Title: NOTICE OF PUBLIC HEARINGS ON PROPOSED REGULATIONS RELATING TO APPRAISAL STANDARDS AND LENDING LIMITS--Loan Policies and Operations; Definitions; Lending Authorities, Appraisal Standards, Participations and Lending Limits; Public Hearings--12 CFR Parts 614 and 619
Issue Date: 05/10/1991
Agency: FCA
Federal Register Cite: 56 FR 21637

12 CFR Parts 614 and 619

RIN: 3052-AB13

Loan Policies and Operations; Definitions; Lending Authorities, Appraisal Standards, Participations and Lending Limits; Public Hearings

ACTION: Notice of public hearings on proposed regulations relating to appraisal standards and lending limits.

SUMMARY: The Farm Credit Administration (FCA) announces forthcoming public hearings on proposed amendments to 12 CFR part 614 relating to lending limits and appraisals. The proposed regulations were published in the Federal Register on January 23, 1991, 56 FR 2452. The comment period for the proposed regulations ended on March 25, 1991. The FCA has decided to hold public hearings because of the substantial number of comment letters expressing concern about the potential impact of the lending limits and appraisal requirements of the proposed regulations. The hearings will provide an opportunity for Farm Credit borrowers, institutions and other interested parties to state their views and offer constructive suggestions on issues of concern in the proposed regulations.

DATES: Two public hearings will be held on the appraisal standards and lending limits. The first public hearing will begin at 8:15 a.m. on June 24 and 25, 1991, in Denver, Colorado. The second public hearing will begin at 8:15 a.m. on June 27 and 28, 1991, in Atlanta, Georgia. Requests to appear and present testimony for one of the public hearings must be submitted by May 20, 1991.

ADDRESSES: The hearings will be held at the Stapleton Plaza Hotel, 3333 Quebec Street, Denver, Colorado 80207 ((303) 321-3500/1-800-950-6070). The second hearing will be held at the Georgia International Convention and Trade Center, 1902 Sullivan Road, P.O. Box F, College Park, Georgia 30337 ((404) 997-3566). Submit requests to appear and present testimony for the specified public hearing in writing (in triplicate) to Dennis Carpenter, Senior Credit Specialist, Farm Credit Administration, McLean, VA 22102-5090.

FOR FURTHER INFORMATION CONTACT: Dennis Carpenter, Senior Credit Specialist, Policy and Risk Analysis Division, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090, (703) 883-4489, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: Public hearings will be held by the Farm Credit Administration Board on proposed amendments to its regulations relating to appraisal standards and lending limits for Farm Credit System (FCS) lending institutions. The amendments were published for comment as proposed regulations on November 3, 1988, 53 FR 44438. The proposed regulations were reproposed for comment on January 23, 1991, 56 FR 2452. For the purposes of this notice, these reproposed regulations will be referred to as "proposed regulations."

The proposed regulations would prescribe minimum appraisal standards and appraiser qualifications for all appraisals used to support the credit decisions of FCS institutions engaged in lending or leasing. The proposed regulations would require the board of directors of each institution to adopt policies and standards governing appraisals of real, personal and intangible property and qualifications of appraisers that are consistent with both the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation and with the requirements of the regulation. The proposed regulation would be similar to appraisal regulations that have been adopted by other Federal financial institution regulatory agencies under the Financial Institutions Recovery, Reform and Enforcement Act of 1989, Public Law 101-73.

The proposed regulations would also prescribe a limit on extensions of credit to a single borrower of 20 percent of capital for all FCS direct lender institutions, except banks for cooperatives, provide for exceptions to the lending limitation, and provide rules for the attribution and aggregation of loans to separate but related borrowers for the purpose of making "single borrower" determinations.

A number of comment letters received by the FCA related to the rules of aggregation and attribution set forth in the proposed regulation in compliance with lending limits. Some of these letters reflect a misunderstanding of the intended application of the proposed regulations. To assure that testimony at the hearings is useful and productive, FCA makes the following clarifications regarding the correct applications of the proposed rules:

1. Under 614.4358(a)(1) of the proposed regulation, a loan guaranteed by a subject borrower would be aggregated with the loans outstanding to that subject borrower. However, loans outstanding to a subject borrower would not be attributed to the borrower whose loan is guaranteed (name borrower) as a result of the subject borrower's guarantee. For example, if cooperative A (subject borrower) has a $50 million loan and A guarantees a $25 million loan made to cooperative B (named borrower), for the purpose of determining compliance with the lending limits, the proposed regulations would consider the lending institution as having made a $75 million loan to A and a $25 million loan to B. The lending limit is then applied separately to each borrower. If the lending limit is $75 million, the lending institution may not make any additional loans to A, unless the loans are participated to other lenders. Loans aggregating up to an additional $50 million may still be extended by the lending institution to B.
2. Under 614.4359 of the proposed regulation, a loan or commitment that is within the legal lending limits when made, becomes nonconforming if a reduction in capital causes the loan or commitment to exceed the new lending limit. Since the loan or commitment was legal at the time it was made, the institution has not violated the lending limit regulation. Therefore, the nonconforming loan or commitment is not an illegal loan and does not have to be removed from the institution's collateral base. However, loans or commitments that if fully funded would exceed the lending limit on the day the loan or commitment is made, would violate the regulation and would be subject to the provisions of 615.5090 and possible enforcement actions.

The FCA believes that these clarifications will alleviate some of the concern expressed in comments on the proposed regulations and will be of assistance to those presenting testimony in the public hearings.

In order to effectively address statements contained in some of the comment letters, the FCA requests comments on the following topics:

1. Number and dollar volume of loans that would exceed lending limits if proposed lending limits and associated aggregation and attribution rules were to be adopted.

2. Differences, if any, between the loan operations of banks for cooperatives and commercial banks that make large commercial loans that would warrant different treatment.

3. Alternatives to the lending limits, if any, that may be equally effective in controlling risk concentrations in institutions in which a few large customers constitute a majority of the outstanding loan volume.

4. An appropriate method of defining "control" in a cooperative structure.

In addition to comments on the preceding topics, the FCA invites testimony on all issues relating to appraisal and lending limit requirements under the proposed regulations. However, the FCA requests that testimony be confined to those requirements and their application to FCS institutions. Formal presentation at the hearings will be restricted to 10 minutes per person.

The first public hearing will be held in Denver, Colorado, beginning at 8:15 a.m. on June 24 and 25, 1991.

The second public hearing will be held in Atlanta, Georgia, beginning at 8:15 a.m. on June 27 and 28, 1991. Both hearings will address appraisal standards and lending limits requirements under the proposed regulations.

A person wishing to present testimony at a hearing must submit a written request that his or her name be placed on the calendar by May 20, 1991. The request should state the name, address and telephone number of the person wishing to testify and the general nature of his or her testimony. Requests will be honored in order of receipt. Persons will be notified by the FCA of acceptance of their requests and of the date and approximate time they are scheduled to testify. Written statements or detailed summaries of the text of testimony to be presented must be submitted to the FCA by June 10, 1991. A person who fails to make a timely submission of testimony will lose his or her place on the hearing schedule to the next person requesting to testify. In the event that more people wish to testify than time permits, the FCA will accept their written statements for the record.

The FCA will accept written comments on testimony presented at the public hearings. The comment period will end on July 31, 1991. The comments, as well as all documents and testimony received by the FCA as part of the public hearing process, will be available for public inspection at the FCA's offices in McLean, Virginia.

Dated: May 7, 1991.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 91-11195 Filed 5-9-91; 8:45 am]