas.
                                                              § 611.1223       Information statement—               §§ 614.4440 through 614.4444.
      12 CFR Part 612                                         contents.
                                                              *      *    *    *     *                              Subpart N—Loan Servicing
        Agriculture, Banks, banking, Conflict
                                                                 (d) * * *                                          Requirements; State Agricultural Loan
      of interests, Rural areas.
                                                                 (6) * * * You must explain the effect              Mediation Programs; Right of First
      12 CFR Part 614                                                                                               Refusal
                                                              termination will have on borrower
        Agriculture, Banks, banking, Flood                    rights granted in the Act and part 617                §§ 614.4514–614.4522      [Removed]
      insurance, Foreign trade, Reporting and                 of this chapter.
      recordkeeping requirements, Rural                       *      *    *    *     *                              s 12. Remove §§ 614.4514 through
      areas.                                                                                                        614.4522 in subpart N.
                                                              s 5. Amend § 611.1290 by revising the
      12 CFR Part 615                                         second sentence to read as follows:                   Subpart P—Farm Credit Bank and
        Accounting, Agriculture, Banks,                                                                             Agricultural Credit Bank Financing of
                                                              § 611.1290       Continuation of borrower
      banking, Government securities,                         rights.                                               Other Financing Institutions
      Investments, Rural areas.
                                                                 * * * Institutions that become other               s 13. Revise § 614.4560(d) to read as
      12 CFR Part 617                                         financing institutions on termination                 follows:
        Banks, banking, Criminal referrals,                   must comply with the applicable
      Criminal transactions, Embezzlement,                    borrower rights provisions in the Act                 § 614.4560 Requirements for OFI funding
      Insider abuse, Investigations, Money                    and part 617 of this chapter.                         relationships.
      laundering, Theft.                                                                                            *     *     *      *     *
      s For the reasons stated in the preamble,
                                                              PART 612—STANDARDS OF
                                                              CONDUCT AND REFERRAL OF                                 (d) The borrower rights requirements
      parts 609, 611, 612, 614, 615, and 617,                                                                       in part C of title IV of the Act, and
      chapter VI, title 12 of the Code of Federal             KNOWN OR SUSPECTED CRIMINAL
                                                              VIOLATIONS                                            section 4.36 of the Act, and the
      Regulations are amended as follows:                                                                           regulations in part 617 of this chapter
                                                              s 6. The authority citation for part 612              shall apply to all loans that an OFI
      PART 609—ELECTRONIC COMMERCE                                                                                  funds or discounts through a Farm
                                                              continues to read as follows:
      s 1. The authority citation for part 609                                                                      Credit Bank or agricultural credit bank,
                                                                Authority: Secs. 5.9, 5.17, 5.19 of the Farm        unless such loans are subject to the
      continues to read as follows:                           Credit Act (12 U.S.C. 2243, 2252, 2254).
        Authority: Sec. 5.9 of the Farm Credit Act
                                                                                                                    Truth in Lending Act, 15 U.S.C. 1601 et
      (12 U.S.C. 2243); 5 U.S.C. 301; Pub. L. 106–            s 7. Revise the heading of part 612 to                seq.
      229 (114 Stat. 464).                                    read as set forth above.                              *     *     *      *     *


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                   10907

      PART 615—FUNDING AND FISCAL                             PART 617—REFERRAL OF KNOWN                     appropriate, as required by the qualified
      AFFAIRS, LOAN POLICIES AND                              OR SUSPECTED CRIMINAL                          lender to support a sound credit
      OPERATIONS, AND FUNDING                                 VIOLATIONS                                     decision.
      OPERATIONS                                                                                                Distressed loan means a loan that the
                                                              s 17. The authority citation for part 617      borrower does not have the financial
      s 14. The authority citation for part 615               is revised to read as follows:                 capacity to pay according to its terms,
      continues to read as follows:                              Authority: Secs. 4.13, 4.13A, 4.13B, 4.14,  as determined by the qualified lender,
                                                              4.14A, 4.14C, 4.14D, 4.14E, 4.36, 5.9, 5.17 of and exhibits one or more of the
        Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12,          the Farm Credit Act (12 U.S.C. 2199, 2200,     following characteristics:
      2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3,    2201, 2202, 2202a, 2202c, 2202d, 2202e,           (1) The borrower is demonstrating
      4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 6.26,          2219a, 2243, 2252).                            adverse financial and repayment trends.
      8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the                                                           (2) The loan is delinquent or past due
      Farm Credit Act (12 U.S.C. 2013, 2015, 2018,            PART 617—[REMOVED]                             under the terms of the loan contract.
      2019, 2020, 2073, 2074, 2075, 2076, 2093,                                                                 (3) One or both of the factors listed in
                                                              §§ 617.1–617.4 [Redesignated as
      2122, 2128, 2132, 2146, 2154, 2154a, 2160,                                                             paragraphs (1) and (2) of this section,
                                                              §§ 612.2300–612.2303]
      2202b, 2211, 2243, 2252, 2278b, 2278b–6,                                                               together with inadequate
      2279aa, 2279aa–3, 2279aa–4, 2279aa–6,                   s 18. Redesignate §§ 617.1 through 617.4 collateralization, present a high
      2279aa–7, 2279aa–8, 2279aa–10, 2279aa–12);              as new §§ 612.2300 through 612.2303.           probability of loss to the qualified
      sec. 301(a) of Pub. L. 100–233, 101 Stat. 1568,         s 19. Remove part 617.                         lender.
      1608.                                                   s 20. Redesignate newly designated                Foreclosure proceeding means:
                                                              §§ 612.2300–612.2303 as subpart B and             (1) A foreclosure or similar legal
      Subpart J—Retirement of Equities                        add a heading for Subpart B to read as         proceeding to enforce a lien on
                                                              follows:                                       property, whether real or personal, that
      s 15. Section 615.5280(h) is revised to                                                                secures a non-interest-earning asset or
      read as follows:                                        Subpart B—Referral of Known or                 distressed loan; or
                                                              Suspected Criminal Violations                     (2) The seizing of and realizing on
      § 615.5280      Retirement in event of default.                                                        non-real property collateral, other than
      *     *     *    *    *                                 § 612.2300 [Amended]                           collateral subject to a statutory lien
        (h) The requirements of this section                  s 21. Amend newly designated                   arising under titles I and II of the Act,
      may be satisfied by notices given                       § 612.2300 by removing the reference           to effect collection of a nonaccrual or
      pursuant to §§ 617.7405, 617.7410,                      ‘‘§ 617.2’’ each place it appears and add distressed loan.
      617.7420, and 617.7425 of this chapter                  in its place, the reference ‘‘§ 612.2301’’ in     Independent evaluator means an
      that contain the information required by                paragraphs (a), (c), and (e).                  individual who is a qualified evaluator
                                                              s 22. Add a new part 617, subpart A, to
                                                                                                             and who satisfies the standards of
      this section.
                                                              read as follows:                               § 614.4260, subpart F of this chapter,
      s 16. Amend § 615.5290 by revising                                                                     and the standards set by the qualified
      paragraphs (a) and (b) to read as follows:              PART 617—BORROWER RIGHTS                       lender for the type of property to be
                                                                                                             evaluated. The independent evaluator
      § 615.5290 Retirement of capital stock and              Subpart A—General                              may not be an employee or agent of a
      participation certificates in event of                  Sec.                                           qualified lender or have a relationship
      restructuring.                                          617.7000 Definitions                           with the lender or any of its officers or
        (a) If a Farm Credit Bank or                          617.7005 When may electronic                   directors in contravention of part 612 of
      agricultural credit bank forgives and                        communications be used in the borrower this chapter.
                                                                   rights process?                              Loan means an extension of credit
      writes off, under § 617.7415, any of the                617.7010 May borrower rights be waived?
      principal outstanding on a loan made to                                                                made to a farmer, rancher, or producer
      any borrower, where appropriate the                     Subpart A—General                              or harvester of aquatic products, for any
      Federal land bank association of which                                                                 agricultural or aquatic purpose and
      the borrower is a member and                            § 617.7000 Definitions.                        other credit needs of the borrower,
      stockholder shall cancel the same dollar                   For the purposes of this part, the          including financing for basic processing
      amount of borrower stock held by the                    following terms apply:                         and marketing that directly relates to the
      borrower in respect of the loan, up to                     Adverse credit decision means a             borrower’s operations and those of other
      the total amount of such stock, and to                  credit decision where a qualified lender: eligible farmers, ranchers, and
      the extent provided for in the bylaws of                   (1) Decides not to make a loan to an        producers or harvesters of aquatic
      the Bank relating to its capitalization,                applicant;                                     products.
      the Farm Credit Bank or agricultural                       (2) Approves a loan in an amount less          Loan application means a complete
      credit bank shall retire an equal amount                than the applicant requested; or               oral or written request for an extension
      of stock owned by the Federal land bank                    (3) Denies an application for               of credit made in accordance with a
      association.                                            restructuring.                                 qualified lender’s procedures for the
                                                                 Applicant means any person who              type of credit requested. An application
        (b) If a production credit association                completes and executes a loan                  is complete when the qualified lender
      or merged association forgives and                      application from a qualified lender.           receives all the information normally
      writes off, under § 617.7415, any of the                   Application for restructuring means a obtained and used in evaluating
      principal outstanding on a loan made to                 written request from a borrower to             applications for credit. This information
      any borrower, the association shall                     restructure a distressed loan. The             may include credit reports, supporting
      cancel the same dollar amount of                        request must be submitted on the               information for the credit requested, and
      borrower stock held by the borrower in                  appropriate forms prescribed by the            reports by governmental agencies or
      respect of the loan, up to the total                    qualified lender and accompanied by            other persons necessary to guarantee,
      amount of such loan.                                    sufficient financial information and           insure, or provide security for the credit
      *     *      *    *     *                               repayment projections, where                   or collateral.


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      10908               Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

        Qualified lender means:                               subject to the borrower rights provisions             repurchases the loan or any interest in
        (1) A System institution, except a                    of title IV of the Act.                               the loan.
      bank for cooperatives, that makes loans                    (b) What happens when a qualified                     (4) A qualified lender may not make
      as defined in this section; and                         lender sells a loan into the secondary                a loan conditioned on the borrower
        (2) Each bank, institution,                           market?                                               consenting to the loan’s sale and a
      corporation, company, credit union, and                    (1) Except as provided in paragraph                waiver of borrower rights.
      association described in section                        (b)(2) of this section, the borrower rights           s 23. Amend part 617 by adding new
      1.7(b)(1)(B) of the Act (commonly                       provisions of sections 4.14, 4.14A,                   subparts D, E, F, and G to read as follows:
      referred to as an other financing                       4.14B, 4.14C, 4.14D, and 4.36 of the Act
                                                                                                                    Subpart D—Actions on Applications;
      institution), but only with respect to                  do not apply to a loan made on or after
                                                                                                                    Review of Credit Decisions
      loans discounted or pledged under                       February 10, 1996, and designated for
                                                              sale into a secondary market at the time              Sec.
      section 1.7(b)(1).                                                                                            617.7300 When acting on a loan
        Restructure and restructuring of a                    the loan was made.                                         application, what are the notice
      loan means a reamortization, renewal,                      (2) Borrower rights apply to a loan                     requirements and review rights?
      deferral of principal or interest,                      designated for sale under paragraph                   617.7305 What is a CRC and who are the
      monetary concessions, or the taking of                  (b)(1) of this section but not sold into a                 members?
      any other action to modify the terms of,                secondary market during the 180-day                   617.7310 What is the review process of the
      or forbear on, a loan.                                  period that begins on the date of                          CRC?
                                                              designation. The provisions of                        617.7315 What records must the qualified
      § 617.7005 When may electronic                          paragraph (b)(1) of this section will                      lender maintain on behalf of the CRC?
      communications be used in the borrower                  subsequently apply on the date of sale
      rights process?                                         if the loan is later sold into a secondary            Subpart D—Actions on Applications;
         Qualified lenders may use, with the                  market.                                               Review of Credit Decisions
      parties’ agreement, electronic commerce                    (c) What happens when a qualified                  § 617.7300 When acting on a loan
      (E-commerce), including electronic                      lender sells a loan to a nonqualified                 application, what are the notice
      communications for borrower rights                      lender?                                               requirements and review rights?
      disclosures. Part 609 of this chapter                      (1) Except for loans sold to another                  Each qualified lender must make its
      addresses when a qualified lender may                   qualified lender or designated for sale               decision on a loan application as
      use E-commerce. Consistent with these                   into a secondary market, a qualified                  quickly as possible. The qualified lender
      rules, a qualified lender should interpret              lender must comply with one of the                    must provide prompt written notice of
      part 617 broadly to allow electronic                    following requirements before selling a               its decision to the applicant. The
      transmissions, communications,                          loan or interest in a loan subject to                 qualified lender is required to notify all
      records, and submissions. However,                      borrower rights:                                      primary applicants. If a loan application
      electronic communications may not be                       (i) The qualified lender and borrower              has more than one primary applicant,
      used for a notice of default, acceleration,             must agree to include provisions in the               the qualified lender may send the
      repossession, foreclosure, eviction, or                 loan contract with the borrower, or a                 original notice to the applicant
      the right to cure when a borrower’s                     written modification thereto, that ensure             designated to receive notices and may
      primary residence secures the loan. In                  that the buyer of the loan will be                    send copies to all other applicants. If the
      these instances, a qualified lender must                obligated to provide the borrower the                 qualified lender makes an adverse credit
      use paper disclosures.                                  same rights a qualified lender must                   decision on a loan application, the
                                                              provide; or                                           notice must include:
      § 617.7010      May borrower rights be                     (ii) The qualified lender must obtain
      waived?                                                                                                          (a) The specific reasons for the
                                                              from the borrower a signed written                    qualified lender’s decision;
         (a) A qualified lender may not obtain                consent to the sale, which clearly states                (b) A statement that the applicant may
      a waiver of borrower rights, except as                  the borrower waives statutory borrower                request a review of the decision;
      indicated in paragraph (b) of this                      rights.                                                  (c) A statement that a written request
      section.                                                   (2) Before the qualified lender obtains            for review must be made within 30 days
         (b) A borrower may waive rights                      the borrower’s consent to the sale of the             after the applicant receives the qualified
      relating to distressed loan restructuring,              loan and the waiver of borrower rights                lender’s notice; and
      credit reviews, and the right of first                  under paragraph (c)(1)(ii) of this section,              (d) A brief explanation of the process
      refusal as follows:                                     the qualified lender must disclose in                 for seeking review of the decision,
         (1) When a loan is guaranteed by the                 writing to the borrower:                              including the independent collateral
      Small Business Administration.                             (i) A complete description of the                  evaluation review process, whom to
         (2) In connection with a loan sale as                statutory rights the borrower will waive;             contact for access to information, and
      provided in § 617.7015.                                    (ii) Any changes in the loan terms or              the applicant’s right to appear in person
         (c) All waivers must be voluntary and                conditions that will occur if the                     before the credit review committee
      in writing. The document evidencing                     qualified lender does not sell the loan;              (CRC).
      the waiver must clearly explain the                        (iii) That waiving borrower rights will
      rights the borrower is being asked to                   not become effective unless the                       § 617.7305 What is a CRC and who are the
      waive and provide an explanation of                     qualified lender sells the loan; and                  members?
      such rights.                                               (iv) That borrower rights will become                The board of directors of each
                                                              effective again if any qualified lender               qualified lender must establish one or
      § 617.7015 What happens to borrower                     repurchases the loan or any interest in               more CRCs to review adverse credit
      rights when a loan is sold?                             the loan.                                             decisions made by a qualified lender.
        (a) What happens when a qualified                        (3) The consent to the loan sale and               The CRC may only review adverse
      lender sells a loan to another qualified                waiver of borrower rights shall have no               credit decisions at the request of the
      lender? A loan made by a qualified                      effect until the qualified lender sells the           applicant or borrower. The CRC has the
      lender and subsequently sold, in whole                  loan. Borrower rights become effective                ultimate decision-making authority on
      or in part, to another qualified lender is              again if any qualified lender                         the loan or application under review.


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                            10909

      CRC members are selected by the board                   comply with the collateral evaluation                 617.7410 When and how does a qualified
      of directors of each qualified lender and               requirements of part 614, subpart F, of                   lender notify a borrower of the right to
      must include at least one of the                        this chapter. The qualified lender must                   seek loan restructuring?
                                                                                                                    617.7415 How does a qualified lender
      qualified lender’s farmer-elected board                 provide the applicant or borrower a
                                                                                                                        decide to restructure a loan?
      members. The loan officer involved in                   copy of part 614, subpart F, for                      617.7420 How will a decision on an
      the adverse credit decision being                       presentation to the selected                              application for restructuring be issued?
      reviewed may not serve on the CRC                       independent evaluator. A copy of part                 617.7425 What type of notice should be
      when it reviews that loan.                              614, subpart F, signed by the evaluator                   given to a borrower before foreclosure?
                                                              is a required exhibit in the subsequent               617.7430 Are institutions required to
      § 617.7310      What is the review process of                                                                     participate in state agricultural loan
      the CRC?
                                                              evaluation report.
                                                                 (2) When must an applicant or                          mediation programs?
        (a) How will an applicant or borrower                 borrower obtain the independent
      know when the CRC will consider the                                                                           Subpart E—Distressed Loan
                                                              collateral evaluation and who pays for
      review request? The qualified lender                                                                          Restructuring; State Agricultural Loan
                                                              the evaluation? The applicant or
      must inform the applicant or borrower                                                                         Mediation Programs
                                                              borrower must enter into a contractual
      15 days in advance of the CRC meeting                   arrangement for evaluation services                   § 617.7400 What protections exist for
      where the applicant or borrower’s                       within 30 days of receiving the names                 borrowers who meet all loan obligations?
      request will be reviewed.                               of three approved independent
         (b) Who may make a personal                                                                                   (a) A qualified lender may not
                                                              evaluators. The contractual arrangement               foreclose on a loan because the borrower
      appearance before the CRC? Each                         must be a written contract for services
      applicant or borrower who has                                                                                 failed to post additional collateral when
                                                              that complies with the lender’s                       the borrower has made all accrued
      requested a review may appear in                        appraisal standards. The evaluation
      person before the CRC. The applicant or                                                                       payments of principal, interest, and
                                                              must be completed within a reasonable                 penalties on the loan.
      borrower may be accompanied by                          period of time, taking into consideration                (b) A qualified lender may not require
      counsel or other representative when                    any extenuating circumstance. The                     a borrower to reduce the outstanding
      seeking a reversal of a decision on a                   applicant or borrower is responsible for              principal balance of a loan by any
      loan or an application for restructuring.               the costs of the independent evaluation.
         (c) What documents may the CRC                                                                             amount that exceeds the regularly
                                                                 (3) How does the CRC use an                        scheduled principal installment when
      consider? An applicant or borrower may                  independent collateral evaluation when
      submit any documents or other                                                                                 due and payable, unless:
                                                              making a decision? The CRC will                          (1) The borrower sells or otherwise
      evidence to support the information                     consider the results of any independent               disposes of part, or all, of the collateral
      contained in the loan or application for                collateral evaluation before making a                 without the prior approval of the
      restructuring. The documents should                     final determination with respect to the               qualified lender and the proceeds from
      demonstrate that the application for a                  loan or restructuring, except the CRC is              the sale or disposition are not applied
      loan or restructuring satisfies the credit              not required to consider a collateral                 to the loan; or
      standards of the qualified lender and is                evaluation that does not conform to the                  (2) The parties agree otherwise in
      an eligible loan or application for                     collateral evaluation standards                       writing.
      restructuring. Additionally, the                        described in part 614, subpart F, of this                (c) After a borrower has made all
      applicant or borrower is entitled to a                  chapter.                                              accrued payments of principal, interest,
      copy of each independent collateral                        (e) When must the CRC issue a                      and penalties on a loan, the qualified
      evaluation used by the qualified lender.                decision? The CRC must reach a                        lender may not enforce acceleration of
         (d) May an applicant obtain a new                    decision, and it must be the final                    the borrower’s repayment schedule due
      collateral evaluation even if collateral                decision of the qualified lender, not                 to the borrower’s untimely payment of
      was not a reason for the adverse credit                 later than 30 days after the meeting on               those principal, interest, or penalty
      decision? As part of a CRC review, an                   the request under review. The CRC must                payments.
      applicant may request an independent                    make every reasonable effort to conduct                  (d) If a qualified lender places a loan
      collateral evaluation of the agricultural               reviews and render decisions in as                    in non-interest-earning status and this
      real estate securing the loan or being                  expeditious a manner as possible. After               results in an adverse action being taken
      offered as security, regardless of                      making its decision, the committee must               against the borrower, such as revoking
      whether collateral was an identified                    promptly notify the applicant or                      any undisbursed loan commitment, the
      reason for the adverse credit decision.                 borrower in writing of the decision and               lender must document the change of
      The independent collateral evaluation                   the reasons for the decision.                         status and promptly notify the borrower
      may be for any interest(s) in the                                                                             in writing of the action and the reasons
      property securing the loan, except stock                § 617.7315 What records must the                      for taking it. If the borrower was not
      or participation certificates issued by                 qualified lender maintain on behalf of the            delinquent on any principal, interest, or
      the qualified lender and held by the                    CRC?
                                                                                                                    penalty payment at the time of such
      applicant or borrower.                                    A qualified lender must maintain a                  action and the borrower’s request to
         (1) Who may conduct an independent                   complete file of all requests for CRC                 have the loan placed back into accrual
      collateral evaluation? The independent                  reviews, including participation in state             status is denied, the borrower may
      collateral evaluation must be conducted                 mediation programs, the minutes of                    obtain a review of the denial before the
      by an independent evaluator. The CRC                    each CRC meeting, and the disposition                 CRC pursuant to § 617.7310 of this part.
      must provide the applicant or borrower                  of each review by the CRC.                            The borrower must request this review
      with a list of three independent                        Subpart E—Distressed Loan Restructuring;              within 30 days after receiving the
      evaluators approved by the qualified                    State Agricultural Loan Mediation Programs            lender’s notice.
      lender within 30 days of the request for
                                                              Sec.
      an independent collateral evaluation.                   617.7400 What protections exist for                   § 617.7405 On what policies are loan
      The applicant or borrower must select                        borrowers who meet all loan obligations?         restructurings based?
      and engage the services of an evaluator                 617.7405 On what policies are loan                      Loan restructurings must be made in
      from the list. The evaluation must                           restructurings based?                            accordance with the policy adopted by


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      10910               Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

      the supervising bank board of directors                 lender must notify a borrower of the                  income from all sources to be applied to
      under section 4.14A(g) of the Act.                      right to file another application to                  the debt and all assets to be pledged,
                                                              restructure the loan if the qualified                 that show a reasonable probability that
      § 617.7410 When and how does a qualified                lender sent the nonforeclosure notice to              orderly debt retirement will occur as a
      lender notify a borrower of the right to seek
      loan restructuring?
                                                              the borrower and the borrower has                     result of the proposed restructuring; and
                                                              performed on the previous restructure                    (iv) Whether the borrower has
         (a) What are the notice requirements?                agreement. Performance means that a                   furnished, or is willing to furnish,
         When a qualified lender determines                                                                         complete and current financial
                                                              borrower has made six consecutive
      that a loan is, or has become, distressed,                                                                    statements in a form acceptable to the
                                                              monthly payments, four consecutive
      the lender must provide one of the                                                                            qualified lender.
                                                              quarterly payments, three consecutive
      following written notices to the                                                                                 (2) Whether the borrower is applying
                                                              semiannual payments, or two
      borrower stating that the loan may be                                                                         all income over and above necessary
                                                              consecutive annual payments. However,
      suitable for restructuring.                                                                                   and reasonable living and operating
                                                              a qualified lender is not required to
         (1) A notice stating that the loan has                                                                     expenses to the payment of primary
                                                              send another notice if they previously
      been identified as distressed and that                                                                        obligations;
                                                              sent a 45-day notice, as described in
      the borrower has the right to request a                                                                          (3) Whether the borrower has the
                                                              § 617.7410(a)(2), and a borrower did not
      restructuring of the loan (nonforeclosure                                                                     financial capacity and the management
                                                              perform under a restructure agreement,
      notice).                                                                                                      skills to protect the collateral from
         (2) A notice that the loan has been                  as described above.
                                                                 (f) Does the borrower have the                     diversion, dissipation, or deterioration;
      identified as distressed, that the                                                                               (4) Whether the borrower is capable of
                                                              opportunity to meet with the qualified
      borrower has the right to request a                                                                           working out existing financial
                                                              lender after receiving the restructure
      restructuring of the loan, and that the                                                                       difficulties, taking into consideration
                                                              notice? The qualified lender must
      alternative to restructuring may be                                                                           any prior restructuring of the loan,
                                                              provide any borrower to whom a notice
      foreclosure (45-day notice). The                                                                              reestablishing a viable operation, and
                                                              has been sent with a reasonable
      qualified lender must provide this                                                                            repaying the loan on a rescheduled
                                                              opportunity to meet personally with a
      notice to the borrower no later than 45                                                                       basis; and
                                                              representative of the lender. The
      days before the qualified lender begins                                                                          (5) In the case of a distressed loan that
                                                              borrower and lender may meet to review
      foreclosure proceedings with respect to                                                                       is not delinquent, whether restructuring
                                                              the status of the loan, the financial
      any loan outstanding to the borrower.                                                                         consistent with sound lending practices
                                                              condition of the borrower, and the
      This notice must specifically state that                                                                      may be taken to reasonably ensure that
                                                              suitability of the loan for restructuring.
      if the loan is restructured and the                                                                           the loan will not have to be placed into
                                                              A meeting to discuss a loan that is in a
      borrower does not perform under the                                                                           non-interest-earning status in the future.
                                                              non-interest-earning status may also
      restructure agreement (as described in                                                                           (b) What should be included in
                                                              involve developing a plan for
      § 617.7410(e)), the qualified lender may                                                                      determining the cost of foreclosure?
                                                              restructuring, if the qualified lender
      initiate foreclosure proceedings without                                                                         (1) The difference between the
                                                              determines the loan is suitable for
      further notice.                                                                                               outstanding balance due, as provided by
                                                              restructuring.
         (b) What should each notice include?                    (g) May the qualified lender                       the loan documents, and the liquidation
         (1) A copy of the policy the qualified                                                                     value of the loan, taking into
                                                              voluntarily consider restructuring for a
      lender established governing the                                                                              consideration the borrower’s repayment
                                                              borrower who did not submit a
      treatment of distressed loans; and                                                                            capacity and the liquidation value of the
                                                              restructuring application? A qualified
         (2) All materials necessary for the                                                                        collateral used to secure the loan;
                                                              lender may, in the absence of an
      borrower to submit an application for                                                                            (2) The estimated cost of maintaining
                                                              application for restructuring from a
      restructuring.                                                                                                a loan classified as a high-risk asset;
         (c) What notice should a qualified                   borrower, propose restructuring to an
                                                                                                                       (3) The estimated cost of
      lender send to a borrower who is a                      individual borrower.
                                                                                                                    administrative and legal actions
      debtor in a bankruptcy proceeding? The                  § 617.7415 How does a qualified lender                necessary to foreclose a loan and
      qualified lender should send a notice                   decide to restructure a loan?                         dispose of property acquired as the
      that identifies the loan as distressed and                 (a) What criteria does a qualified                 result of the foreclosure, including
      the statutory right to file an application              lender use to evaluate an application for             attorneys’ fees and court costs;
      for a restructuring. The notice may also                restructuring? The qualified lender                      (4) The estimated cost of value
      restate the language from the automatic                 should consider the following:                        changes in collateral used to secure a
      stay provision to emphasize that the                       (1) Whether the cost to the lender of              loan during the period beginning on the
      notice is not intended as an attempt to                 restructuring the loan is equal to or less            date of the initiation of an action to
      collect, assess, or recover a claim.                    than the cost of foreclosure, considering             foreclose or liquidate the loan and
         (d) Whom should the qualified lender                 all relevant criteria. These criteria                 ending on the date of the disposition of
      notify? The qualified lender is required                include:                                              the collateral; and
      to notify all primary obligors. If the                     (i) The present value of interest and                 (5) All other costs incurred as the
      obligors identify one party to receive                  principal foregone by the lender in                   result of the foreclosure or liquidation of
      notices, the qualified lender should                    carrying out the application for                      a loan.
      send the original notice to that person                 restructuring;                                           (c) What should the qualified lender
      and send copies to the other obligors.                     (ii) Reasonable and necessary                      do if the borrower and the qualified
      For borrowers in a bankruptcy                           administrative expenses involved in                   lender cannot agree on the financial
      proceeding, the qualified lender should                 working with the borrower to finalize                 projections used in the application for
      send the notice to the borrower and, if                 and implement the application for                     restructuring? If the borrower and
      retained, the borrower’s counsel.                       restructuring;                                        lender are not able to agree on
         (e) When is a qualified lender                          (iii) Whether the borrower’s                       supportable or realistic financial
      required to send another restructure                    application for restructuring included a              projections, the lender may use
      notice to a borrower whose loan was                     preliminary restructuring plan and cash               benchmarks to determine the
      previously restructured? A qualified                    flow analysis, taking into account                    operational input costs and chattel


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                             10911

      security values. These benchmarks may                     (3) A statement that any request for                § 617.7430 Are institutions required to
      include, but are not limited to, the                    review must be made in writing within                 participate in state agricultural loan
      borrower’s 5-year production average;                   7 days after receiving such notice.                   mediation programs?
      averages in the county where the                                                                                (a) If initiated by a borrower, System
                                                                (4) A brief explanation of the process
      farming operation is located, based on                                                                        institutions must participate in state
                                                              for seeking review of the denial,
      data from United States Department of                                                                         mediation programs certified under
                                                              including the appraisal review process
      Agriculture, local colleges or                                                                                section 501 of the Agricultural Credit
                                                              and the right to appear before the CRC,               Act of 1987 and present and explore
      universities, or other recognized                       pursuant to § 617.7310 of this part,
      authority; and other such reasonable                                                                          debt restructuring proposals advanced
                                                              accompanied by counsel or any other                   in the course of such mediation. If
      sources.
         (d) How does the qualified lender                    representative, if the borrower chooses.              provided in the certified program,
      decide whether to restructure or                        § 617.7425 What type of notice should be              System institutions may initiate
      foreclose? If a qualified lender                        given to a borrower before foreclosure?               mediation at any time.
      determines the potential cost to the                                                                            (b) System institutions must cooperate
      lender of restructuring the loan as                        The qualified lender must send the                 in good faith with requests for
      proposed in the application for                         45-day notice, as described in                        information or analysis of information
      restructuring is less than or equal to the              § 617.7410(a)(2), no later than 45 days               made in the course of mediation under
      potential cost of foreclosure, the                      before any qualified lender begins                    any loan mediation program.
      qualified lender must restructure the                   foreclosure proceedings. The notice                     (c) No System institution may make a
      loan. If two or more restructuring                      informs the borrower in writing that the              loan secured by a mortgage or lien on
      alternatives are available, the qualified               loan may be suitable for restructuring                agricultural property to a borrower on
      lender must restructure the loan using                  and that the qualified lender will review             the condition that the borrower waive
      the alternative that results in the least               any suitable loan for possible                        any right under the agricultural loan
      cost to the lender.                                     restructuring. The 45-day notice must                 mediation program of any state.
         (e) What documentation should the                    include a copy of the policy and the                    (d) A state mediation may proceed at
      qualified lender retain? In the event that              materials described in § 617.7410(b).                 the same time as the loan restructuring
      an application for restructuring is                     The notice must also state that if the                process of § 617.7415 or at any other
      denied, a qualified lender must                         loan is restructured, the borrower must               appropriate time.
      maintain sufficient documentation to                    perform under this restructure                        Subpart F—Distressed Loan Restructuring
      demonstrate compliance with                             agreement. If the borrower does not                   Directive
      paragraphs (a), (b), and (c) of this                    perform, the qualified lender may                     Sec.
      section, as applicable.                                 initiate foreclosure.                                 617.7500 What is a directive used for and
                                                                 (a) Does the notice have to inform the                  what may it require?
      § 617.7420 How will a decision on an
                                                              borrower that foreclosure is possible?                617.7505 How will the qualified lender
      application for restructuring be issued?
                                                                                                                         know when FCA is considering issuing
        (a) When must a qualified lender                      The notice must inform the borrower
                                                                                                                         a distressed loan restructuring directive?
      make a decision on an application for                   that the alternative to restructuring may             617.7510 What should the qualified lender
      restructuring? Each qualified lender                    be foreclosure. If the notice does not                     do when it receives notice of a distressed
      must provide a written decision on an                   inform the borrower of potential                           loan restructuring directive?
      application for restructuring and                       foreclosure, then the qualified lender                617.7515 How does the FCA decide
      provide this decision to the borrower                   must send a second notice at least 45                      whether to issue a directive?
      within 15 days from the conclusion of                   days before foreclosure is initiated.                 617.7520 How does the FCA issue a
                                                                                                                         directive and when will it be effective?
      the negotiations used to develop the                       (b) How are borrowers who are                      617.7525 May FCA use other enforcement
      application for restructuring.                          debtors in a bankruptcy proceeding                         actions?
        (b) How does a qualified lender notify                notified? A qualified lender must restate
      the borrower of the decision? On                        the language from the automatic stay                  Subpart F—Distressed Loan
      reaching a decision on an application                   provision to emphasize that the notice                Restructuring Directive
      for restructuring, the qualified lender                 is not intended to be an attempt to
      must provide written notice in any                                                                            § 617.7500 What is a directive used for and
                                                              collect, assess, or recover a claim. The              what may it require?
      manner that requires a primary obligor                  qualified lender should send the notice
      to acknowledge receipt of the lender’s                  to the borrower and, if retained, the                    (a) A distressed loan restructuring
      decision. In the case of a loan involving               borrower’s counsel.                                   directive is an order issued to a
      one or more primary obligors, the                                                                             qualified lender when FCA has
      original notice may be provided to the                     (c) May a qualified lender foreclose on            determined that the lender has violated
      primary obligor identified to receive                   a loan when there is a restructuring                  section 4.14A of the Act.
      such notice, with copies provided by                    application on file? No qualified lender                 (b) A distressed loan restructuring
      regular mail to the other obligors.                     may foreclose or continue any                         directive requires the qualified lender to
        (c) What notice is required if the                    foreclosure proceeding with respect to a              comply with the specific distressed loan
      restructuring request is denied? When                   distressed loan before the lender has                 restructuring requirements in the Act.
      an application for restructuring is                     completed consideration of any pending                   (c) A distressed loan restructuring
      denied, the notice must include:                        application for restructuring and CRC                 directive is enforceable in the same
        (1) The specific reason(s) for the                    consideration, if applicable. This                    manner and to the same extent as an
      denial and any critical assumptions and                 section does not prevent a lender from                effective and outstanding cease and
      relevant information on which the                       taking any action necessary to avoid the              desist order that has become final. Any
      specific reasons are based, except that                 dissipation of assets or the diversion,               violation of a distressed loan
      any confidential information shall not                  dissipation, or deterioration of collateral           restructuring directive may result in
      be disclosed;                                           if the lender has reasonable grounds to               FCA assessing civil money penalties or
        (2) A statement that the borrower may                 believe that such diversion, dissipation,             seeking a court order pursuant to
      request a review of the denial;                         or deterioration may occur.                           section 5.31 or 5.32 of the Act.


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      10912               Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations

      § 617.7505 How will the qualified lender                § 617.7525 May FCA use other                          or voluntary conveyance. A System
      know when FCA is considering issuing a                  enforcement actions?                                  institution must clearly document in its
      distressed loan restructuring directive?                  FCA may issue a distressed loan                     files whether the borrower had the
        When FCA intends to issue a                           restructuring directive in addition to, or            resources to avoid foreclosure or
      distressed loan restructuring directive, it             instead of, any other action allowed by               voluntary conveyance.
      will notify the qualified lender in                     law, including cease and desist
      writing. The notice will state:                         proceedings, civil money penalties, or                § 617.7610 What should the System
        (a) The reasons FCA intends to issue                                                                        institution do when it decides to sell
                                                              the granting or conditioning of any
      a distressed loan restructuring directive;                                                                    acquired agricultural real estate?
                                                              application or other requests by the
        (b) The proposed contents of the                      System institution.                                      (a) Notify the previous owner,
      distressed loan restructuring directive;                                                                         (1) Within 15 days of the System
      and                                                     Subpart G—Right of First Refusal                      institution’s decision to sell acquired
        (c) Any other relevant information.                   Sec.                                                  agricultural real estate, it must notify
                                                              617.7600 What are the definitions used in             the previous owner, by certified mail, of
      § 617.7510 What should the qualified                         this subpart?                                    the property’s appraised fair market
      lender do when it receives notice of a                  617.7605 How should System institutions
      distressed loan restructuring directive?
                                                                                                                    value as established by an accredited
                                                                   document whether the borrower had the            appraiser and of the previous owner’s
         (a) A qualified lender should respond                     financial resources to avoid foreclosure?
                                                                                                                    right to:
      to the notice by stating why FCA should                 617.7610 What should the System
                                                                   institution do when it decides to sell              (i) Buy the property at the appraised
      not issue a distressed loan restructuring                                                                     fair market value, or
      directive, by proposing changes to the                       acquired agricultural real estate?
                                                              617.7615 What should the System                          (ii) Offer to buy the property at a price
      directive, or by seeking other suitable                                                                       less than the appraised value.
                                                                   institution do when it decides to lease
      relief. The response must include any                        acquired agricultural real estate?                  (2) That any offer must be received
      information, documentation, or other                    617.7620 What should the System                       within 30 days of receipt of the notice.
      relevant evidence that supports the                          institution do when it decides to sell              (b) Act on an offer to buy the acquired
      qualified lender’s position. The                             acquired agricultural real estate at a           agricultural real estate at the appraised
      response may include a plan for                              public auction?                                  value. Within 15 days after the receipt
      achieving compliance with the                           617.7625 Whom should the System
                                                                   institution notify?
                                                                                                                    of the previous owner’s offer to buy the
      distressed loan restructuring                                                                                 acquired agricultural real estate at the
      requirements of the Act. The response                   617.7630 Does this Federal requirement
                                                                   affect any state property laws?                  appraised value, the System institution
      must be in writing and delivered to FCA                                                                       must accept the offer and sell the
      within 30 days after the date on which                  Subpart G—Right of First Refusal                      property to the previous owner if the
      the qualified lender received the notice.                                                                     offer was received within 30 days of the
      In its discretion, FCA may extend the                   § 617.7600 What are the definitions used in           notice required in paragraph (a)(2) of
      time period for good cause. FCA may                     this subpart?
                                                                                                                    this section.
      shorten the 30-day period with the                        In addition to the definitions in                      (c) Act on an offer to buy the acquired
      consent of the qualified lender or when                 § 617.7000, the following definitions                 agricultural real estate at less than the
      FCA determines that providing the full                  apply to this subpart.                                appraised value.
      30 days would result in a borrower not                    Acquired agricultural real estate or                   (1) The System institution must
      receiving distressed loan restructuring                 property means agricultural real estate               consider the offer if it was received
      rights.                                                 acquired by a System institution as a                 within 30 days of the notice required in
         (b) If the qualified lender fails to                 result of a loan foreclosure or a                     paragraph (a)(2) of this section.
      respond within 30 days or such other                    voluntary conveyance by a borrower                       (2) If the System institution accepts
      time period specified by FCA, this                      who, as determined by the institution,                this offer, it must notify the previous
      failure will constitute a waiver of any                 does not have the financial resources to              owner of the decision and sell the
      objections to the proposed distressed                   avoid foreclosure.                                    acquired agricultural real estate to the
      loan restructuring directive.                             Previous owner means:                               previous owner within 15 days of
                                                                (1) The prior record owner who was                  receiving the offer to buy the acquired
      § 617.7515 How does the FCA decide                      a borrower from a System institution
      whether to issue a directive?                                                                                 agricultural real estate at a value less
                                                              and did not have the financial                        than the appraised value.
         After the closing date of the qualified              resources, as determined by the
      lender’s response period, or following                                                                           (3) If the System institution rejects
                                                              institution, to avoid foreclosure on                  this offer, it must notify the previous
      receipt of the qualified lender’s                       acquired agricultural real estate; or
      response, FCA must decide if there is                                                                         owner of the decision within 15 days of
                                                                (2) The prior record owner who is not               receiving the offer to buy the acquired
      sufficient information to support the                   a borrower and whose acquired
      issuance of a directive or if additional                                                                      agricultural real estate at a value less
                                                              agricultural real estate was used as                  than the appraised value. The previous
      information is necessary. Once FCA has                  collateral for a loan to a System
      received sufficient information, it must                                                                      owner has 15 days from receipt of the
                                                              borrower.                                             notice to submit an offer to buy at such
      decide whether to issue a directive as                    System institution means a Farm
      originally proposed or as modified.                                                                           price or under such terms and
                                                              Credit System institution, except a bank
                                                                                                                    conditions. The System institution may
                                                              for cooperatives, which makes loans as
      § 617.7520 How does the FCA issue a                                                                           not sell the acquired agricultural real
      directive and when will it be effective?                defined in § 617.7000.
                                                                                                                    estate to any other person:
        A distressed loan restructuring                       § 617.7605 How should System                             (i) At a price equal to, or less than,
      directive is effective immediately on                   institutions document whether the borrower            that offered by the previous owner; or
      receipt by the qualified lender, or on                  had the financial resources to avoid                     (ii) On different terms or conditions
      such later date as may be specified by                  foreclosure?                                          than those extended to the previous
      FCA, and will remain effective and                         The right of first refusal applies only            owner without first notifying the
      enforceable until it is stayed, modified,               to borrowers who did not have the                     previous owner by certified mail and
      or terminated by FCA.                                   financial resources to avoid foreclosure              providing an opportunity to buy the


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                          Federal Register / Vol. 69, No. 46 / Tuesday, March 9, 2004 / Rules and Regulations                                           10913

      property at such price or under such                    previous owner of this decision. The                  DEPARTMENT OF TRANSPORTATION
      terms and conditions.                                   previous owner has 15 days after receipt
         (d) For purposes of this section,                    of the notice in which to agree to lease              Federal Aviation Administration
      financing by the System institution is                  the property at such rate or under such
      not a term or condition of the sale of                  terms and conditions. The System                      14 CFR Part 39
      acquired agricultural real estate. A                    institution may not lease the property to
      System institution is not required to                   any other person:                                     [Docket No. 99–NE–31–AD; Amendment 39–
      provide financing to the previous owner                                                                       13445; AD 2004–03–01]
      for purchase of acquired agricultural                     (i) At a rate equal to or less than that
      real estate.                                            offered by the previous owner; or
                                                                                                                    RIN 2120–AA64
                                                                (ii) On different terms and conditions
      § 617.7615 What should the System                       than those that were extended to the
      institution do when it decides to lease                                                                       Airworthiness Directives; Air Cruisers
      acquired agricultural real estate?                      previous owner without first informing                Company Emergency Evacuation
                                                              the previous owner by certified mail                  Slide/Raft System; Correction
         (a) Notify the previous owner,
         (1) Within 15 days of the System                     and providing an opportunity to lease
                                                              the property at such rate or under such               AGENCY: Federal Aviation
      institution’s decision to lease acquired
      agricultural real estate, it must notify                terms and conditions.                                 Administration, DOT.
      the previous owner, by certified mail, of               § 617.7620 What should the System                     ACTION:   Final rule; correction.
      the property’s appraised rental value, as               institution do when it decides to sell
      established by an accredited appraiser,                 acquired agricultural real estate at a public         SUMMARY: This document makes a
      and of the previous owner’s right to:                   auction?                                              correction to Airworthiness Directive
         (i) Lease the property at a rate                                                                           (AD) 2004–03–01 applicable to certain
      equivalent to the appraised rental value                   System institutions electing to sell or
                                                                                                                    Air Cruisers Company Emergency
      of the property, or                                     lease acquired agricultural real estate or
                                                                                                                    Evacuation Slide/Raft System that was
         (ii) Offer to lease the property at rate             a portion of it through a public auction,             published in the Federal Register on
      that is less than the appraised rental                  competitive bidding process, or other                 February 5, 2004 (69 FR 5459). The AD
      value of the property.                                  similar public offering must:                         number, referenced in paragraph (i), in
         (2) That any offer must be received                     (a) Notify the previous owner, by                  the Credit for Previous Repacking
      within 15 days of receipt of the notice.                certified mail, of the availability of such           section, is incorrect. This document
         (b) Act on an offer to lease the                     property. The notice must contain the                 corrects that AD number. In all other
      acquired agricultural real estate at a rate             minimum amount, if any, required to                   respects, the original document remains
      equivalent to the appraised rental value                qualify a bid as acceptable to the                    the same.
      of the property.
                                                              institution and any terms or conditions               EFFECTIVE DATE:    Effective February 5,
         (1) Within 15 days after receipt of
                                                              to which such sale or lease will be                   2004.
      such offer, the System institution may
      accept the offer to lease the property at               subject;
                                                                 (b) Accept the offer by the previous               FOR FURTHER INFORMATION CONTACT:
      the appraised rental value and lease the
      property to the previous owner, or                      owner if the System institution receives              Leung Lee, Aerospace Engineer, New
         (2) Within 15 days after receipt of                  two or more qualified bids in the same                York Aircraft Certification Office, FAA,
      such offer, the System institution may                                                                        Engine and Propeller Directorate, 1600
                                                              amount, the bids are the highest
      reject the offer to lease the property at                                                                     Stewart Avenue, Suite 410, Westbury,
                                                              received, and one of the qualified bids
      the appraised rental value when the                                                                           NY 11590; telephone (516) 228–7309;
                                                              is from the previous owner; and
      institution determines that the previous                                                                      fax (516) 794–5531.
                                                                 (c) Not discriminate against a
      owner:                                                                                                        SUPPLEMENTARY INFORMATION:    A final
                                                              previous owner in these proceedings.
         (i) Does not have the resources                                                                            rule AD, FR Doc 04–2051, applicable to
      available to conduct a successful                       § 617.7625 Whom should the System                     certain Air Cruisers Company
      farming or ranching operation; or                       institution notify?                                   Emergency Evacuation Slide/Raft
         (ii) Cannot meet all the payments,                                                                         System, was published in the Federal
      terms, and conditions of such lease.                      Each certified mail notice requirement
                                                                                                                    Register on February 5, 2004 (69 FR
         (c) Act on an offer to lease the                     in this section is fully satisfied by                 5459). The following correction is
      acquired agricultural real estate at a rate             mailing one certified mail notice to the              needed:
      that is less than the appraised rental                  last known address of the previous
      value of the property.                                  owner or owners.                                      PART 39—[AMENDED]
         (1) The System institution must
                                                              § 617.7630 Does this Federal requirement              § 39.13   [Corrected]
      consider the offer to lease the property
                                                              affect any state property laws?
      at a rate that is less than the appraised                                                                     s  On page 5461, in the second column,
      rental value of the property. Notice of                    The rights provided under section                  in the Credit for Previous Repacking
      the decision to accept or reject such                   4.36 of the Act and this section do not               section, in paragraph (i), in the fourth
      offer must be provided to the previous                  affect any right of first refusal under the           line, ‘‘2003–11–03 ‘‘is corrected to read
      owner within 15 days of receipt of the                  law of the state in which the property                ‘‘2003–03–11’’.
      offer.                                                  is located.
         (2) If the System institution accepts                                                                        Issued in Burlington, MA, on March 2,
                                                                Dated: March 3, 2004.                               2004.
      the offer to lease the property at less
      than the appraised rental value, it must                Jeanette C. Brinkley,                                 Jay J. Pardee,
      notify the previous owner and lease the                 Secretary, Farm Credit Administration Board.          Manager, Engine and Propeller Directorate,
      property to the previous owner.                         [FR Doc. 04–5138 Filed 3–8–04; 8:45 am]               Aircraft Certification Service.
         (3) If the institution rejects the offer,            BILLING CODE 6705–01–P
                                                                                                                    [FR Doc. 04–5129 Filed 3–8–04; 8:45 am]
      the System institution must notify the                                                                        BILLING CODE 4910–13–P




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