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52301

Proposed Rules Federal Register


Vol. 72, No. 177

Thursday, September 13, 2007

This section of the FEDERAL REGISTER comments by any of the following certain credit enhancement features
contains notices to the public of the proposed methods: (e.g., Off-Balance Sheet AgVantage
issuance of rules and regulations. The • E-mail: Send us an e-mail at reg- volume, subordinated interests, and
purpose of these notices is to give interested comm@fca.gov. program loan collateral pledged in
persons an opportunity to participate in the • Agency Web site: http:// excess of Farmer Mac’s guarantee
rule making prior to the adoption of the final www.fca.gov. Select ‘‘Legal Info,’’ then obligation (hereafter, ‘‘overcollateral’’)),
rules.
‘‘Pending Regulations and Notices.’’ counterparty risk on nonprogram
• Federal eRulemaking Portal: http:// investments, and the resolution timing
FARM CREDIT ADMINISTRATION www.regulations.gov. Follow the for nonperforming loans and associated
instructions for submitting comments. carrying costs. We also propose minor
12 CFR Part 652 • Mail: Robert Coleman, Director, formatting changes to the structure of
Office of Secondary Market Oversight, the Credit Loss Module that are in the
Farm Credit Administration, 1501 Farm nature of technical changes.
RIN 3052–AC36
Credit Drive, McLean, VA 22102–5090.
• FAX: (703) 883–4477. Posting and II. Background and Summary of
Federal Agricultural Mortgage Revisions
Corporation Funding and Fiscal processing of faxes may be delayed, as
Affairs; Risk-Based Capital faxes are difficult for us to process and In 2006, Farmer Mac initiated a
Requirements achieve compliance with section 508 of program to guarantee timely repayment
the Rehabilitation Act. Please consider of principal and interest on notes that
AGENCY: Farm Credit Administration. another means to comment, if possible. are collateralized by Farmer Mac-
ACTION: Proposed rule. You may review copies of comments eligible agricultural real estate mortgage
we receive at our office in McLean, assets and are also secured by an
SUMMARY: The Farm Credit Virginia, or on our Web site at http:// obligation of the mortgage lender. We
Administration (FCA, Agency, us, or www.fca.gov. Once you are in the Web will refer to this product as Off-Balance
we) adopts a proposed rule that would site, select ‘‘Legal Info,’’ and then select Sheet AgVantage. The first such
amend regulations governing the ‘‘Public Comments.’’ We will show your transaction was a guarantee of $500
Federal Agricultural Mortgage comments as submitted, but for million in guaranteed notes announced
Corporation (Farmer Mac or the technical reasons we may omit items by Farmer Mac on January 23, 2006.
Corporation). We propose to update the such as logos and special characters. Subsequently, Farmer Mac announced
model in response to recent additions to Identifying information that you similarly structured transactions for $1
Farmer Mac’s program operations that provide, such as phone numbers and billion each on July 13, 2006, and April
are not addressed in the current version addresses, will be publicly available. 11, 2007. The current version of the
of the model. We propose to amend the However, we will attempt to remove e- RBCST lacks a component to recognize
current model’s assumption regarding mail addresses to help reduce Internet the credit enhancement provided by the
the carrying cost of nonperforming loans spam. lender’s obligation and, consequently,
to better reflect Farmer Mac’s actual this volume is excluded from the
FOR FURTHER INFORMATION CONTACT:
business practices. We further propose modeled loan portfolio. We propose to
Joseph T. Connor, Associate Director for
to add a new component to the model begin including this product in the
Policy and Analysis, Office of
to recognize counterparty risk on RBCST model. Further, in the event that
Secondary Market Oversight, Farm Farmer Mac introduces products that
nonprogram investments through Credit Administration, McLean, VA
application of discounts or ‘‘haircuts’’ to include a subordinated interest retained
22102–5090, (703) 883–4280, TTY (703) by the primary lender, we propose a
the yields of those investments and to 883–4434; or Rebecca Orlich, Senior
make technical amendments to the modeling treatment of such structures.
Counsel, Office of the General Counsel, We proposed revisions to the
layout of the model’s Credit Loss Farm Credit Administration, McLean,
Module. The effect of the rule is to treatment of nonprogram investments
VA 22102–5090, (703) 883–4420, TTY and the carrying cost of nonperforming
update the model so that it continues to (703) 883–4020.
appropriately reflect risk in a manner loans in our rule published in
SUPPLEMENTARY INFORMATION: November 2005.1 We did not adopt
consistent with statutory requirements
for calculating Farmer Mac’s regulatory I. Purpose those proposed revisions in the final
minimum capital level. rule that amended other parts of the
It is the Agency’s objective that the model.2 We now propose revisions to
DATES: You may send us comments by risk-based capital stress test (RBCST) these two components that differ
October 29, 2007. continue to determine regulatory capital somewhat from those proposed in
ADDRESSES: We offer several methods requirements consistent with statutory November 2005. We propose to account
for the public to submit comments. For requirements and constraints. The for counterparty risk on nonprogram
accuracy and efficiency reasons, purpose of this proposed rule is to investments by applying a discount (or
commenters are encouraged to submit revise the risk-based capital (RBC) ‘‘haircut’’) to the yields of nonprogram
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comments by e-mail or through the regulations that apply to Farmer Mac to investments scaled according to credit
Agency’s Web site or the Federal more accurately reflect changes in ratings, with a 10-year phase-in. We
eRulemaking Portal. Regardless of the Farmer Mac’s operations or business propose a method of calculating the
method you use, please do not submit practices. The substantive issues
your comment multiple times via addressed in this proposed rule are 1 70 FR 69692 (November 17, 2005).
different methods. You may submit treatment of program loan volume with 2 71 FR 77247 (December 26, 2006).

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52302 Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules

carrying cost of nonperforming loans required overcollaterization of the approach because we believe that the
over a period we refer to as the Loan subject portfolio, if any. senior unsecured category is likely to
Loss Resolution Time period, or The derivation and application of the reflect a more accurate analog of a
‘‘LLRT’’, that will include a quarterly general obligation adjustment factor general obligation than a ‘‘catch-all’’
update of the LLRT estimate. would be as follows. We would define category like ‘‘All Bonds’’ that would
five levels of credit ratings from ‘‘AAA’’ include senior secured bond and
Finally, we propose other technical
to ‘‘below BBB and unrated.’’ We would subordinated bond categories in
changes to improve formatting and
assign each of the NRSRO-rating addition to the senior unsecured
clarity of labeling in certain cells of the
categories to one of the five general category. We believe that neither of
Credit Loss Module worksheets.
whole-letter rating categories we define. these bond lien position categories
III. Issues, Options Considered, and The adjustment factors applied would reflects the nature of a general
Proposed Revisions be equal to the average cumulative obligation as accurately as the senior
issuer-weighted, 10-year corporate unsecured category.
A. Treatment of Off-Balance Sheet default rates from 1920 through the
AgVantage Program Volume We considered whether the senior
most recent year as published by
secured category might be more
In 2006, Farmer Mac initiated a Moody’s Investor Services.3 For issuers
applicable, given the mortgage loans
program to guarantee the timely that are rated below BBB or are unrated,
that collateralize this obligation.
repayment of principal and interest on the model would apply a factor equal to
However, we believe our proposed
the 10-year corporate default rates on
notes that, in addition to being application is justified because, in the
Speculative-Grade bonds published in
collateralized by Farmer Mac-eligible RBCST’s Credit Loss Module, we target
the same report. This rate would then be
agricultural real estate mortgages, are an estimate of the ultimate loss rate
further adjusted to obtain an estimated
also secured by an obligation of the associated with the occurrence of what
loss rate related only to a general
primary lender of those mortgages. The are assumed to be independent events (a
obligation of the corporate issuer/Off-
current version of the model lacks a corporate default and agricultural
Balance Sheet AgVantage counterparty
component to recognize the credit mortgage loan pool defaults). For
with a given credit rating by considering
enhancement provided by the issuer’s example, suppose that a counterparty
the loss-severity rate as implied by
general obligation and any contractually utilizing Farmer Mac’s Off-Balance
recovery rates published in the same
required loan collateral in excess of the annual Moody’s report (i.e., 1 minus Sheet AgVantage product goes bankrupt.
face value of the guaranteed notes. recovery rate). In this case, because We assume that the default event is
We propose to revise the model to recovery rates are not published by uncorrelated with the occurrence of
include this program volume by whole-letter credit rating categories in worst-case stress in the agricultural
modeling all loans in guaranteed note the Moody’s report, we would apply a lending sector. Therefore, we treat the
portfolios in the same manner as all loss severity implied by Moody’s estimated loss rate calculation on the
other program volume, with two average Defaulted Bond Recovery Rates general obligation separately from the
differences. The first difference would by Lien Position for as long a period as estimated loss rate calculation on the
recognize the risk mitigation provided the Moody’s report provides. Moody’s program loan collateral. Thus, we
by the general obligation by reducing 2006 report includes a table of data on believe the estimation of a counterparty
the age-adjusted dollar losses estimated recovery rates from 1982 to 2006. We default/severity rate should be done
on the subject loans by an adjustment propose to adopt a severity rate separately from and without regard to
factor derived from historical default adjustment to historical corporate the loan collateral and, therefore, that
rates by the whole letter credit ratings default rates based on the published the senior unsecured severity rate is
of corporate bond issuers as reported by long-term recovery rate for senior most appropriate.
a nationally recognized statistical rating unsecured bonds. We considered using The following table sets forth the
organization (NRSRO). The second the recovery rates of the ‘‘All Bonds’’ proposed credit loss adjustment factors
difference would address the risk- category to calculate implied loss- and their components (Adjustment
reducing effects of contractually severity rate factors but rejected that Factor = Default Rate × Severity Rate).4

General obli-
Default rate Severity rate gation adjust-
Whole letter rating (percent) (percent) ment factor
(percent)

AAA .............................................................................................................................................. 0.89 55 0.49


AA ................................................................................................................................................ 2.31 55 1.26
A ................................................................................................................................................... 2.90 55 1.58
BBB .............................................................................................................................................. 7.29 55 3.98
Below BBB and Unrated .............................................................................................................. 27.39 55 15.16

The adjustment factors would be publication of this annual report, or would remain in effect until FCA
updated quarterly as the updated FCA informs Farmer Mac it has revises the process through rulemaking.
Moody’s report on Default and Recovery determined that the report has changed In addition, the loan portfolio
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Rates of Corporate Bond Issuers so much that it prevents or calls into collateral underlying Off-Balance Sheet
becomes available. In the event that question the identification of suitable AgVantage volume may contain loan
there is an interruption of Moody’s updated factors, the prior year’s factors collateralization in excess of the face
3 Hamilton, D., Ou S., Kim R., Cantor R., February 2007—the most recent edition as of April 4 Ibid; Default Rates, page 22, Recovery Rates

‘‘Corporate Default and Recovery Rates, 1920— 2007. (Severity Rate = 1 minus Senior Unsecured Average
2006,’’ published by Moody’s Investors Service, Recovery Rate) page 18.

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Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules 52303

value of the note. This overcollateral is accomplished by multiplying any applied to cash flows from investments
may be contractually required or it may remaining losses after the adjustments in from issuers with lower credit ratings.
be provided by the issuer of the ‘‘(1)’’ and ‘‘(2)’’ above by the appropriate We previously proposed haircuts in our
guaranteed note to reduce general obligation adjustment factor November 2005 proposed rule but did
according to the counterparty’s whole-letter
administrative expense associated with issuer credit rating (set forth in the table
not include them in our final rule
monitoring the eligibility of the above) to reflect the likelihood of exhausting published on December 26, 2006.
collateral, or both. We view the capacity of the issuer to maintain The previously proposed rule based
overcollateral in excess of contractually adequate collateral. investment haircuts on the risk-based
required amounts as solely an capital regulations of the Office of
We acknowledge that the order of Federal Housing Enterprise Oversight
administrative convenience for the
these adjustments may seem (OFHEO) (12 CFR part 1750). OFHEO’s
lender in question. When there is excess
incongruous with the legal structure of haircut levels were based on worst-case
overcollateral, any loan in the
a given transaction, but we believe the corporate bond default rates using
overcollateral can automatically be
proposed order makes sense from a Depression-era default rates and
deemed to replace a loan that might
modeling perspective. For example, the recovery rates, expanded to a 10-year
become ineligible under the AgVantage
counterparty’s general obligation might period. For all counterparties, the
contract without the need for additional
legally be first in terms of the security default rates used were 5 percent for
action on the part of either party.
provided in support of Farmer Mac’s AAA, 12.5 percent for AA, 20 percent
However, when it is discretionary and
risk position—followed by access to the for A, 40 percent for BBB and 100
not contractually required, the amount
loan collateral after an event of default percent for below BBB or unrated.
of excess overcollateral provided by
by the counterparty. However, we adjust Severity rates used were 70 percent for
Farmer Mac’s counterparty is subject to
for the risk-mitigation of the nonderivative securities, yielding net
change at any time. Therefore, we
contractually required haircuts of 3.5 percent, 8.75 percent,
believe that overcollateral that is
overcollateralization first, followed by 14.0 percent, and 28.0 percent for
required by contract and is not simply
the adjustment for the general ratings AAA through BBB, respectively.
an administrative convenience should
obligation. As a practical matter, we One hundred percent (100%) haircuts
be recognized in the model for the risk
believe that Farmer Mac, to make itself were applied to the ‘‘BBB or unrated’’
mitigation it provides, but that the
whole on any losses after the category. Our November 2005 proposal
additional collateral provided solely for
counterparty defaults, would first work contained the same haircut levels as in
administrative convenience should not.
through the overcollateral, which would OFHEO’s regulations.
Whenever overcollateral exists, we
be held by a bankruptcy-remote vehicle. We decided not to adopt the
model a portfolio that is larger than the
Only after that overcollateral proved November 2005 haircut proposal out of
dollar amount of Farmer Mac’s
insufficient to make Farmer Mac whole, concern that the worst-case perspective
guarantee obligation because there is no
would it need to pursue further recovery on historical default rates is not as
direct means to segregate a specific set
from the counterparty. appropriate for Farmer Mac as it is for
of loans in the total collateral portfolio
that could be considered to comprise the housing Government-sponsored
B. Add a Treatment for Products that
100 percent of the face value of the enterprises (GSEs). While it is plausible
Could Include a Subordinated Interest
guaranteed notes. We then need an that worst-case stress in the housing
Retained by the Primary Lender or Seller
adjustment to reduce the amount of markets could be highly correlated with
In the event Farmer Mac introduces worst-case conditions throughout the
submitted loan collateral for purposes of new products that include the specific economy as exhibited by corporate bond
estimating credit losses in the Credit retention of a portion of the credit risk defaults, we believe that worst-case
Loss Module (CLM) in order to avoid at either a loan level or a pool level by agricultural credit conditions would
the model’s recognition of the credit risk the primary lender or seller, this loan likely be far less correlated with events
on loan volume that is in excess of the volume would also be modeled in of major stress in financial markets
contractually required volume. separate worksheets of the CLM. The
Given the above considerations, we generally. Therefore, we have based the
model would recognize the haircuts in this proposed rule on
propose the following treatment. The
subordinated interest by multiplying the average bond default rates rather than
Off-Balance Sheet AgVantage volume
age-adjusted dollar losses in the subject worst-case historical corporate defaults.
will be modeled using separate
portfolio by one minus the percentage of In addition, we have chosen not to
worksheets of the CLM with added
the subordinated interest in order to follow a similar method for expansion
features to:
isolate the portion of estimated loss that of the worst case interval to the 10-year
(1) Scale the estimated losses to be Farmer Mac would incur. To the extent time interval. Instead, we propose a
commensurate with losses associated with that such structures include further more direct reliance on empirical
the contractually required minimum
stratification of losses, such as a cap on evidence and base the haircuts on
collateral. To achieve this, we multiply the
estimated dollar losses of each loan after age the exposure to losses assumed by Moody’s Average 10-year cumulative
adjustment by the ratio of the guaranteed Farmer Mac, such stratification would issuer-weighted corporate default rates
amount to total submitted loan collateral; and be treated in a similar manner. by whole letter rating, adjusted by the
(2) Recognize the risk mitigation provided average implied long-term severity rate
by the contractually required
C. Add Haircuts on Nonprogram for Senior Unsecured bonds. The
overcollateralization. To do so, expected Investments weighted-average yields of non-program
losses after the adjustment in ‘‘(1)’’ above are Currently, the RBCST does not investment categories would be reduced
compared to the dollar amount of include a component to reflect by the haircut percentage phased in
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contractually required overcollateral, and any counterparty risk on Farmer Mac’s linearly over the 10-year modeling
estimated credit loss dollars in excess of the
contractually required overcollateral are
portfolio of nonprogram investments or horizon. The haircut levels are the same
input in the model as loss rates applied to its derivatives. We propose adopting a as the loss rate adjustment factors
that pool’s underlying portfolio volume. system of haircuts to the yields on proposed above for application on loans
(3) Recognize the risk mitigation provided investment securities scaled according underlying guaranteed notes, and like
by the counterparty’s general obligation. This to credit ratings, with larger haircuts those factors these will be updated as

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52304 Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules

new information becomes available. The calculate the weighted-average haircut with any additional time period over
proposed investment haircuts to by investment category to be applied to which Farmer Mac has carried
recognize counterparty risk are as the weighted-average yields for each nonperforming loans on average
follows: investment category and to input the throughout its history. The LLRT is the
haircuts into the ‘‘Data Inputs’’ weighted average time in fractions of 1
Haircut worksheet. The proposed haircuts are year that Farmer Mac has carried
Whole letter credit rating (percent) set forth in the table in paragraph e. of nonperforming loans from the date of
AAA ........................................... 0.49
section 4.1 in the appendix A, subpart the last interest payment, the Interest
AA ............................................. 1.26 B of part 652. Paid-Through Date (ITPD) and the date
A ............................................... 1.58 We considered proposing a similar the loan is finally resolved. This
BBB ........................................... 3.98 haircut on derivative securities, on the proposed LLRT differs from that
Below BBB and Unrated .......... 15.16 ground that credit stress that impacts proposed in November 2005 in the
Farmer Mac’s nonprogram investment method used to estimate the LLRT
We propose to phase in the haircuts portfolio would reasonably be expected period, as described in detail below.
over the 10-year modeling horizon, to affect its derivatives counterparties In the final rule preamble to RBCST
based on our assumption that defaults and its terms of access to the swap Version 2.0 published December 26,
on investments in response to a general market.6 We believe a more appropriate 2006, we discussed our intent to review
downturn in the economy would not be approach to haircutting derivatives may further the scaling factor used to
instantaneous but rather spread through be to reflect lost payments on defaulted estimate the unpaid premium balance
time. Furthermore, consistent with the derivative securities in a net-receive associated with estimated loan loss
OFHEO rule, we would not assign the position, as well as the ‘‘replacement dollar volume. After further review, we
rating of a parent company to its cost’’—i.e., the additional expense believe that basing the scaling factor on
unrated subsidiary because NRSROs associated with the replacement of the total current portfolio average
will not impute a corporate parent’s derivative positions when the relationship between origination loan
rating to a derivative or credit counterparty defaults and the market amount and current outstanding loan
enhancement counterparty in the value of the derivative has increased amounts, as originally proposed, is more
context of a securities transaction, and since the date the defaulted derivative appropriate than basing the scaling
because extending that rating to the contract was executed. Such an factor on that same relationship among
unrated subsidiary would be increased market value would be to the small universe of loans that have
tantamount to the regulator rating the Farmer Mac’s benefit when the been through the default and resolution
subsidiary.5 However, when an counterparty does not default, but to its process historically. Our view is based
investment is structured as a detriment when it does default. The on the small size of the latter data set.
collateralized obligation backed by the Agency plans to address this issue in This proposed rule also clarifies the
issuer’s general obligation and, in turn, future revisions of the RBCST and calculation of the LLRT period and
a pool of collateral, we accept the issuer specifically requests comment on the incorporates additional information
rating of that issuer as the credit rating most appropriate approach to provided by Farmer Mac regarding its
applicable to the security. Unrated incorporate into the RBCST such actual historical LLRT experience.
securities that are fully guaranteed by ‘‘replacement cost’’ risk relating to With the exception of the 1-year
GSEs receive the same treatment as derivative securities. period assumed in the loss-severity rate,
AAA securities. Unrated securities the current RBCST under a steady-state
D. Improve the Estimate of Carrying scenario requires backfilling of loan loss
backed by the full faith and credit of the
Costs of Nonperforming Loans by volume with like assets, without
U.S. Government do not receive a
Revising LLRT Assumptions recognizing any of the costs associated
haircut.
In the event that FCA approves the The RBCST was originally developed with carrying loans as non-earning, but
purchase of an unrated investment, and with a loss-severity estimate that funded, assets. Under the proposed rule,
portions of that investment with specific assumes it would take Farmer Mac 1 the RBCST would reflect additional
risk characteristics are later sold by year to work through problem loans costs associated with carrying the
Farmer Mac, the Director will take from the point of default through final unpaid principal balance of
reasonable measures to adjust the disposition. An estimate was used nonperforming loans during the portion
haircut level applied to the investment because, at the time of development of of the LLRT period that exceeds the 1-
to recognize the change in the risk the RBCST, historical nonperforming year assumption.
characteristics of the retained portion. loan resolution timing data from Farmer The change would be incorporated
In taking these measures, the Director Mac were not sufficient. Farmer Mac into the RBCST as follows. Off-balance
will consider the approaches taken to data collected since that time indicate sheet loans with estimated losses are
address capital requirements related to that an adjustment to the 1-year assumed to be purchased from the off-
similar investments that have been assumption to recognize Farmer Mac’s balance sheet portfolio and fully funded
adopted by other Federal financial actual historical experience is at the short-term cost of funds rate used
institution regulators. appropriate. If the actual historical time in the model, and any associated
We propose to apply the haircuts to interval is longer than the current guarantee fee income is reversed. The
yields on a weighted-average basis by model’s assumption, the capital needs short-term cost of funds (adjusted to
investment categories established in the for carrying nonperforming assets are incorporate interest rate shock effects) is
‘‘Data Inputs’’ worksheet of the RBCST, likely understated in the model. used to estimate this additional funding
e.g., commercial paper, corporate debt Therefore, we propose amendments to cost in recognition of Farmer Mac’s
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and asset-backed securities, agency the model to reflect costs associated actual business practices. On-balance
mortgaged-backed securities and sheet loans generating losses are also
collateralized mortgage obligations. This 6 The term ‘‘derivative’’ refers to over-the-counter
removed from the interest earnings
financial derivative instruments used by Farmer calculations and continue to generate
treatment would require Farmer Mac to Mac to hedge interest rate risk and synthetically
extend the term structure of its debt to reduce interest expense at the blended cost of
5 66 FR 47730, 47777 (September 13, 2001). funding costs. long- and short-term funds for the

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Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules 52305

portion of the LLRT period that exceeds the weighted-average LLRT using weights cases are likely to be rare exceptions
1 year. In response to a comment on the based on the total obligation at the Non- (e.g., steeply inverted yield curves) and
original proposed rule, the rates are not Accrual Date (Unpaid Principal Balance at do not create a sufficiently compelling
Non-Accrual) and input the resulting
adjusted to incorporate interest rate weighted-average LLRT into the model’s Data
reason to add more complexity to the
shock effects in this proposed rule, in Inputs worksheet. model such as, for example, a new data
contrast to the original proposal of this (6) For nonperforming loans that have not input for average off-balance sheet
revision, in recognition that these rates resolved, include these loans in the nonperforming loan funding rates.
would be in place at the time of the calculation using the quarter end ‘‘as of’’ date Therefore, we made no change to this
onset of the stress. The model would of each model submission in place of the specific aspect of the model in this
continue to backfill new loans at the resolution date, but include them only if the proposed rule.
point of loan resolution to retain its calculated time interval to the ‘‘as of’’ date Farmer Mac commented that it could
is longer than the calculated average LLRT employ a cross-funding strategy to
steady-state specification. when these records are excluded. In other
The proposed revisions involve two words, if the carrying time interval is not
effectively fund on-balance sheet non-
principal changes from the current longer than the calculated LLRT using the performing loans at the short-term debt
RBCST. First, the date of backfill would data set excluding these records, the records rates such as it uses in most cases of
be moved to a point in time that more should be excluded from the final LLRT purchases of off-balance sheet
accurately reflects Farmer Mac’s actual calculation. This will prevent loan records nonperforming loans. While we agree
experience. The model would then that have not gone completely through the that such opportunities could occur, we
capture the additional costs of carrying resolution process from exerting a downward believe that assuming that Farmer Mac
influence on the LLRT but allow them to would always have the opportunity to
loans in a non-interest earning category
have an upward influence if the unresolved
on the balance sheet. Second, the loans’ LLRTs are greater than the calculated
purchase new program assets with the
guarantee fee income would be reduced average before inclusion of such loans. same size and expected life
by the weighted average guarantee fee in characteristics as on-balance sheet
Farmer Mac commented on our nonperforming loans is too broad an
the portfolio multiplied by the relevant
November 2005 proposal that the assumption to incorporate into the
off-balance sheet loan volume over the
application of funding rates to the model. While it is possible that Farmer
portion of the LLRT period that exceeds
calculation of the carrying cost of Mac could execute a similar rebalancing
one year. The LLRT would become a
nonperforming loans is inconsistent and reassignment of debt tenors among
data input to be updated with each
with its actual practice and that the its program assets by adjustments to its
quarterly submission of the model.
When we first proposed to revise this proposed change should be withdrawn. ongoing daily funding selections, we
component in November 2005, we Farmer Mac’s comment focused on three would also view such a potentially
received several comments that noted aspects of the proposed LLRT change. complex incorporation of this
the need for greater clarity in the LLRT’s We will summarize those three and then contingent scenario into the model as
calculation formula. We have attempted provide a discussion of each with our unjustified for the added level of
to provide greater clarity in the response. In this discussion, we refer to accuracy it might provide in certain
proposed LLRT calculation as follows: liabilities due in 1 year or less as short- cases. Therefore, we have made no
term liabilities and to liabilities due change to the funding rates applied to
(1) Assemble in a spreadsheet individual after 1 year as ‘‘long-term’’ debt. The
loan level data for all historical calculate carrying cost of on-balance
comment’s three points were: (a) Farmer sheet nonperforming loans in this
nonperforming loans that migrated from the
program loan portfolio into nonaccrual Mac does not fund nonperforming loans proposed rule.
status. Identify the ‘‘resolution type,’’ i.e., using a certain tenor of debt with perfect Finally, Farmer Mac commented that
whether the loan resolved by the borrower consistency, (b) Farmer Mac can the model should not fund on-balance
bringing the loan current or paying off the effectively change the cost of funds of sheet, nonperforming loans at shocked
loan in full, or whether the loan was any nonperforming on-balance sheet interest rate levels established by statute
foreclosed and liquidated prior to being loan by employing a ‘‘cross-funding’’ because these loans would, by having
placed in real estate owned (REO), or placed strategy, and (c) the model should not
in REO. For each of these resolution types, been already on the balance sheet at the
include the associated dates (e.g., the date the
fund on-balance sheet, nonperforming point in time when rates are shocked,
loan was brought current, paid off, liquidated loans at the shocked interest rates under have been funded at pre-shocked rates.
prior to REO, or placed in REO); the interest rate risk stress component in We agree with the comment and have
(2) Include the following data elements: the model because these loans would, revised the cost of funds applied to on-
Loan Number by having been on the balance sheet at balance sheet nonperforming loans
Origination Date the point in time when rates are during the LLRT to pre-shock blended
Original Balance shocked, have already been funded at long- and short-term cost of funds rates
Payment Frequency pre-shock rates. in this proposed rule.
Interest Paid Through Date (ITPD) Farmer Mac acknowledged that The proposed LLRT revisions are
Non-Accrual Date purchases of nonperforming, off-balance
Unpaid Principal Balance (UPB) at Non-
forward-looking only. In other words,
Accrual Date sheet loans would be done at short-term actual loans that defaulted in year zero
Accrued Interest Through Non-Accrual Date rates in the preponderance of cases, and are in their second year of
Resolution-type Code (assign numerical code which is consistent with this proposed nonperforming status in year one of the
to each type listed in the paragraph above) rule. However, Farmer Mac stated that, model’s 10-year time horizon are not
Resolution Date in actual practice, it uses a mix of short- included in the proposed LLRT
Net Gain/Loss Amount and long-term debt because it decides revision, and therefore no adjustment to
(3) Remove loan records with missing data on the appropriate funding term for restate current balance sheet amounts is
ebenthall on PRODPC61 with PROPOSALS

elements in ‘‘(2)’’ above from the database for such purchases based on the existing needed. We considered an approach
purposes of the LLRT calculation; yield curve conditions and REO involving such a restatement but
(4) Calculate the number of days between
the ITPD and the Resolution Date for each disposition expectations. While we rejected it as unnecessarily complex. We
loan; accept the premise that in certain cases note that our proposed revision to more
(5) Divide that number of days by 365. The Farmer Mac might fund such purchases accurately reflect the carrying cost of
quotient is the LLRT for each loan. Calculate using longer term debt, we believe these nonperforming loans results in less

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52306 Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules

additional stress in a down-rate interest used to calculate the carrying cost of version of the model, Version 2.0. Our
rate risk environment. This result is nonperforming on-balance sheet loans tests indicate that changes related to the
appropriate, as it would be less costly to an increment of interest expense LLRT would have the most significant
fund nonperforming loans when interest associated swap expense according to impact on risk-based capital calculated
rates are relatively low. Farmer Mac’s practice of combining by the model. The table below provides
We propose one further adjustment to debt and swap contracts to fund loans. an indication of the impact of the
complete the LLRT revision. The RBCST E. Technical Changes to Improve revisions in the quarter ended March 31,
is sometimes referred to as an Formatting and Clarity of Cell Labeling 2007. The lines labeled ‘‘General
‘‘origination loan model’’ because it and Submission Deadlines Obligation Adjustment’’, ‘‘Investment
performs its loss estimation based on Haircuts’’, and ‘‘Carrying Costs of
In the RBCST spreadsheet, we have
origination loan amounts and dates. The Nonperforming Loans’’ present the
relocated the quarter-end date selection
model does not incorporate loan interest impacts if only that revision were made
pull-down menu from the Assumptions
rates or amortization of the loan to the current version, and the column
and Relationships page to the Capital
portfolio. However, implementation of worksheet for convenience. We have labeled ‘‘Difference’’ calculates the
the LLRT revision would require us to also made line item labeling changes to impact of that individual change for the
make an estimate of loan amortization enhance clarity in both the CLM and the quarter ended March 31, 2007,
because it would be inaccurate to RBC modules. We have also revised compared to the requirement calculated
estimate the additional carrying cost § 652.85 to update submission deadlines using the currently active Version 2.0.
associated with the LLRT period by to be the same as the filing deadlines of The bottom line presents the impact of
applying the appropriate cost of funds Farmer Mac’s public disclosures on all proposed revisions in Version 3.0. As
to a loan’s origination amount. We Forms 10–Q and 10–K required by the the table shows, the individual
propose to use the portfolio average Securities and Exchange Commission. estimated impacts do not have an
principal amortization to make this additive relationship to the total impact
adjustment (i.e., total portfolio current IV. Impact of Proposed Changes on on the model output. This is due to the
scheduled principal balance divided by Required Capital interrelationship of the changes with
total origination balance). We would We have evaluated the impact of the one another when they are combined in
also incorporate into the blended rate proposed changes to the currently active Version 3.0.

Calculated regulatory capital 3/31/2007 Difference


($ in thousands)

RBCST Version 2.0 ................................................................................................................................................. 80,831 ........................


Treatment of Loans Backed by an Obligation of the Counterparty and Contractually Required Overcollateral .... 73,244 ¥7,587
Investment Haircuts ................................................................................................................................................. 83,922 3,091
Carrying Cost of Nonperforming Loans ................................................................................................................... 105,170 24,340
RBCST Version 3.0 Change Impacts ...................................................................................................................... 100,079 19,249

V. Regulatory Flexibility Act 2279aa–11, 2279bb, 2279bb–1, 2279bb–2, (d) You must submit your quarterly
2279bb–3, 2279bb–4, 2279bb–5, 2279bb–6, risk-based capital report for the last day
Pursuant to section 605(b) of the 2279cc); sec. 514 of Pub. L. 102–552, 106
Regulatory Flexibility Act (5 U.S.C. 601 of the preceding quarter by the earlier of
Stat. 4102; sec. 118 of Pub. L. 104–105, 110 the reporting deadlines for Securities
et seq.), FCA hereby certifies the rule Stat. 168.
will not have a significant economic and Exchange Commission Forms 10–K
impact on a substantial number of small Subpart B—Risk-Based Capital and 10–Q, or the 40th day after each of
entities. Farmer Mac has assets and Requirements the quarter’s ending March 31st, June
annual income over the amounts that 30th, and September 30th, and the 75th
would qualify it as a small entity. 2. Amend § 652.65 by redesignating day after the quarter ending on
Therefore, Farmer Mac is not considered paragraph (b)(5) as new paragraph (b)(6) December 31st.
a ‘‘small entity’’ as defined in the and adding a new paragraph (b)(5) to 4. Appendix A of subpart B, part 652
Regulatory Flexibility Act. read as follows: is amended by:
a. Revising the table of contents;
List of Subjects in 12 CFR Part 652 § 652.65 Risk-based capital stress test. b. Revising the first and second
Agriculture, Banks, banking, Capital, * * * * * sentences of section 2.0;
Investments, Rural areas. (b) * * * c. Redesignating existing section 2.4
For the reasons stated in the (5) You will further adjust losses for as new section 2.5;
preamble, part 652 of chapter VI, title 12 loans that collateralize the general d. Adding a new section 2.4;
of the Code of Federal Regulations is obligation of Off-Balance Sheet e. Revising section 4.1 e.;
proposed to be amended to read as AgVantage volume, and for loans where f. Revising the last sentence of section
follows: the program loan counterparty retains a 4.2 b.(3) introductory text;
subordinated interest in accordance g. Redesignating existing section 4.2
PART 652—FEDERAL AGRICULTURAL with Appendix A to this subpart. b.(3)(C) and (D) as new paragraph (3)(F)
MORTGAGE CORPORATION FUNDING and (G);
* * * * *
ebenthall on PRODPC61 with PROPOSALS

AND FISCAL AFFAIRS h. Adding new section 4.2 b. (3)(C),


3. Amend § 652.85 by revising
1. The authority citation for part 652 paragraph (d) to read as follows: (D), and (E);
continues to read as follows: i. Revising section 4.4;
Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31, § 652.85 When to report the risk-based j. Revising section 4.5 a.;
8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of the capital level. k. Removing the word ‘‘unretained’’
Farm Credit Act (12 U.S.C. 2183, 2243, 2252, * * * * * and adding in its place, the word

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Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules 52307

‘‘retained’’ in the ninth sentence of 5.0 Capital Calculations. estimated age-adjusted dollar losses on the
section 4.6 b. 5.1 Method of Calculation. pool the amount equal to current unpaid
* * * * * principal times the subordinated interest
Appendix A—Subpart B of Part 652— percentage.
Risk-Based Capital Stress Test 2.0 Credit Risk. b. Some pools of loans underlying specific
Loan loss rates are determined by applying transactions could include loan collateral
1.0 Introduction.
the loss-frequency equation and the loss- volume pledged to Farmer Mac in excess of
2.0 Credit Risk.
severity factor to Farmer Mac loan-level data. Farmer Mac’s guarantee amount
2.1 Loss-Frequency and Loss-Severity Using this equation and severity factor, you
Models. (‘‘overcollateral’’). Overcollateral can be
must calculate loan losses under stressful either: (i) Contractually required according to
2.2 Loan-Seasoning Adjustment. economic conditions assuming Farmer Mac’s
2.3 Example Calculation of Dollar Loss on the terms of the transaction, or (ii) not
portfolio remains at a ‘‘steady state.’’ * * * contractually required, but pledged in
One Loan.
2.4 Treatment of Loans Backed by an * * * * * addition to the contractually required
Obligation of the Counterparty and 2.4 Treatment of Loans Backed by an amount at the discretion of the counterparty,
Loans for which Pledged Loan Collateral Obligation of the Counterparty, and Loans for often for purposes of administrative
Volume Exceeds Farmer Mac-Guaranteed which Pledged Loan Collateral Volume convenience regarding the collateral
Volume. Exceeds Farmer Mac-Guaranteed Volume. substitution process, or (iii) both (i) and (ii).
2.5 Calculation of Loss Rates for Use in the 1. If a pool of loans includes collateral
You must calculate the age-adjusted loss
Stress Test. pledged in excess of the guaranteed amount,
rates for these loans that includes
3.0 Interest Rate Risk. you must adjust the age-adjusted, loan-level
adjustments to scale losses according to the
3.1 Process for Calculating the Interest Rate proportion of total submitted collateral to the dollar losses by a factor equal to the ratio of
Movement. guaranteed amount as provided for in the the guarantee amount to total submitted
4.0 Elements Used in Generating Cashflows. ‘‘Dollar Losses’’ column of the transformed collateral. For example, consider a pool of
4.1 Data Inputs. worksheets in the Credit Loss Module based two loans serving as security for a Farmer
4.2 Assumptions and Relationships. on new data inputs required in the Mac guarantee on a note with a total issuance
4.3 Risk Measures. ‘‘Coefficients’’ worksheet of the Credit Loss face value of $2 million and on which the
4.4 Loan and Cashflow Accounts. Module. Then, you must adjust the counterparty has submitted 10-percent
4.5 Income Statements. calculated loss rates as follows. overcollateral. The two loans in the example
4.6 Balance Sheets. a. For loans in which the seller retains a have the following characteristics and
4.7 Capital. subordinated interest, subtract from the total adjustments.

Guarantee
Age-adjusted Estimated amount scal- Losses ad-
Origination
Loan loss rate age-adjusted ing adjustment justed for
balance (percent) losses (2/2.2) overcollateral
(percent)

1 ........................................................................................... $1,080,000 7.0 $75,600 90.91 $68,727


2 ........................................................................................... 1,120,000 5.0 56,000 90.91 50,909

2. If a pool of loans includes collateral or equal to zero, input a loss rate of zero for counterparty. To make this adjustment,
pledged in excess of the guaranteed amount this transaction pool in the Data Inputs multiply the estimated dollar losses
that is required under the terms of the worksheet of the RBCST. A new category remaining after adjustments in ‘‘1.’’ and ‘‘2.’’
transaction, you must further adjust the must be created for each such transaction in above by the appropriate general obligation
dollar losses as follows. Calculate the total the RBCST. If the loss rate after subtracting adjustment factor based on the counterparty’s
losses on the subject portfolio of loans after contractually required overcollateral is whole-letter issuer credit rating by a
age adjustments and any adjustments related greater than zero, proceed to additional
nationally recognized statistical rating
to total submitted overcollateral as described adjustment for the risk-reducing effects of the
in ‘‘1.’’ above. Calculate the total dollar counterparty’s general obligation described organization (NRSRO).
amount of contractually required in ‘‘3.’’ below. The following table sets forth the general
overcollateral in the subject pool. Subtract 3. Loans with a positive loss estimate obligation adjustment factors and their
the total dollars of contractually required remaining after adjustments in ‘‘1.’’ and ‘‘2.’’ components by whole-letter credit rating
overcollateral from the adjusted total losses above, are further adjusted for the security (Adjustment Factor = Default Rate x Severity
on the subject pool. If the result is less than provided by the general obligation of the Rate).15

General obli-
Default rate Severity rate gation adjust-
Whole-letter rating (percent) (percent) ment factor
(percent)

AAA .............................................................................................................................................. 0.89 55 0.49


AA ................................................................................................................................................ 2.31 55 1.26
A ................................................................................................................................................... 2.90 55 1.58
BBB .............................................................................................................................................. 7.29 55 3.98
Below BBB and Unrated .............................................................................................................. 27.39 55 15.16
ebenthall on PRODPC61 with PROPOSALS

The adjustment factors will be updated Default and Recovery Rates of Corporate January or February of each year. In the event
annually as Moody’s annual report on Bond Issuers becomes available, normally in that there is an interruption of Moody’s

15 Hamilton, D., Ou S., Kim R., Cantor R., February 2007—the most recent edition as of April (Severity Rate = 1 minus Senior Unsecured Average
‘‘Corporate Default and Recovery Rates, 1920– 2007; Default Rates, page 22, Recovery Rates Recovery Rate) page 18.
2006,’’ published by Moody’s Investors Service,

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52308 Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules

publication of this annual report, or FCA 4. Continuing the previous example, the over $1 million. Total overcollateral is
determines that the format of the report has pool contains two loans on which Farmer $200,000, of which $100,000 is contractually
changed enough to prevent or call into Mac is guaranteeing a total of $2 million and required. The counterparty has a single ‘‘A’’
question the identification of updated factors, with total submitted collateral of 110 percent credit rating, and after adjusting for
the prior year’s factors will remain in effect of the guaranteed amount. Of the 10-percent contractually required overcollateral,
total overcollateral, 5 percent is contractually estimated losses are greater than zero. The
until FCA revises the process through
required under the terms of the transaction. net loss rate is calculated as described in the
rulemaking.
The pool consists of two loans of slightly steps in the table below.

Loan A Loan B

1 Guaranteed Volume ........................................................................................................................................ $2,000,000


2 Origination Balance of 2-Loan Portfolio .......................................................................................................... $1,080,000 $1,120,000
3 Age-adjusted Loss Rate .................................................................................................................................. 7% 5%
4 Estimated Age-adjusted Losses ..................................................................................................................... $75,600 $56,000
5 Guarantee Volume Scaling Factor .................................................................................................................. 90.91% 90.91%
6 Losses Adjusted for Total Overcollateral ........................................................................................................ $68,727 $50,909
7 Contractually required Overcollateral on Pool (5%) ....................................................................................... $100,000
8 Net Losses on Pool Adjusted for Contractually Required Overcollateral ....................................................... $19,636
9 General Obligation Adjustment Factor for ‘‘A’’ Issuer ..................................................................................... 1.58%
10 Losses Adjusted for ‘‘A’’ General Obligation .................................................................................................. $310
11 Loss Rate Input in the RBCST for this Pool ................................................................................................... 0.02%

The net, fully adjusted losses are distributed e. Weighted Haircuts for Non-Program The first table provides the mappings of
over time on a straight-line basis. When a Investments. For non-program investments, NRSRO ratings to whole-letter ratings for
transaction reaches maturity within the 10- the stress test adjusts the weighted average purposes of applying haircuts. Any ‘‘+’’ or
year modeling horizon, the losses are yield data referenced in section 4.1 b. to ‘‘¥’’ signs appended to NRSRO ratings that
distributed on a straightline over a timepath reflect counterparty risk. Non-program are not shown in the table should be ignored
that ends in the year of the transaction’s investments are defined in § 652.5. The
maturity. for purposes of mapping NRSRO ratings to
Corporation must calculate the haircut to be
FCA whole-letter ratings. The second table
* * * * * applied to each investment based on the
lowest whole-letter credit rating the provides the haircut levels by whole-letter
4.1 Data Inputs. investment received from a NRSRO using the rating category.
* * * * * haircut levels in the following two tables.

FCA WHOLE-LETTER CREDIT RATINGS MAPPED TO RATING AGENCY CREDIT RATINGS


FCA Ratings Category .................................. AAA ......... AA ............ A .............. BBB ......... Below BBB and Unrated.
Standard & Poor’s Long-Term ...................... AAA ......... AA ............ A .............. BBB ......... Below BBB and Unrated.
Fitch Long-Term ............................................ AAA ......... AA ............ A .............. BBB ......... Below BBB and Unrated.
Moody’s Long-Term ...................................... Aaa .......... Aa ............ A .............. Baa .......... Below Baa and Unrated.
Standard & Poor’s Short-Term ..................... A–1+ ........ A–1 .......... A–2 .......... A–3 .......... SP–3, B, or Below and Unrated.
SP–1+ ...... SP–1 ........ SP–2 ........
Fitch Short-Term ........................................... F–1+ ........ F–1 .......... F–2 .......... F–3 .......... Below F–3 and Unrated.
Moody’s ......................................................... Prime–1 ... Prime–2 ... Prime–3 ... Not Prime, SG and Unrated.
MIG1 ........ MIG2 ........ MIG3 ........
VMIG1 ..... VMIG2 ..... VMIG3 .....
Fitch Bank Ratings ........................................ A .............. B .............. C .............. D .............. E
A/B ........... B/C ........... C/D .......... D/E.
Moody’s Bank Financial Strength Rating ..... A .............. B .............. C .............. D .............. E.

FARMER MAC RBCST MAXIMUM Issuer Rating or Financial Strength Rating of Individual investment haircuts must then
HAIRCUT BY RATINGS CLASSIFICATION that issuer as the credit rating applicable to be aggregated into weighted-average haircuts
the security. Unrated securities that are fully by investment category and submitted in the
guaranteed by Government-sponsored ‘‘Data Inputs’’ worksheet. The spreadsheet
Non-program
investment enterprises (GSE) such as the Federal uses these inputs to reduce the weighted-
counterparties National Mortgage Corporation (Fannie Mae) average yield on the investment category to
Ratings classification will receive the same treatment as AAA account for counterparty insolvency
(excluding
derivatives) securities. Unrated securities backed by the according to a 10-year linear phase-in of the
(percent) full faith and credit of the U.S. Government haircuts. Each asset account category
will not receive a haircut. identified in this data requirement is
Cash ..................................... 0.00 If FCA approves the purchase of an unrated discussed in section 4.2, ‘‘Assumptions and
AAA ....................................... 0.49 investment, and portions of that investment Relationships.’’
AA ......................................... 1.26 are later sold by Farmer Mac according to * * * * *
A ........................................... 1.58 their specific risk characteristics, the Director
BBB ....................................... 3.98 will take reasonable measures to adjust the 4.2 Assumptions and Relationships
ebenthall on PRODPC61 with PROPOSALS

Below BBB and Unrated ...... 15.16 haircut level applied to the investment to * * * * *
recognize the change in the risk b. * * *
Certain special cases will receive the characteristics of the retained portion. The (3) Elements related to income and
following treatment. For an investment Director will consider similar methods for expense assumptions. * * * These parameters
structured as a collateralized obligation dealing with capital requirements adopted by are the gain on agricultural mortgage-backed
backed by the issuer’s general obligation and, other Federal financial institution regulators securities (AMBS) sales, miscellaneous
in turn, a pool of collateral, reference the in similar situations. income, operating expenses, reserve

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Federal Register / Vol. 72, No. 177 / Thursday, September 13, 2007 / Proposed Rules 52309

requirement, guarantee fees and loan loss first period’s income statement. The same set • Fax: (202) 493–2251.
resolution timing. of accounts is maintained in this worksheet • Mail: U.S. Department of
* * * * * as ‘‘Loan and Cashflow Accounts’’ for Transportation, Docket Operations, M–
(C) The stress test assumes that short-term consistency in reporting each annual period 30, West Building Ground Floor, Room
cost of funds is incurred in relation to the of the 10-year stress period of the test with W12–140, 1200 New Jersey Avenue SE.,
amount of defaulting loans purchased from the exception of the line item labeled
‘‘Interest reversals to carry loan losses’’
Washington, DC 20590.
off-balance sheet pools. The remaining • Hand Delivery: Room W12–140 on
unpaid principal balance on this loan volume which incorporates the LLRT adjustment to
earnings from the ‘‘Risk Measures’’ the ground floor of the West Building,
is the origination amount reduced by the
proportion of the total portfolio that has worksheet. Loans that defaulted do not earn 1200 New Jersey Avenue SE.,
amortized as of the end of the most recent interest or guarantee any commitment fees Washington, DC, between 9 a.m. and 5
quarter. This volume is assumed to be funded during LLRT period. The income from each p.m., Monday through Friday, except
at the short-term cost of funds and this interest-bearing account is calculated, as are Federal holidays.
expense continues for a period equal to the costs of interest-bearing liabilities. In each • Federal eRulemaking Portal: http://
loan loss resolution timing period (LLRT) case, these entries are the associated interest www.regulations.gov. Follow the
period minus 1. We will calculate the LLRT rate for that period multiplied by the account instructions for submitting comments.
period from Farmer Mac data. In addition, balances.
during the LLRT period, all guarantee income Dated: September 7, 2007. Examining the AD Docket
associated with the loan volume ceases. Roland E. Smith, You may examine the AD docket on
(D) The stress test generates no interest the Internet at http://dms.dot.gov; or in
income on the estimated volume of defaulted Secretary, Farm Credit Administration Board.
person at the Docket Operations office
on-balance sheet loan volume required to be [FR Doc. E7–18014 Filed 9–12–07; 8:45 am]
carried during the LLRT period, but between 9 a.m. and 5 p.m., Monday
BILLING CODE 6705–01–P
continues to accrue funding costs during the through Friday, except Federal holidays.
remainder of the LLRT period. The AD docket contains this proposed
(E) You must update the LLRT period in AD, the regulatory evaluation, any
response to changes in the Corporation’s DEPARTMENT OF TRANSPORTATION comments received, and other
actual experience with each quarterly information. The street address for the
submission. Federal Aviation Administration
Docket Operations office (telephone
* * * * * (800) 647–5527) is in the ADDRESSES
14 CFR Part 39
4.4 Loan and Cashflow Accounts section. Comments will be available in
[Docket No. FAA–2007–29170; Directorate the AD docket shortly after receipt.
The worksheet labeled ‘‘Loan and Identifier 2007–NM–075–AD]
Cashflow Data’’ contains the categorized loan FOR FURTHER INFORMATION CONTACT: Tim
data and cashflow accounting relationships RIN 2120–AA64 Dulin, Aerospace Engineer,
that are used in the stress test to generate International Branch, ANM–116, FAA,
projections of Farmer Mac’s performance and Airworthiness Directives; Airbus Model Transport Airplane Directorate, 1601
condition. As can be seen in the worksheet, A319 and A320 Series Airplanes Lind Avenue SW., Renton, Washington
the steady-state formulation results in 98057–3356; telephone (425) 227–2141;
account balances that remain constant except AGENCY: Federal Aviation
fax (425) 227–1149.
for the effects of discontinued programs, Administration (FAA), DOT.
maturing Off-Balance Sheet AgVantage SUPPLEMENTARY INFORMATION:
ACTION: Notice of proposed rulemaking
positions, and the LLRT adjustment. For (NPRM). Comments Invited
assets with maturities under 1 year, the
results are reported for convenience as SUMMARY: We propose to adopt a new
We invite you to send any written
though they matured only one time per year
airworthiness directive (AD) for the relevant data, views, or arguments about
with the additional convention that the this proposed AD. Send your comments
earnings/cost rates are annualized. For the products listed above. This proposed
AD results from mandatory continuing to an address listed under the
pre-1996 Act assets, maturing balances are ADDRESSES section. Include ‘‘Docket No.
added back to post-1996 Act account airworthiness information (MCAI)
balances. The liability accounts are used to originated by an aviation authority of FAA–2007–29170; Directorate Identifier
satisfy the accounting identity, which another country to identify and correct 2007–NM–075–AD’’ at the beginning of
requires assets to equal liabilities plus owner an unsafe condition on an aviation your comments. We specifically invite
equity. In addition to the replacement of product. The MCAI describes the unsafe comments on the overall regulatory,
maturities under a steady state, liabilities are condition as: economic, environmental, and energy
increased to reflect net losses or decreased to aspects of this proposed AD. We will
reflect resulting net gains. Adjustments must Some taperlocks used in the wing-to- consider all comments received by the
be made to the long- and short-term debt fuselage junction at rib 1 were found to be
closing date and may amend this
accounts to maintain the same relative non-compliant with the applicable
proportions as existed at the beginning specification, resulting in a loss of pre- proposed AD based on those comments.
period from which the stress test is run with tension in the fasteners. In such conditions, We will post all comments we
the exception of changes associated with the the structural integrity of the aircraft could be receive, without change, to http://
funding of defaulted loans during the LLRT affected. dms.dot.gov, including any personal
period. The primary receivable and payable information you provide. We will also
The proposed AD would require actions
accounts are also maintained on this post a report summarizing each
worksheet, as is a summary balance of the that are intended to address the unsafe
substantive verbal contact we receive
volume of loans subject to credit losses. condition described in the MCAI.
about this proposed AD.
DATES: We must receive comments on
4.5 Income Statements Discussion
this proposed AD by October 15, 2007.
ebenthall on PRODPC61 with PROPOSALS

a. Information related to income The European Aviation Safety Agency


ADDRESSES: You may send comments by
performance through time is contained on
the worksheet named ‘‘Income Statements.’’ any of the following methods: (EASA), which is the Technical Agent
Information from the first period balance • DOT Docket Web Site: Go to for the Member States of the European
sheet is used in conjunction with the http://dms.dot.gov and follow the Community, has issued EASA
earnings and cost-spread relationships from instructions for sending your comments Airworthiness Directive 2007–0067R1,
Farmer Mac supplied data to generate the electronically. dated June 7, 2007 (referred to after this

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