§ 1980.200 - OMB control number.

The reporting requirements contained in this subpart have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0079. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 4 hours per response, with an average of 1.32 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0079), Washington, DC 20503.

Pt. 1980, Subpt. B, Exh. A Exhibits to Subpart B Exhibit A—Approved Lender Program—Farm Ownership, Soil and Water and Operating Loans

I. General: This Exhibit provides policies and procedures to establish an Approved Lender Program (ALP) for Guaranteed Operating Loans (OL) described in § 1980.175, Farm Ownership (FO) Loans described in § 1980.180 and Soil and Water (SW) loans described in § 1980.185 of this subpart. The objectives are to minimize time required by approved lenders in obtaining response to request for a guarantee, eliminate the requirement of having Form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement,” or Form FmHA or its successor agency under Public Law 103-354 1980-38, “Agreement for Participation in Farmer Programs Guaranteed Loan Programs of the United States Government,” executed for each loan or line of credit guaranteed by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), permit maximum use of forms normally used by the lender, require lender to provide FmHA or its successor agency under Public Law 103-354 a credit analysis and reduce the workload responsibilities of FmHA or its successor agency under Public Law 103-354. FmHA or its successor agency under Public Law 103-354 will make the final determination on eligibility, loan purposes and repayment terms. The ALP agreements, attachments 1 and 2, will serve as the “Lender's Agreement” for guarantees issued by FmHA or its successor agency under Public Law 103-354 under this exhibit. Attachment 1 is the Lender's Agreement to be executed in relation to regular term loans. Attachment 2 is the Lender's Agreement that is to be executed in relation to lines of credit. The lender, in its application, should indicate the type(s) of advances to be made.

A. Authority. The authorizations contained in this Exhibit provide: (1) Methods for initial approval period, subsequent approval period(s) and revocation of ALP status; (2) Methods an ALP lender will use to process, service and conclude guaranteed OL, SW, and FO loans; (3) Methods FmHA or its successor agency under Public Law 103-354 will use to consider an ALP lender's request for guarantee and monitor guaranteed OL, SW, and FO loan activities.

B. Policy. The purpose of an ALP is to expand the guaranteed OL, SW, and FO programs, supplement present insured loan authority, and make credit available to not larger than family farm owners and/or operators who are presently in a “credit availability gap.” The “credit availability gap” farmers are those who slightly exceed FmHA or its successor agency under Public Law 103-354's insured loan eligibility criteria but who face a degree of financial stress which renders them unable to fully qualify for adequate credit based upon standards required by the commercial agricultural lender.

C. List of Lenders. The County Supervisor will maintain a current list of approved lenders and other lenders who express a desire to participate in the guaranteed program. This list will be made available to farmers upon request.

II. Lender Approval, Subsequent Approval Period(s) and Revocation of ALP Status. Lenders who meet the required and other criteria may be granted ALP status for a period not to exceed 2 years by the State Director for the State in which the lender is authorized to do business. All initial and any subsequent approvals of ALP status will be in the form of an agreement signed by the State Director and the lending institution. The agreement will be attachment 1 and/or attachment 2 of the exhibit. The agreement will not apply to branches or subofficies of the lender unless specifically named in the Agreement. In cases involving the Farm Credit System (FCS), the State Director shall give ALP status, within the State Director's area of jurisdiction, to any FCS member institution provided such members do not have loan losses exceeding 6 percent per year for each of the three previous years or 18 percent of the institution's average loan portfolio computed for the three previous years. FCS member institutions having an acceptable loan loss percentage as specified above are exempt from complying with requirements of paragraph II A (1)(a) through (d) and (2). The Farm Credit Administration (FCA) will notify the FmHA or its successor agency under Public Law 103-354 Administrator in writing annually or sooner of any FCS member institution that has loan losses exceeding the acceptable percentage specified above.

To obtain ALP status, an FCS member institution with an acceptable loan loss percentage need only execute the agreement (Attachment 1 and/or Attachment 2 of this Exhibit) and satisfy the State Director that it is using acceptable forms as provided in paragraph II A (1)(e). Even if an FCS member institution is not identified by FCA as having an acceptable loan loss percentage, that institution may still request the State Director to consider it for ALP status under paragraphs II A (1) and (2). When FCS member institutions reorganize into one association, the reorganized association must be considered for ALP status as an initial applicant with unacceptable loan losses. Except for those FCS member institutions identified by FCA as having an acceptable loan loss percentage, ALP status will expire at the end of any approved 2-year period unless the lender applies for a new agreement which can be approved by the appropriate State Director. The ALP status of any lender may be revoked by the FmHA or its successor agency under Public Law 103-354 State Director as outlined in paragraph C. State Directors will keep their respective FmHA or its successor agency under Public Law 103-354 County and District Offices fully informed, by use of State supplements, of the names and addresses of all lending institutions, branches or suboffices that hold ALP status. The name of each ALP lender's designated person or agricultural loan officer who will process and service guaranteed loans for the ALP lender will be included.

A. Lender Approval. Any lender who desires to apply for ALP status must also be an “Eligible Lender” as defined in § 1980.13(b) of subpart A of this part. Except for FCS member institutions having an acceptable loan loss percentage as specified in the introductory text to paragraph II, lenders who meet this requirement and desire ALP status will prepare a written request to the State Director for the State in which they desire to have ALP status. The written request will address each item of “required criteria” and “optional criteria,” contained in paragraphs II A (1) and (2) and may be accompanied by any supporting evidence or other information the applicant lender believes will be helpful to the State Director in making a decision on the application for ALP status. Any FmHA or its successor agency under Public Law 103-354 County, District or State Office may provide a lender who desires to apply for ALP status, a complete copy of subparts A and B of this part, including a copy of this exhibit, and will assist in completion of the request. The State Director will make any necessary investigation or inquiry to determine accuracy of information and notify the applicant lender within 15 days of receipt of a request that the request is approved, denied, or requires additional information. The application material will be retained by the State Director for all approved lenders and periodic checks will be made by FmHA or its successor agency under Public Law 103-354 personnel to insure the lender's performance is as outlined in the application.

(1) Required Criteria. Other than as noted in paragraph II A above, before a State Director approves a lender, including an FCS member institution that is not identified by FCA as having an acceptable annual percentage of loan losses, for ALP status, the requirements listed in paragraphs II A (1) (a) through (f) must be met. However, upon the request of a lender asking for ALP status, the State Director may exempt that lender from complying with the requirement of paragraph II A (1)(b) provided the lender complies with all the other requirements listed in paragraph II A (1) if the State Director is satisfied that the lender—without regard to the requirement for which the exemption is being requested—is an acceptable agricultural lender with the ability to adequately make and service agricultural loans.

(a) Provide evidence of being an “Eligible Lender” as defined in Subpart A of this part.

(b) Provide information to show that agricultural loan losses—net of recovery—do not exceed the following:

(i) For FCS member institutions, either 6 percent per year of the institution's total loan portfolio for each of the three previous years or 18 percent of the institution's average loan portfolio computed for the three previous years; or

(ii) For all other lenders, either 11/2 percent per year of the lender's total agricultural loan portfolio computed for the three previous years or 41/2 percent of the lender's average agricultural loan portfolio computed for the three previous years.

(c) Have the capacity to process and service FmHA or its successor agency under Public Law 103-354 guaranteed FO and SW loans and OL loans/lines of credit.

(d) Designate a person(s) who will process and service FmHA or its successor agency under Public Law 103-354 guaranteed OL loans/lines of credit and SW and FO loans and agree for the person(s) to attend training sessions provided by FmHA or its successor agency under Public Law 103-354.

(e) Agree to use forms acceptable to FmHA or its successor agency under Public Law 103-354 for processing, analyzing, securing and servicing FmHA or its successor agency under Public Law 103-354 guaranteed loans/lines of credit. Copies of financial statements, cash flow plans, budgets, loan agreements, analysis sheets, recordkeeping methods, collateral control sheets, security and other forms to be used must be submitted for FmHA or its successor agency under Public Law 103-354 acceptability with request for ALP status. See § 1980.109 and § 1980.113 of this subpart for required forms.

(f) Agree to abide by all applicable conditions of § 1980.60 of Subpart A of this part for all loan guarantees.

(2) Optional Criteria. Exceptions to the following criteria may be made at the discretion of the State Director.

(a) Have experience and familiarity with FmHA or its successor agency under Public Law 103-354 insured and guaranteed loan programs. State length of time and types of loans/lines of credit.

(b) Establish that at least $2.5 million or 50 percent (whichever is less) of total loan portfolio is in agricultural loans.

(c) Provide a resume of designated person who will process and service guaranteed FmHA or its successor agency under Public Law 103-354 loans/lines of credit. Minimum of 30 college hours in agricultural science, training in Agriculture Economics and/or at least two (2) years experience in making and servicing agricultural type loans for production and for real estate purposes is required. If the designated person also performs appraisal duties a qualification statement will be included.

(d) Provide a copy of its most recent Report of Condition and Income (Call Report) and description of current level of agricultural and other leading activities.

(e) Demonstrate a potential capacity for guaranteed OL loan/line of credit and guaranteed FO and SW loan activity in trade area. Must have ability to process and service at least 10 guaranteed OL loans/lines of credit and/or SW and/or FO loans, subject to availability of funds, per fiscal year (October 1-September 30).

(f) Provide comments on experience or ability to comply with regulatory requirements, e.g., Environmental Assessments, Equal Opportunity, Flood and Mudslide, Clean Air, etc. (See §§1980.40 through 1980.46 of Subpart A of this part.)

(g) Agree to submit requests for guaranteed OL loans/lines of credit and/or SW and/or FO loans to county official(s) in service areas after application is complete to coincide with scheduled meetings of the local FmHA or its successor agency under Public Law 103-354 County Committee.

(h) Provide any other supplemental information the lender desires to submit.

B. Subsequent Approval Period(s). Except for those FCS member institutions that have acceptable loan losses as specified in the introductory text of paragraph II, a new 2-year period of ALP status is not automatic. Lenders who desire to continue in ALP status are required to submit a request for subsequent approved periods at least 60 days prior to the expiration of any existing approved period. At least 30 days prior to the expiration of any approved ALP period, the State Director will complete a review of the ALP criteria, the lender's past performance, consult appropriate FmHA or its successor agency under Public Law 103-354 county and district personnel, and, if requested by the lender, determine if a new 2-year period of ALP status can be approved. The lender's request will be in writing to the State Director and contain, as a minimum, the following:

(1) A brief summary of activity as an ALP lender including number and dollar amount of guaranteed OL loan/lines of credit, SW loans, and/or FO loans extant, number and dollar amount processed during tenure as ALP, number and dollar amount now under consideration, potential guaranteed OL, SW, and/or FO lending activity and recap of any loss settlements.

(2) A current update of data required in paragraphs IIA(1) (a) and (b) and IIA(2)(d) of this exhibit and any proposed changes in agricultrual loan officer(s), forms used, or operating methods used in guaranteed OL loan/line of credit, SW loan, and/or FO loan processing and servicing.

(3) Request for a new 2-year period of ALP status.

The State Director will promptly review the request, make any inquiry needed to arrive at a decision; and notify the ALP lender of approved ALP status for two years, or required conditions for approval, or denial with reasons. An ALP lender who has not participated in the guaranteed program during the previous 2 year approved period must submit a request as outlined in paragraph II A of this exhibit.

C. Revocation of ALP Status. Except for those FCS member institutions that have acceptable loan losses as specified in the introductory text of paragraph II, ALP status will lapse upon expiration of any 2-year period unless the lender obtains a new agreement under paragraph II B.

The State Director will revoke ALP status of any approved lender who fails to maintain “required criteria” as approved in the application for ALP status and may revoke status for failure to meet any “optional criteria” as agreed. Status shall also be revoked if the lender violates the terms of the ALP agreement, or fails to properly service any guaranteed loan or line of credit, or to protect adequately the interests of the lender and the Government. Furthermore, status, at the option of the State Director, may also be revoked if an FCS member institution that previously had acceptable loan losses as specified in the introductory text of paragraph II above is no longer identified by FCA as having acceptable losses.

State Directors will provide all County Office named in paragraph XVIII of the ALP agreement (Attachment 1 and/or Attachment 2 of this exhibit) with a copy of the agreement and complete application material approved in connection with ALP status. State Directors will monitor ALP lenders’ loan making and security servicing activities, with the assistance of the District Director and periodic reports from the County Supervisor, to determine compliance with the ALP Agreement and subparts A and B of this part pertaining to guaranteed OL, SW and FO loans. County Supervisors will use their copy of the ALP Agreement to duplicate and place in the County Office file for each loan guaranteed. In the event the State Director determines an ALP lender is not adequately fulfilling all obligations of the agreement, the lender will be contacted and notified of any discrepancies. A maximum of 30 days will be provided to correct any deficiencies. If corrections are not made within 30 days, the lender's ALP status may be revoked in writing by the State Director. The revocation will be in the form of a letter, sent by certified mail, and state reasons for the action. Any outstanding guaranteed loan(s) or line(s) of credit shall continue to be serviced by a lender whose ALP status has expired or been revoked. The lender cannot submit requests for any new guarantees pursuant to this exhibit, but may submit requests under the regular method outlined in this subpart for consideration.

III. ALP Lender Responsibilities to Process, Service and Liquidate Guaranteed OL, SW and FO Loans.

A. Processing. Before accepting an application for a guaranteed loan or line of credit, the ALP lender will review subparts A and B of this part. If the lender concludes that an application will be considered, a written statement of basis for the conclusion will be placed in the applicant's file maintained by the lender addressing each of the loan eligibility requirements in §§ 1980.175(b), 1980.180(b) or 1980.185(b) of this subpart. The lender must abide by limitations on loan purposes, loan limitations, interest rates, and terms set forth for OL loans/lines of credit and FO and SW loans in §§ 1980.175, 1980.180 and 1980.185 of this subpart. All requests for guaranteed loans or lines of credit will be processed under subparts A and B of this part except as modified by this exhibit. The ALP lender will, for each application for a guaranteed loan or line of credit, obtain a Form FmHA 1980-25, “Farmer Programs Application,” signed by the loan applicant. ALP lenders will process all guaranteed OL loans/lines of credit or SW or FO loans as a “complete application” by obtaining and completing all required items described in § 1980.113 of this subpart. ALP lenders are responsible for meeting the lender's requirements contained in exhibit M to subpart G of part 1940 of this chapter. An ALP lender will only be required to submit Form FmHA 1980-25 and information on crops, livestock and financial condition on forms previously approved for use under paragraph II A of this exhibit and, with any supportive information attached, to for making application for a guarantee. A guaranteed OL loan/line of credit or SW or FO loan will not be closed by an ALP lender prior to receipt of Form FmHA 1980-15, “Conditional Commitment (Farmer Programs),” and the determination that all conditions, including the certification required by § 1980.60 of subpart A of this part can be met. The ALP lender will be responsible for fully securing the OL loan or line of credit under § 1980.175(g), FO loan under § 1980.180(f) or SW loan under § 1980.185(f) of this subpart. ALP lenders may consult with the County Supervisor at any time during the processing and will make all material relating to any guarantee application available to the Agency for review upon request. The relationship between ALP and CLP is described in § 1980.190(f) of this subpart.

B. Servicing. ALP lenders will be fully responsible for servicing and protecting the collateral for all loans/lines of credit guaranteed.

C. Liquidation of Loans/Lines of Credit. Any liquidation of guaranteed OL loans/lines of credit, SW loans or FO loans will be completed by the lender. Loss claims will be submitted in accordance with the ALP agreement on Form FmHA 449-30, “Loan Note Guarantee Report of Loss.” The Report of Loss will be accompanied by supporting information to outline disposition of all security and proceeds pledged to secure the loan/line of credit.

IV. Agency Actions. The Agency will complete the evaluation described in § 1980.114 in any case where the approval official determines an independent analysis is needed before approval or denial of a request for guarantee. The Agency may request additional information, review the lender's “complete application” file or make an independent evaluation of the application, if needed, to determine whether the applicant is eligible, the loan or line of credit is for authorized purposes, there is reasonable assurance of repayment ability, and sufficient collateral and equity is available. The Agency will make the final determinations on the eligibility of applicants for a guaranteed OL loan or line of credit, an SW loan, or FO loan, and the purposes and terms of such loans or lines of credit.

A-B [Reserved]

Each approved lender who currently has an Approved Lender Agreement executed prior to January 6, 1988, will be required to execute a new Approved Lender Agreement. If liquidation of the account becomes imminent, the Lender will consider the borrower for Interest Assistance and request a determination of the borrower's eligibility by the Agency. The lender may not initiate foreclosure action on the loan until 60 days after a determination has been made on the borrower's eligibility to participate in the Interest Assistance Program.

Attachment 1—Farmers Home Administration or its successor agency under Public Law 103-354 Approved Lender Program (ALP)Lender's Agreement (Loan Note Guarantee Only) for Guaranteed Operating Loans (OL) and Guaranteed Farm Ownership Loans (FO) Guaranteed Soil and Water Loans (SW)(Lender) ofis designated as an Approved Lender for the purpose of processing and requesting Loan Note Guarantee(s) authorized by exhibit A to 7 CFR part 1980, subpart B. This does not apply to loan types other than those specifically named in this agreement. The agreement applies to the following offices of the Lender:

The United States of America, acting through the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), agrees to enter into Loan Note Guarantees with the Lender as may be issued pursuant to the regulations for operating, soil and water, and/or farm ownership loans and to participate in a percentage of any loss on any such operating, soil and water and/or farm ownership loan not to exceed the amount established in the particular loan note guarantee as the percentage of the amount of the principal and any accrued interest. The terms of any Loan Note Guarantee are controlling. As a condition for obtaining a guarantee of the loan(s), the Lender enters into this Agreement.

THE PARTIES AGREE:

I. The maximum loss covered under the Loan Note Guarantee will not exceed the amount established in the particular loan guarantee as to percentage of the principal and accrued interest on any operating, soil and water and/or farm ownership loan guaranteed.

II. Lender's Sale or Assignment of Guaranteed Loan.

A. The Lender may retain all of any guaranteed loan. The Lender is not permitted to sell or participate any amount of the guaranteed or unguaranteed portion(s) of loan(s) to the applicant or Borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to market all or part of the guaranteed portion of loan at or subsequent to loan closing, such loan must not be in default as set forth in the terms of the notes. The Lender may proceed under the following options:

1. Assignment. Assign all or part of the guaranteed portion of any loan to one or more Holders by using Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement.” Holder(s), upon written notice to Lender and FmHA or its successor agency under Public Law 103-354, may reassign the unpaid guaranteed portion of the loan sold under Form FmHA or its successor agency under Public Law 103-354 449-36. Upon such notification the assignee shall succeed to all rights and obligations of the Holder(s) under Form FmHA or its successor agency under Public Law 103-354 449-36.

2. Multinote System. When this option is selected by the Lender, upon disposition the Holder will receive one of the Borrower's executed notes and Form FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee,” attached to the Borrower's note. However, all rights under the security instruments (including personal and/or corporate guarantees) will remain with the Lender and in all cases insure to its and the Government's benefit not withstanding any contrary provisions of State law.

a. At Loan Closing: Provide for no more than 10 notes, unless the borrower and FmHA or its successor agency under Public Law 103-354 agree otherwise, for the guaranteed portion and one note for the unguaranteed portion. When this option is selected, FmHA or its successor agency under Public Law 103-354 will provide the lender with a Form FmHA or its successor agency under Public Law 103-354 449-34, for each of the notes.

b. After Loan Closing: (1) Upon written approval by FmHA or its successor agency under Public Law 103-354, the Lender may cause to be issued a series of new notes, not to exceed the total provided in 2.a. above, as replacement for previously issued guaranteed note(s) provided:

(a) The Borrower agrees and executes the new notes.

(b) The interest rate does not succeed the interest rate in effect when the loan was closed.

(c) The maturity of the loan is not changed.

(d) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such re-issue of notes.

(e) There is adequate collateral securing the note(s).

(f) No intervening liens have arisen or have been perfected and the secured lien priority remains the same.

(2) FmHA or its successor agency under Public Law 103-354 will issue the appropriate Loan Note Guarantees to be attached to each of the notes then exchanged for the original Loan Note Guarantee which will be cancelled by FmHA or its successor agency under Public Law 103-354.

3. Participations. a. The lender is required to hold in its own portfolio or retain a minimum of 10 percent of the total guaranteed loan(s) amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another lender.

b. The lender may obtain participation of only the unguaranteed portion of its loan in excess of the 10 percent minimum under its normal operating procedures. Participation means a sale of an interest in the loan in which the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation. Participation with a lender by any entity does not make that entity a holder or a lender.

B. When a guaranteed portion of a loan is sold by the Lender to a Holder(s), the Holder(s) shall upon the sale succeed to all rights of Lender under the Loan Note Guarantee to the extent of the portion of the loan purchased. Lenders will remain bound to all the obligations under the Loan Note Guarantee, and this agreement, and the FmHA or its successor agency under Public Law 103-354 program regulations found in title 7 CFR, part 1980, subparts A and B, and to future FmHA or its successor agency under Public Law 103-354 program regulations not inconsistent with the express provisions of this Agreement.

III. The Lender agrees loan funds will be used for the purposes authorized in 7 CFR part 1980, subparts A and B as set forth in Form FmHA or its successor agency under Public Law 103-354 449-14, “Conditional Commitment for Guarantee,” for the particular loan.

IV. The Lender certifies that none of its officers or directors, stockholders (except stockholders in a Farm Credit Bank or other Farm Credit System institutions with direct lending authority that have normal stockshare requirements for participating) or other owners has, or will have, a substantial financial interest in any guaranteed loan Borrower. The lender certifies that neither any guaranteed loan Borrower nor its officers or directors, stockholders or other owners have a substantial financial interest in the Lender. If the borrower is a member of the board of directors of a Farm Credit Bank or other Farm Credit System institution with direct lending authority the lender certifies that an FCS institution on the next highest level will independently process the loan request and will act as the Lender's agent in servicing the account.

V. The Lender will certify to FmHA or its successor agency under Public Law 103-354, prior to the issuance of a Loan Note Guarantee for each loan, that there has been no adverse change(s) in the Borrower's condition during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee. The Lender's certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors not more than 90 days old at the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.

VI. Lender will submit the required guarantee fee with a Guaranteed Loan Closing Report at the time a Loan Note Guarantee is issued.

VII. Servicing. A. The Lender will service the entire loan and will remain mortgagee and/or secured party of record, notwithstanding the fact that another may hold a portion of the loan. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portion of the loan. Lender may charge Holder a servicing fee. The unguaranteed portion of a loan will not be paid first nor given any preference or priority over the guaranteed portion of the loan. The Lender shall perform those services which a reasonable prudent lender would perform in servicing its own portfolio of loans that are guaranteed.

B. Disposition of the guaranteed portion of a loan may be made prior to full disbursement, completion of construction and acquisitions only with the prior written approval of FmHA or its successor agency under Public Law 103-354. Subsequent to full disbursement, completion of construction, and acquisition, the guaranteed portion of the loan may be disposed of as provided in this Agreement.

It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the Borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and the FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.

C. Lender's servicing responsibilities include, but are not limited to: 1. Obtaining compliance with the covenants and provisions in the note, loan agreement, security instruments, and any supplemental agreements and notifying in writing FmHA or its successor agency under Public Law 103-354 and the Borrower on any violations.

2. Receiving all payments on principal and interest on the loan as they fall due and promptly remitting and accounting to any Holder(s) of their pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee. The loan may be reamortized, rescheduled or written down only with agreement of the Lender and Holder(s) of the guaranteed portion of the loan and only with FmHA or its successor agency under Public Law 103-354's written concurrence.

3. Inspecting the collateral as often as necessary to properly service the loan.

4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagor or secured party.

5. Assuring that:

a. taxes, assessment or ground rents against or affecting collateral are paid;

b. the loan and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation;

c. Insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354;

d. Proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature without written concurrence of FmHA or its successor agency under Public Law 103-354;

e. The Borrower complies with all laws and ordinances applicable to the loan, the collateral and/or operation of the farm.

6. Assuring that if personal or corporate guarantees are part of the collateral, financial statements from such loan guarantors will be obtained which are not over 90 days old. In the case of guarantees secured by collateral, assuring the security is properly maintained.

7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.

8. Assuring that the Borrower obtains marketable title to the collateral.

9. Assuring that the Borrower (as defined in 7 CFR part 1980, subpart B, § 1980.106(b)) is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.

10. Providing the FmHA or its successor agency under Public Law 103-354 Office with loan status reports annually as of December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”

11. Obtaining financial statements from each chattel loan secured borrower at least annually. Lender is responsible for analyzing the financial statements, taking any servicing actions and providing copies of statements and record of action to the FmHA or its successor agency under Public Law 103-354 office upon request.

12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR part 1980, subpart G, exhibit M.

D. The lender shall participate in any farm credit mediation program of a state in accordance with the rules of that system and 7 CFR part 1980, subpart B, § 1980.126.

VIII. Default by Borrower.

A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days past due on a payment or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with written concurrence of FmHA or its successor agency under Public Law 103-354 may include but are not limited to the following or any combination of the following:

1. Deferment of principal payments (subject to rights of any Holder(s)).

2. An additional temporary loan by the lender to bring the account current.

3. Reamortization or rescheduling of the payments on the loan (subject to rights of any Holder(s)).

4. Transfer and assumption of the loan.

5. Reorganization.

6. Liquidation.

7. Changes in fixed interest rates with FmHA or its successor agency under Public Law 103-354's, Lender's, and the Holder’(s) written approval; provided, such interest rate is adjusted proportionally between the guaranteed and unguaranteed portion of the loan.

8. Principal and interest writedown in accordance with 7 CFR part 1980, subpart B, § 1980.125.

B. The Lender will negotiate in good faith in an attempt to resolve any problem to permit the Borrower to cure a default, where reasonable. The Lender agrees that if liquidation of the account becomes imminent, the Lender will consider the Borrower for an Interest Rate Buydown under exhibit D of subpart B of 7 CFR, part 1980, and request a determination of the Borrower's eligibility by FmHA or its successor agency under Public Law 103-354. The Lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.

C. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the Borrower is in default not less than 60 days in payment of principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower within 30 days of its receipt of the payment. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of the principal and accrued interest less the Lender's servicing fee. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the demand letter to the Lender requesting the repurchase. The Lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and FmHA or its successor agency under Public Law 103-354 of its decision.

D. If Lender does not repurchase as provided by Paragraph C, FmHA or its successor agency under Public Law 103-354 will purchase from Holder(s) the unpaid principal balance of the guaranteed portion together with accrued interest to date of repurchase, within 30 days after written demand to FmHA or its successor agency under Public Law 103-354 from the Holder(s). The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of original demand letter of the Holder(s) to the Lender requesting the repurchase. Such demand will include a copy of the written demand made upon the Lender.

The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest to date of demand and interest subsequently accruing from date of demand to proposed payment date. FmHA or its successor agency under Public Law 103-354 will verify the amount of unpaid principal and interest with the Lender. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will not ordinarily be later than 30 days from the date of the demand to FmHA or its successor agency under Public Law 103-354.

FmHA or its successor agency under Public Law 103-354 will promptly notify the Lender of the Holder(s)'s demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its successor agency under Public Law 103-354 will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, FmHA or its successor agency under Public Law 103-354 will review the demand and submit it to the State Director for verification. After reviewing the demand, the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the State Director and remit the check(s) to the Holder(s).

E. Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by the Borrower on the loan and the amount due the Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee, nor does such purchase waive any of FmHA or its successor agency under Public Law 103-354's rights against Lender, and FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights inuring to FmHA or its successor agency under Public Law 103-354 from the Holder against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee.

F. Servicing fees assessed by the Lender to a Holder are collectible only from payment installments received by the Lender from the Borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a Holder, FmHA or its successor agency under Public Law 103-354 will pay the Holder only the amounts due the Holder. FmHA or its successor agency under Public Law 103-354 will not reimburse the Lender for servicing fees assessed to a Holder and not collected from payments received from the Borrowers. No service fee shall be charged FmHA or its successor agency under Public Law 103-354 and no such fee is collectible from FmHA or its successor agency under Public Law 103-354.

G. Lender may also repurchase the guaranteed portion of the loan consistent with Paragraph 10 of the Loan Note Guarantee.

IX. Liquidation. If the Lender concludes the liquidation of a guaranteed Loan account is necessary because of one or more defaults or third party actions that the Borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the Lender with FmHA or its successor agency under Public Law 103-354. When FmHA or its successor agency under Public Law 103-354 concurs with the Lender's conclusion or at any time concludes independently the liquidation is necessary, it will notify the Lender and the matter will be handled as follows:

The Lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.

When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The Holder(s) will be paid according to the provisions in the Loan Note Guarantee or the Assignment Guarantee Agreement.

If the Lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the Holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid first its pro rata share of the proceeds from liquidation of the collateral.

A. Lender's proposed method of liquidation. Within 30 days after the decision to liquidate, the Lender will advise FmHA or its successor agency under Public Law 103-354 in writing of its proposed detailed method of liquidation called a liquidation plan and will provide FmHA or its successor agency under Public Law 103-354 with:

1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed loan promissory note(s) and related security instruments.

2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to whether or not each item is serving as collateral for the guaranteed loan.

3. A proposed method of making the maximum collection possible on the indebtedness.

4. The Lender will obtain an independent appraisal report on all collateral securing the loan, which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.

B. FmHA or its successor agency under Public Law 103-354's response to Lender's liquidation plan. FmHA or its successor agency under Public Law 103-354 will inform the Lender in writing whether it concurs in the Lender's liquidation plan within 30 days after receipt of such plan from the Lender. If FmHA or its successor agency under Public Law 103-354 needs additional time to respond to the liquidation plan, it will advise the Lender of a definite time for such response. Should FmHA or its successor agency under Public Law 103-354 and the Lender not agree on the Lender's liquidation plan, negotiation will take place between FmHA or its successor agency under Public Law 103-354 and the Lender to resolve the disagreement. The Lender will ordinarily conduct the liquidation; however, should FmHA or its successor agency under Public Law 103-354 opt to conduct the liquidation, FmHA or its successor agency under Public Law 103-354 will proceed as follows:

1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.

2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.

3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.

C. Acceleration. The Lender or FmHA or its successor agency under Public Law 103-354, if it liquidates, will proceed as expeditiously as possible when acceleration of the indebtedness is necessary including giving any notices and taking any other required legal action. A copy of the acceleration notice or other acceleration document will be sent to FmHA or its successor agency under Public Law 103-354 or the Lender, as the case may be.

D. Liquidation: Accounting and Reports. When the Lender conducts the liquidation, it will account for funds during the period of liquidation and will provide FmHA or its successor agency under Public Law 103-354 with periodic reports on the progress of liquidation, disposition of collateral, resulting costs and additional procedures necessary for successful completion of liquidation. The Lender will transmit to FmHA or its successor agency under Public Law 103-354 any payment received from the Borrower and/or pro rata share of liquidation or other proceeds, when FmHA or its successor agency under Public Law 103-354 is the holder of a portion of the guaranteed loan using Form FmHA or its successor agency under Public Law 103-354 1980-43, “Lender's Guaranteed Loan Payment.” When FmHA or its successor agency under Public Law 103-354 liquidates, the Lender will be provided with similar reports on request.

E. Determination of Loss and Payment. In all liquidation cases, final settlement will be made with the Lender after the collateral is liquidated. FmHA or its successor agency under Public Law 103-354 will have the right to recover losses if paid under the guarantee from any party liable.

1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculation of all estimated and final loss determinations. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 after the Lender has submitted a liquidation plan approved by FmHA or its successor agency under Public Law 103-354. Payment will be made in accordance with 7 CFR 1980, subpart B.

2. When the Lender is conducting the liquidation and owns any of the guaranteed portion of the loan, and it is anticipated liquidation will take longer than 90 days it will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss that will occur in connection with liquidation of the loan. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss on the outstanding principal balance owed on the guaranteed debt (See G. below). The Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral.

After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.

After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.

3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and Report of Loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.

4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:

a. If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original of the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.

b. If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of overpayment.

5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Loan Note Guarantee.

6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss of monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.

F. Maximum amount of interest loss payment. Notwithstanding any other provisions of this agreement, the amount payable by FmHA or its successor agency under Public Law 103-354 to the Lender cannot exceed the limits set forth in the Loan Note Guarantee. If FmHA or its successor agency under Public Law 103-354 conducts the liquidation, loss occasioned by accruing interest will be covered by the guarantee only to the date FmHA or its successor agency under Public Law 103-354 accepts the responsibility for liquidation. Loss occasioned by accruing interest will be covered to the extent of the guarantee to the date of final settlement when the liquidation is conducted by the Lender provided it proceeds expeditiously with the liquidation plan approved by FmHA or its successor agency under Public Law 103-354 except when an estimated loss claim is filed. When a Lender files an estimated loss claim, the Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. The balance of accrued interest payable to the Lender, if any, will be calculated on the final Report of Loss form.

G. Application of FmHA or its successor agency under Public Law 103-354 loss payment. The estimated loss payment shall be applied as of the date of such payment. The total amount of the loss payment remitted by FmHA or its successor agency under Public Law 103-354 will be applied by the Lender on the guaranteed portion of the loan debt. However, such application does not release the Borrower from liability. Such amounts are only to compensate the Lender for the loss. (See XII below.) In all cases a final Form FmHA or its successor agency under Public Law 103-354 449-30 prepared and submitted by the Lender must be processed by FmHA or its successor agency under Public Law 103-354 in order to close out the files.

H. Income from collateral. Any net rental or other income that has been received by the Lender from the collateral will be applied on the guaranteed loan debt.

I. Liquidation costs. Certain reasonable liquidation costs will be allowed during the liquidation process. These liquidation costs will be submitted as part of the liquidation plan. Such costs will be deducted from gross proceeds from the disposition of collateral unless the costs have been previously determined by the Lender (with FmHA or its successor agency under Public Law 103-354 written concurrence) to be protective advances. If circumstances have changed after submission of the liquidation plan which require a revision of liquidation costs, the Lender will procure FmHA or its successor agency under Public Law 103-354's written concurrence prior to proceeding with the proposed changes. No in-house expenses of the Lender will be allowed. In-house expenses include, but are not limited to, employee's salaries, staff lawyers, travel and overhead.

J. Payment. Final loss payments will be made within 30 days after the review of the accounting of the collateral.

X. Protective Advances. Protective advances must constitute an indebtedness of the Borrower to the Lender and be secured by the security instrument(s). FmHA or its successor agency under Public Law 103-354 written authorization is required on all protective advances in excess of $3,000. Protective advances include advances made for property taxes, annual assessments, ground rent, hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance.

XI. Additional Loans or Advances. Except as provided for in each borrower's loan agreement which was specifically approved by FmHA or its successor agency under Public Law 103-354 for that specific borrower, the Lender will not make additional expenditures or new loans without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 even though such expenditures or loans will not be guaranteed.

XII. Future Recovery. After a loan has been liquidated and a final loss has been paid by FmHA or its successor agency under Public Law 103-354, any future funds which may be recovered by the Lender, will be pro-rated between FmHA or its successor agency under Public Law 103-354 and the Lender. FmHA or its successor agency under Public Law 103-354 will be paid such amount recovered in proportion to the percentage it guaranteed for the loan and the Lender will retain such amount in proportion to the percentage of the unguaranteed portion of the loan.

XIII. Transfer and Assumption Cases. Refer to 7 CFR part 1980, subpart B.

If a loss will occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guaranteed portion, may file an estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the Transferee, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, lines 13 and 14.

XIV. Bankruptcy.

A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in paragraph XIV. For a Chapter 7 bankruptcy or a liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B 3 and B 6 are applicable.

B. Loss Payments.

1. Estimated Loss Payments.

a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354 at its option in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust the estimated loss claim to (a) reflect the actual principal and interest reduction on any part of the guaranteed debt determined to be unsecured and (b) to reimburse the Lender for any court ordered interest rate reduction during the term of the reorganization plan.

b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to revise estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.

c. Upon completion of the reorganization plan, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance office.

2. Interest Loss Payments.

a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XIV B 1.

b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.

c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the lender for the difference in interest rates specified on the Loan Note Guarantee or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.

3. Final Loss Payments.

a. Final loss payments will be processed when the loan is liquidated.

b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.

4. Payment Application. The Lender must apply estimated loss payments first to the unsecured principal of the guaranteed portion of the debt and then to the unsecured interest of the guaranteed portion of the debt. In the event the bankruptcy court attempts to direct the payment to be applied in a different manner, the Lender will immediately notify the FmHA or its successor agency under Public Law 103-354 servicing office.

5. Overpayments. Upon completion of the reorganization plan, the Lender will provide FmHA or its successor agency under Public Law 103-354 with the documentation necessary to determine whether the estimated loss paid equals the actual loss sustained. If the actual loss sustained, as a result of the reorganization, is greater than the estimated loss payment, the Lender will submit a revised estimated loss in order to obtain payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender. If the actual loss payment is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from the date of the payment of the estimated loss.

6. Protective Advances. If approved protective advances were made prior to the borrower having filed bankruptcy, as a result of prior liquidationn action, these protective advances and accrued interest will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30.

XV. Debt write down. Refer to title 7 of CFR part 1980, subpart B, § 198.125. The maximum amount of loss payment associated with a loan/line of credit agreement which has been written down will not exceed the percent of the guarantee multiplied by the difference between the outstanding principal and interest balance of the loan/line of credit before the write-down and the outstanding balance of the loan/line of credit after the write-down. The lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment to receive its pro-rata share of any loss sustained.

XVI. Other Requirements. This agreement is subject to all the provisions of 7 CFR part 1980, subparts A and B, and any future amendments of these regulations not inconsistent with this agreement.

XVII. Execution of Agreements. This agreement is executed prior to the execution of any Loan Note Guarantee under 7 CFR part 1980, subpart A and B and does not impose any obligation upon FmHA or its successor agency under Public Law 103-354 with respect to execution of any such contract. FmHA or its successor agency under Public Law 103-354 in no way warrants that such a contract has been or will be executed. Each request for a Loan Note Guarantee under exhibit A of 7 CFR part 1980. Subpart B will be considered by FmHA or its successor agency under Public Law 103-354 on a case-by-case basis.

XVIII. Notices. All requests for Loan Note Guarantee and any notices or action will be initiated through the following FmHA or its successor agency under Public Law 103-354 County Offices

XIX. Termination of Agreement. Except for FCS Member institutions that have acceptable loan losses as specified in the introductory text of paragraph II of exhibit A, 7 CFR part 1980, subpart B, this agreement will terminate as to the Lender's submission of request for Loan Note Guarantee(s) under exhibit A, 7 CFR part 1980, subpart B two (2) years from the date set forth in paragraph XX unless otherwise earlier revoked by FmHA or its successor agency under Public Law 103-354. This agreement will remain in force as to any Loan Note Guarantee(s) issued pursuant to exhibit A, 7 CFR part 1980, subpart B and remaining extant at time of expiration or revocation until those loan note guarantees still extant are concluded.

XX. This Agreement is dated ____.

Lender(Name)(IRS) I.D. Tax No.)BYTitleAttest:(SEAL)United States of America, Farmers Home Administration or its successor agency under Public Law 103-354.ByTitleAttachment 2—Farmers Home Administration or its successor agency under Public Law 103-354Approved Lender Program (ALP)Lender's Agreement for Operating Line of Credit Guarantee (Contract of Guarantee Cases)—(Lender) of __ is designated as an Approved Lender for the purpose of processing and requesting Contract(s) of Guarantee authorized by exhibit A to 7 CFR part 1980, subpart B. This agreement does not apply to lines of credit types other than those specifically named in this agreement. The agreement applies to the following officers of the Lender:

The United States of America, acting through Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), agrees to enter into Contract of Guarantees with the Lender for Operating loan lines of credit and to participate in a percentage of any loss on any such operating loan line of credit advance(s) not to exceed the amount established in the particular contract of guarantee as to percentage of the amount of the principal and any accrued interest. The terms of any Contract of Guarantee are controlling. As a condition for obtaining a guarantee of the line of credit advance(s) the Lender enters into this agreement.

THE PARTIES AGREE:

I. The maximum loss covered under the Contract of Guarantee will not exceed the amount established in the particular line of credit guarantee as to percentage of the principal and accrued interest on any Operating Loan line of credit advances made within the line of credit ceiling and the terms and conditions of the Contract of Guarantee.

II. Lender's Sale of Guarantee Line of Credit by Participation.

A. The Lender may obtain participation in its line of credit under its normal operating procedures. The lender is required to hold in its own portfolio or retain a minimum of 10 percent of the total guaranteed line(s) credit amount. The amount required to be retained must be of the unguaranteed portion of the line of credit and cannot be participated to another Lender. The Lender may obtain participation of only the unguaranteed portion of its line of credit in excess of the 10 percent minimum under its normal operations procedure. Participation means a sale of an interest in the line of credit in which the Lender retains the line of credit agreement (and note, if one exists), collateral securing the line of credit, and all responsibility for servicing and liquidation of the line of credit. Participation with a lender by any entity does not make that entity a lender.

B. The Lender may retain or sell any amount of the unguaranteed portion(s) of the line(s) of credit as provided in this section only through participation. However, the Lender cannot participate any amount of the line(s) of credit to the applicant or borrower or members or their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to sell all or part of the guaranteed portion of the line(s) of credit through participation at or subsequent to execution of the line of credit agreement(s), such line(s) of credit must not be in default as set forth in the terms of the Line of Credit agreement(s) (and note(s), if any exist). The Lender will retain the responsibility for servicing and liquidation of the line(s) of credit. Participation with a lender by an entity does not make the entity a holder.

III. The Lender agrees funds advanced under the line(s) of credit will be used for the purposes authorized in subpart B of title 7 CFR part 1980 as set forth in Form FmHA or its successor agency under Public Law 103-354 1980-15, “Conditional Commitment for Contract Guarantee (Line of Credit),” for the particular line of credit.

IV. The Lender certifies that none of its officers or directors, stockholders (except stockholders in a Farm Credit Bank or other Farm Credit System institutions with direct lending authority that have normal stockshare requirements for participating) or the other owners have or will have a substantial financial interest in any guaranteed line of credit Borrower. The Lender certifies that neither any guaranteed line of credit Borrower nor its officers or directors, stockholders or other owners have a substantial financial interest in the Lender. If the borrower is a member of the board of directors of a Farm Credit Bank or other Farm Credit System institution with direct lending authority, the Lender certifies that a FCS institution on the next highest level will independently process the loan request and will act as the Lender's agent in servicing the account.

V. The Lender will certify to FmHA or its successor agency under Public Law 103-354, prior to the issuance of a contract of guarantee for each line of credit agreement, that there has been no adverse change(s) in the Borrower's financial condition, nor any other adverse change in the Borrower's condition during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Contract of Guarantee to issuance of the Contract of Guarantee. The Lender's certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors not more than 90 days old at the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.

VI. The Lender will submit the required guarantee fee with a Guaranteed Loan Closing Report at the time a Contract of Guarantee is issued.

VII. Servicing.

A. The lender will service the entire line of credit and will remain mortgagee and/or secured party of record. The entire line of credit will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of a line of credit. The unguaranteed portion of a line of credit will not be paid first nor given any preference or priority over the guaranteed portion of the line of credit. The Lender shall perform those services which a reasonable prudent lender would perform in servicing its own portfolio of lines of credit or loans that are not guaranteed.

B. It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and that FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.

C. Lender's servicing responsibilities include, but are not limited to:

1. Obtaining compliance with the covenants and provisions in the line of credit agreement (and note, if one exists), security instruments, and any supplemental agreements and notifying both FmHA or its successor agency under Public Law 103-354 and the Borrower in writing of any violations.

2. Receiving all payments on principal and interest on the line of credit advances as they fall due. The line of credit may be reamortized, rescheduled, or written down only with FmHA or its successor agency under Public Law 103-354's written concurrence.

3. Inspecting the collateral as often as necessary to properly service the line of credit.

4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagee or secured party.

5. Assuring that:

(a) Taxes, assessments or ground rents against or affecting collateral are paid;

(b) The line of credit and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation;

(c) Insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354;

(d) Proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature which will serve as collateral without written concurrence of FmHA or its successor agency under Public Law 103-354;

(e) The Borrower complies with all laws and ordinances applicable to the line of credit, the collateral and/or operation of the farm.

6. Assuring that if personal or corporate guarantees are part of the collateral, financial statements from such guarantors will be obtained which are not over 90 days old. In the case of guarantees secured by collateral, assuring the security is properly maintained.

7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.

8. Assuring that the Borrower obtains marketable title to the collateral.

9. Assuring that the Borrower (as defined in 7 CFR part 1980, subpart A, section 1980.106(b)(4)) is not released from liability for all or any part of the line of credit except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.

10. Providing the FmHA or its successor agency under Public Law 103-354 Finance Office with loan status reports annually as of December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”

11. Obtaining financial statements from each chattel loan secured Borrower at least annually. Lender is responsible for analyzing the financial statements, taking any servicing actions needed, and providing copies of statements and record of actions to the County Supervisor.

12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR part 1940, subpart G, exhibit M.

D. The lender shall participate in any farm credit mediation program of a State in accordance with the rules of that system and 7 CFR part 1980, subpart B, § 1980.126.

VIII. Default by Borrower.

A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days past due on a payment and is unlikely to bring its account current within sixty (60) days, or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with concurrence of FmHA or its successor agency under Public Law 103-354 may include but are not limited to any curative actions contained in subpart B of part 1980 or liquidation.

B. The Lender will negotiate in good faith in an attempt to resolve any problem and to permit the Borrower to cure a default, where reasonable.

The Lender agrees that, if liquidation of the account becomes imminent, the Lender will consider the Borrower for an Interest Rate Buydown under exhibit D of subpart B of 7 CFR, part 1980, and request a determination of the Borrower's eligibility by FmHA or its successor agency under Public Law 103-354. The Lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.

IX. Liquidation.

If the Lender concludes that liquidation of a guaranteed line of credit account is necessary because of one or more defaults or third party actions that the Borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the Lender with FmHA or its successor agency under Public Law 103-354. When FmHA or its successor agency under Public Law 103-354 concurs with the Lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the Lender and the matter will be handled as follows:

The Lender will liquidate the line of credit unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.

A. Lender's proposed plan of liquidation. Within 30 days after the decision to liquidate is made, the Lender will advise FmHA or its successor agency under Public Law 103-354 of its proposed plan of liquidation and will provide FmHA or its successor agency under Public Law 103-354 with:

1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed line of credit agreements and related security instruments.

2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to whether or not each item is serving as collateral for the guaranteed line of credit.

3. A proposed method of making the maximum collection possible on the indebtedness.

4. The Lender will obtain an independent appraisal report on all collateral securing the line of credit which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation action. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.

B. FmHA or its successor agency under Public Law 103-354's response to Lender's liquidation plan. FmHA or its successor agency under Public Law 103-354 will inform the Lender in writing whether it concurs in the Lender's liquidation plan within 30 days after receipt of such plan from the Lender. If FmHA or its successor agency under Public Law 103-354 needs additional time to respond to the liquidation plan, it will advise the Lender of a definite time for such response. Should FmHA or its successor agency under Public Law 103-354 and the Lender not agree on the Lender's liquidation plan, negotiation will take place between FmHA or its successor agency under Public Law 103-354 and the Lender to resolve the liquidation; however, should FmHA or its successor agency under Public Law 103-354 opt to conduct the liquidation, FmHA or its successor agency under Public Law 103-354 will proceed as follows:

1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all its rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the line of credit. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.

2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.

3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.

C. Acceleration. The Lender or FmHA or its successor agency under Public Law 103-354, if it liquidates, will proceed as expeditiously as possible when acceleration of the indebtedness is necessary including giving any notices and taking any other required legal action. A copy of the acceleration notice or other acceleration document will be sent to FmHA or its successor agency under Public Law 103-354 or the Lender, as the case may be.

D. Liquidation: Accounting and Reports. When the Lender conducts the liquidation, it will account for funds during the period of liquidation and will provide FmHA or its successor agency under Public Law 103-354 with periodic reports on the progress of liquidation, disposition of collateral, resulting costs, and additional procedures necessary for successful completion of liquidation. When FmHA or its successor agency under Public Law 103-354 liquidates, the Lender will be provided with similar reports on request.

E. Determination of Loss and Payment. In all liquidation cases, final settlement will be made with the Lender after the collateral is liquidated. FmHA or its successor agency under Public Law 103-354 will have the right to recover losses if paid under the guarantee from any party liable.

1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculation of all estimated and final loss determinations. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 after the Lender has submitted a liquidation plan approved by FmHA or its successor agency under Public Law 103-354. Payment will be made in accordance with 7 CFR part 1980, subpart B.

2. When the Lender is conducting the liquidation, and it is anticipated liquidation will take longer than 90 days it will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss that will occur in connection with liquidation of the line of credit. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss settlement to the Lender provided the Lender applies such amount due to the outstanding principal balance owed on the guarantee debt (See G. below). The Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral.

After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.

After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.

3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and report of loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.

4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:

(a) If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original of the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.

(b) If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of overpayment.

5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Contract of Guarantee.

6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.

F. Maximum amount of interest loss payment. Notwithstanding any other provisions of the agreement, the amount payable by FmHA or its successor agency under Public Law 103-354 to the Lender cannot exceed the limits set forth in the Contract of Guarantee. If FmHA or its successor agency under Public Law 103-354 conducts the liquidation, loss occasioned by accruing interest will be covered by the guarantee only to the date FmHA or its successor agency under Public Law 103-354 accepts the responsibility for liquidation. Loss occasioned by accruing interest will be covered to the extent of the guarantee to the date of final settlement when the liquidation is conducted by the Lender provided it proceeds expeditiously with the liquidation plan approved by FmHA or its successor agency under Public Law 103-354, except when an estimated loss claim is filed. When a Lender files an estimated loss claim, the Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. The balance of accrued interest payable to the Lender, if any, will be calculated on the final Report of Loss form.

G. Application of FmHA or its successor agency under Public Law 103-354 loss payment. The estimated loss payment shall be applied as of the date of such payment. The total amount of the loss payment remitted by FmHA or its successor agency under Public Law 103-354 will be applied by the Lender on the guaranteed portion of the debt. However, such application does not release the Borrower from liability. Such amounts are only to compensate the Lender for the loss. (See XII below.) In all cases a final Form FmHA or its successor agency under Public Law 103-354 440-30 prepared and submitted by the Lender must be processed by FmHA or its successor agency under Public Law 103-354 in order to close out the files.

H. Income from collateral. Any net rental or other income that has been received by the Lender from the collateral will be applied on the guaranteed debt.

I. Liquidation costs. Certain reasonable liquidation costs will be allowed during the liquidation process. These liquidation costs will be submitted as a part of the liquidation plan. Such costs will be deducted from gross proceeds from the disposition of collateral unless the costs have been previously determined by the Lender (with FmHA or its successor agency under Public Law 103-354 written concurrence) to be protective advances. If circumstances have changed after submission of the liquidation plan which require a revision of liquidation costs, the Lender will procure FmHA or its successor agency under Public Law 103-354's written concurrence prior to proceeding with the proposed changes. No in-house expenses of the Lender will be allowed. In-house expenses include, but are not limited to, employees’ salaries, staff lawyers, travel and overhead.

J. Payment. Loss settlements will be paid by FmHA or its successor agency under Public Law 103-354 within 30 days after the review of the accounting of the collateral.

X. Protective Advances. Protective advances must constitute an indebtedness of the Borrower to the Lender and be secured by the security instrument(s). FmHA or its successor agency under Public Law 103-354 written authorization is required on all protective advances in excess of $3,000. Protective advances include advances made for property taxes, annual assessments, ground rent, hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance.

XI. Additional Loans or Advances. Except as provided for in each Borrower's loan agreement which was specifically approved by FmHA or its successor agency under Public Law 103-354 for that specific borrower, the Lender will not make additional expenditures or new lines of credit or loans to any borrower which has financial assistance guaranteed by FmHA or its successor agency under Public Law 103-354 without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 even though such expenditures or lines of credit or loans will not be guaranteed.

XII. Future Recovery. After a line of credit has been liquidated and a final loss has been paid by FmHA or its successor agency under Public Law 103-354, any future funds which may be recovered by the Lender will be prorated between FmHA or its successor agency under Public Law 103-354 and the Lender. FmHA or its successor agency under Public Law 103-354 will be paid such amount recovered in proportion to the percentage it guaranteed for the line of credit and the Lender will retain such amount in proportion to the percentage of the unguaranteed portion of the line of credit.

XIII. Transfer and Assumption Cases. Refer to 7 CFR part 1980, subpart B. If a loss should occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guaranteed portion, may file and estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, it not assumed by the Transferee, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, line 13 and 14.

XIV. Bankruptcy.

A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in this paragraph XIV. For a Chapter 7 bankruptcy or a liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B3 and B6 are applicable.

B. Loss Payments.

1. Estimated Loss Payments.

a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354 at its option in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust the estimated loss claim to (a) reflect the actual principal and interest reduction on any part of the guaranteed debt determined to be unsecured and (b) to reimburse the Lender for any court ordered interest rate reduction during the term of the reorganization plan.

b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to revise estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.

c. Upon completion of the reorganization plan, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance office.

2. Interest Loss Payments.

a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XIV B 1.

b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.

c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the lender for the difference in interest rates specified on the Contract of Guarantee or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.

3. Final Loss Payments.

a. Final loss payments will be processed when the loan is liquidated.

b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.

4. Payment Application. The Lender must apply estimated loss payments first to the unsecured principal of the guaranteed portion of the debt and then to the unsecured interest of the guaranteed portion of the debt. In the event the bankruptcy court attempts to direct the payment to be applied in a different manner, the Lender will immediately notify the FmHA or its successor agency under Public Law 103-354 servicing office.

5. Overpayments. Upon completion of the reorganization plan, the Lender will provide FmHA or its successor agency under Public Law 103-354 with the documentation necessary to determine whether the estimated loss paid equals the actual loss sustained. If the actual loss sustained, as a result of the reorganization, is greater than the estimated loss payment, the Lender will submit a revised estimated loss in order to obtain payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender. If the actual loss payment is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from the date of the payment of the estimated loss.

6. Protective Advances. If approved protective advances were made prior to the borrower having filed bankruptcy, as a result of prior liquidation action, these protective advances and accrued interest will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30.

XV. Debt write down. Refer to title 7 of CFR part 1980, subpart B, § 1980.125. The maximum amount of loss payment associated with a loan/line of credit agreement which has been written down will not exceed the percent of the guarantee multiplied by the difference between the outstanding principal and interest balance of the loan/line of credit before the write-down and the outstanding balance of the loan/line of credit after the write-down. The lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment to receive its pro-rata share of any loss sustained.

XVI. Other Requirements. This agreement is subject to all the provisions of 7 CFR part 1980, subparts A and B, and any future amendments of these regulations not inconsistent with this agreement.

XVII. Execution of Agreements. This agreement is executed prior to the execution of any Contract of Guarantee(s) under 7 CFR part 1980, subparts A and B and does not impose any obligation upon FmHA or its successor agency under Public Law 103-354 with respect to execution of any such contract. FmHA or its successor agency under Public Law 103-354 in no way warrants that such a contract has been or will be executed. Each request for a Contract Guarantee under exhibit A of 7 CFR part 1980, subpart B will be considered by FmHA or its successor agency under Public Law 103-354 on a case-by-case basis.

XVIII. Notice. All requests for Contract of Guarantee(s) and any notices or actions will be initiated through the following FmHA or its successor agency under Public Law 103-354 County Offices

XIX. Termination of Agreement. Except for FCS member institutions that have acceptable loan losses as specified in the introductory text of paragraph II of exhibit A, 7 CFR part 1980, subpart B, this agreement will terminate as to the Lender's submission of requests for Contracts of Guarantee(s) under exhibit A, 7 CFR part 1980, subpart B two (2) years from the date set forth in paragraph XX unless earlier revoked by FmHA or its successor agency under Public Law 103-354. This agreement will remain in force as to any Contract of Guarantee(s) issued pursuant to exhibit A, 7 CFR part 1980, subpart B and remaining extant at time of expiration or revocation until those Contracts of Guarantees still extant are concluded.

XX. This Agreement is dated ________.

Lender:(Name)(IRS I.D. Tax No)ByTitleATTEST: __________ (Seal)UNITED STATES OF AMERICA, Farmers Home Administration or its successor agency under Public Law 103-354.ByTitleAttachment 3TO: County Supervisor, FmHA or its successor agency under Public Law 103-354SUBJECT: Request for Loan Note Guarantee under Approved Lender Agreement Applicable to Loan Note Guarantee Cases (Attachment 1). Principal Amount of Loan $____AND/OR

Request for Line of Credit Guarantee under Approved Lender Agreement Applicable to Contract of Guarantee Cases (Attachment 2). Line of Credit Ceiling $____.

Principal Amount of Initial Advance $____.Lender Agreement Dated ____.Lender IRS I.D. No. ____.

Request is made for issuance of a guarantee(s) in the following case.

Applicant's NameAddressSocial Security or IRS Tax No.____ County____ State____Percent Guarantee Requested____%Interest rate to borrower____% If variable, state method determined and frequency of adjustmentSpecific amounts and purposes of loan/line of credit are as follows:Proposed repayment terms:Proposed closing date if request is approved:Special or unique conditions or problems:Applicant's Financial Condition:New Worth $____Assets valueDebtAmount due in 12 monthsCurrent 1Intermediate 2Long Term 3Totals 1 Current: Cash savings, marketable bonds, receivables, 60 day sales of goods available within 60 days.2 Intermediate: Machinery, livestock, retirement accounts, cash value life insurance, securities household goods, receivable 60 days to 1 year.3 Long term: Real estate, contracts and notes receivable amount beyond current year.

Ratio Calculation from Financial Information and Operating Plans:

Total Assets of $____ divided by Total Liabilities ____ = Net Capital Ratio ____Annual Cash Operating Expenses $____ divided by Gross Income $____ = Operating Ratio ____Net Income $____ divided by Total Assets $____ = Profit to Assets ____Debt Repayment $____ divided by Gross Income $____ = Debt Repayment ____Security Proposed:ItemValuePrior liens (if any)Equity valueTotals

Briefly list any special conditions and narrate security accounting, reporting limitations and supervision etc., contained in proposed loan/line of credit agreement. See 7 CFR part 1980, subpart B, § 1980.113(d)(7)

The applicant's total farming operation is as follows: (Include total acres owned and/or leased broken down to use and indicate irrigated, double crop, etc., if any. Includes totals of all livestock owned and/or tended and describe operation purchasing, marketing, breeding details. Use attachments if necessary.)

The undersigned certifies that:

1. The information contained in this request is correct and that a complete application containing all required items described in § 1980.113(d) of part 1980, subpart B are on file and may be examined by FmHA or its successor agency under Public Law 103-354 at any time during regular business hours prior to or after FmHA or its successor agency under Public Law 103-354 responds to this request for a loan note guarantee or contract of guarantee.

2. Before a Loan Note Guarantee or Contract of Guarantee is issued by FmHA or its successor agency under Public Law 103-354, the lender will certify to conditions in § 1980.60 of 7 CFR part 1980, Subpart A.

3. The lender will provide a Guarantee Loan Closing Report on Form FmHA or its successor agency under Public Law 103-354 1980-19 and a check for the amount of the guarantee fee at the time the Loan Note Guarantee or Contract of Guarantee is issued.

4. This proposed loan/line of credit is considered sound, will be fully secured and is within the borrower's repayment ability.

5. All applicable requirements have been or will be met.

6. The loan or advance under the line of credit cannot be made without an FmHA or its successor agency under Public Law 103-354 guarantee.

(Name of Lender)ByTitle(Lender's IRS I.D. Tax No.)Date Pt. 1980, Subpt. B, Exh. CExhibit B[Reserved]Exhibit C of Subpart B—Application Processing for Guaranteed Farmer Program LoansFmHA or its successor agency under Public Law 103-354 Form No.TitleRequirementExhibit D Attachment 1 Request for Interest Assistance 1980-B, Exhibit D.Exhibit D Attachment 2 Interest Assistance Worksheet/Needs Test 1980-B, Exhibit D.Commercial Credit Report 1980-B, § 1980.113(a)(3).Evidence Required of Entity, Applicants Organization 1980-B, § 1980.113(a)(11).1910-5 (optional) Request for Verification of Employment 1980-B, § 1980.113(a)(2).440-13 (optional) Report of Lien Search Optional at this point in processing, may be used to supplement Credit Report.440-32 (optional) Request for Statement of Debts and Collateral 1980-B, § 1980.113(a)(5).1940-22 (required) Environmental Checklist for Categorical Exclusions 1980-A, § 1980.40. See also §§ 1980.42, 1980.43, 1980.44.Leases and/or Contracts (Evidence of Ownership) 1980-B, § 1980.113(a)(4).1980-25 (required form) Farmer Programs Application and the following attachments: 1980-B, § 1980.113(a)(1).431-2 Farm and Home Plan, or Projected Plan of Operation and Cash Flow Statement, substantiated by readily available production and financial history 1980-B, § 1980.113(a)(7).Applicable drawings and specifications 1922-1 Appraisal Report—Farm Tract or any form meeting USPAP Appraisal/Appraiser requirements are outlined in FmHA or its successor agency under Public Law 103-354 1980-B, § 1980.113(a)(8).440-21 Appraisal of Chattel Property Do.Loan Agreement 1980-B, § 1980.113(a)(6) paragraph VII of Form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement” or paragraph VII of Form FmHA or its successor agency under Public Law 103-354 1980-38, “Lenders Agreement (Line of Credit)”.Lender plan for servicing the loan and providing management assistance to the borrower 1980-B, § 1980.113(a)(9).1980-24 Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender 1980-B: § 1980.110(b); Exhibit D, Exhibit E.1940-3 Request for Obligation of Funds—Guaranteed Loans 1980-A: § 1980.83(b); 1980-B: § 1980.115 Administrative A.1., Exhibit D, Exhibit E. Pt. 1980, Subpt. B, Exh. DExhibit D—Interest Assistance ProgramI. General

This exhibit contains the policies and procedures pertaining to an Interest Assistance Program for guaranteed Operating (OL) loans and lines of credit described in § 1980.175 of this subpart, guaranteed farm ownership (FO) loans described in § 1980.180 of this subpart and guaranteed soil and water loans described in § 1980.185 of this subpart. Subparts A and B of this part are applicable to this exhibit except as modified by exhibits A and E of this subpart and this exhibit. Authority to enter into the Guaranteed Loan Assistance Agreement is provided for in this exhibit and expires September 30, 1995.

II. Introduction

The authorities contained in this exhibit provide lenders with a tool to enable them to provide credit to operations of not larger than family farms who are temporarily unable to project a positive cash flow as defined in paragraph III D of this exhibit without a reduction in the interest rate.

This exhibit also requires a lender who has a guaranteed loan/line of credit which is not already involved in the Interest Assistance Program or the earlier Interest Rate Buydown Program to agree that if liquidation of the account becomes imminent, the lender will consider the borrower for Interest Assistance under this exhibit and request a determination of the borrower's eligibility by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354). The lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the borrower to participate in this program.

FmHA or its successor agency under Public Law 103-354 will enter into an agreement with lenders who participate in this program. The lender will reduce the interest rate paid by the borrower on a loan/line of credit. FmHA or its successor agency under Public Law 103-354 will make annual interest assistance payments to the lender equal to the amount of interest reduction on the loan. Agreements made with a lender under this exhibit will in no case provide for payments that exceed the Maximum Rate of Interest Assistance Available (MRIAA) at the time of approval. The MRIAA is defined in this exhibit and will be published periodically in FmHA or its successor agency under Public Law 103-354 Instruction 440.1, which is available in any FmHA or its successor agency under Public Law 103-354 office.

III. Definitions

A. Projected Average Balance (PAB)—The average amount of principal projected to be outstanding on a loan during a particular plan period. For purposes of the exhibit this amount will be calculated as follows:

1. For fully advanced loans with annual payments use the principal balance of loan at the beginning of the plan/review period.

2. For lines of credit and other loans that will not be fully advanced on the effective date of the annual Interest Assistance claims period or loans where payments are scheduled to be made on other than an annual basis, the average balance will be computed from the proposed debt repayment schedule or monthly cash flow budget. The ending principal balance on the loan/line of credit for each month of the plan will be totaled and divided by twelve.

B. Cash Flow Budget—A projection listing all anticipated cash inflows (including all farm income, nonfarm income and all loan advances) and all expenses to be incurred by the borrower during the period of the budget (including all farm and nonfarm debt service and other expenses). Production records and prices used in the preparation of a cash flow will be calculated in accordance with § 1980.113 of this subpart. A cash flow budget may be completed either for the entire review period (12 months, 24 months, or the life of the loan, as appropriate) or it may be prepared with a breakdown of cash inflows and outflows for each month of the review period. The latter type is referred to as a “monthly cash flow budget.” A monthly cash flow budget, which includes the expected outstanding operating credit balance for the end of each month, must be completed for all lines of credit and loans made for annual operating purposes.

C. Interest Assistance Agreement (Farmer Programs) (Form FmHA or its successor agency under Public Law 103-354 1980-64). The signed agreement between FmHA or its successor agency under Public Law 103-354 and the lender setting forth the terms and conditions of the Interest Assistance. The agreement will be executed by FmHA or its successor agency under Public Law 103-354 and the lender. The borrower will acknowledge the agreement by signing it.

D. Positive cash flow. The ability of a borrower's operation to pay all projected farm operating, interest, and family living expenses, including taxes and delinquent tax payments, from combined farm and nonfarm income for a typical year, by a ratio of 1.1 times all annual scheduled term debt and capital lease payments. This ratio is called the Term Debt and Capital Lease Coverage Ratio. In addition, the operation must be able to pay carryover debt and unfinanced capital asset purchases. This is determined by the Capital Replacement and Term Debt Repayment Margin, which must be equal to or greater than the planned capital asset purchases not financed. If no unfinanced capital asset purchases are planned, the margin must be equal to or greater than zero. Production records and prices used in the preparation of a positive cash flow will be in accordance with § 1980.113 of this subpart. The Term Debt and Capital Lease Coverage Ratio and the Capital Replacement and Term Debt Repayment Margin are calculated in the following manner:

1. Add projected net farm operating income, projected annual nonfarm income, projected capital depreciation/amortization expenses, scheduled annual interest on term debt, and scheduled annual interest on capital leases.

a. Net farm operating income is the gross income generated by a farming operation annually, minus all yearly operating expenses (including withdrawals from entities for living expenses), operating loan interest, interest on term debt and capital lease payments, and depreciation/amortization expenses. Exclude Income and Social Security Taxes, Carryover Debt and Delinquent Interest.

b. Depreciation/amortization expenses are an annual allocation of the cost or other basic value of tangible capital assets, less salvage value, over the estimated life of the unit (which may be a group of assets), in a systematic and rational manner.

c. Capital leases are agreements under which the lessee effectively acquires ownership of the asset being leased. A lease is a capital lease if it meets any one of the following criteria:

(1) The lease transfers ownership of the property to the lessee at the end of the lease term.

(2) The lessee has the right to purchase the property for significantly less than its market value at the end of the lease.

(3) The term of the lease is at least 75 percent of the estimated economic life of the leased property.

(4) The present value of the minimum lease payments equals or exceeds 90 percent of the fair market value of the leased property.

2. Subtract from this sum projected annual Income and Social Security tax payments, including any delinquent taxes, and family living expenses. The difference is the Balance Available for Term Debt Repayment.

a. Family living expenses are any withdrawals from income to provide for needs of family members.

b. Family members are considered to be the immediate members of the family residing in the same household with the individual borrower, or, in the case of a cooperative, corporation, partnership, or joint operation, with the operator(s).

3. Divide the Balance Available for Term Debt Repayment by the sum of the annual scheduled principal and interest payments on term debt, plus the annual scheduled principal and interest payments on capital leases, excluding delinquent installments. The quotient is the Term Debt and Capital Lease Coverage Ratio.

4. Add the Balance Available for Term Debt Repayment to any cash carryover from the preceding year.

5. Subtract from this sum the amount of the Total Annual Scheduled Term Debt and Capital Lease Payments, and any debt carried over from the previous year. The difference is the Capital Replacement and Term Debt Repayment Margin, which must be equal to or greater than any planned capital asset purchases not financed.

6. Example:

Term Debt and Capital Lease Coverage Ratioa. Typical Year Gross Farm Operating Income (Exclude Cash Carryover) $162,000 b. Typical Year Total Operating Expenses (Include Withdrawals from Entities for Living Expenses, Depreciation, and Interest on Operating Debt, Term Debt, and Capital Lease Payments. Exclude Income and Social Security Taxes, Carryover Debt and Delinquent Interest) 125,000 c. Net Farm Operating Income (a-b)$37,000d. Nonfarm Income 0 e. Depreciation/Amortization expenses 6,000 f. Annual Term Debt Interest 10,000 g. Annual Capital Lease Interest 0 h. Income and Social Security Taxes 2,000 i. Living Expenses 23,000 j. Balance Available for Term Debt Repayment (c+d+e+f+g−h−i) 28,000k. Annual Scheduled Term Debt and Capital Lease Payments (Principal and Interest, exclude Delinquent Installments) 17,000l. Term Debt and Capital Lease Coverage Ratio (Line Item j divided by --Block k; must be at least 1.10) 1.65 timesm. Cash Carryover from Previous Year 1,000 n. Carryover Debt from Previous Year (Include Principal and Interest on Carryover Operating Debt, Term Debt, and Capital Lease Debt) 2,000 o. Capital Replacement and Term Debt Repayment Margin (Add j and m, and subtract k and n) 10,000p. Portion of Planned Capital Asset Purchases Not Financed (Must be less than or equal to Capital Replacement and Term Debt Repayment Margin (o)) 5,000

E. Maximum Rate of Interest Assistance Available (MRIAA)— The maximum percentage level of subsidy which FmHA or its successor agency under Public Law 103-354 may grant at any given time, but which cannot ever exceed 4 percent. This percentage level will be periodically established by the Administrator, within statutory limits, and will be published in an Exhibit to FmHA or its successor agency under Public Law 103-354 Instruction 440.1, which is available in any FmHA or its successor agency under Public Law 103-354 office.

F. Pro Forma Income and Expense Statement— A projected income and expense statement listing, on a typical 12-month basis, all anticipated cash flows, including all farm and nonfarm income and all expenses (including debt service) to be incurred by the borrower during such period. Production levels and prices used in the preparation of a cash flow will be calculated in accordance with § 1980.113 of this subpart.

IV. General Provisions

The typical term of scheduled loan/line of credit repayment will not be reduced solely for the purpose of maximizing eligibility for Interest Assistance.

A. To be eligible for Interest Assistance, a loan/line of credit must be scheduled over the maximum terms typically used by lenders for similar type loans. At a minimum, loans will be scheduled for repayment over the terms listed below or the life of the security, whichever is less, as explained below:

1. FO loans and SW loans secured by real estate—20 years from the effective date of the proposed Interest Assistance Agreement (except that for existing guaranteed loans the term will not exceed 40 years from the date of the original note covered by the guarantee).

2. OL loans/lines of credit for the purpose of providing annual operating and living expenses will be scheduled for repayment when the income is scheduled to be received from the sale of the crops, livestock, and livestock products which will serve as security for the loan. In no case will the repayment term exceed 7 years.

3. OL loans for purposes other than annual operating and living expenses (i.e., equipment, livestock, refinancing of existing chattel or carryover debt, real estate development) and SW loans secured by chattel property—7 years from the effective date of the proposed Interest Assistance Agreement.

B. The lender must document that a positive cash flow projection is not possible without reducing the interest rate on the borrower's loan(s)/line(s) of credit. The documentation must show that a positive cash flow projection is not possible with the debt restructured over the term of repayment cited above.

C. The lender must determine whether the borrower owns any significant assets which do not contribute directly to essential family living or farm operating expense. The lender must determine the market value of these assets. The lender will then prepare a new cash flow budget based on the assumption that value of these assets will be used for debt reduction. If a positive cash flow can then be achieved, the borrower is not eligible for Interest Assistance. All Interest Assistance calculations will be made based on the cash flow budget which assumes that the assets will be sold.

D. In order for a borrower's loan to be eligible for Interest Assistance, a realistic plan of operation must show that a positive cash flow as defined in paragraph III D of this exhibit can be expected during the initial 24-month Interest Assistance period. For those loans with terms less than 24 months, the operation must show a positive cash flow for the term of the loan/line of credit.

E. If significant changes in the borrower's cash flow budget are anticipated after the initial 24 months with either expenses, income or debt repayment, then a typical plan(s) must show that the loan is expected to have a positive cash flow during all years of the loan/line of credit.

F. If a positive cash flow cannot be achieved, the lender may ask other creditors to voluntarily adjust their debts as outlined in subpart A of part 1903 of this chapter. If other creditors adjust their debts and a positive cash flow can be achieved with Interest Assistance, then Interest Assistance may be approved.

G. If a positive cash flow cannot be achieved, even with other creditors voluntarily adjusting their debts and with the Interest Assistance, the Interest Assistance request will not be approved.

H. The term of the Interest Assistance Agreement entered into under this exhibit shall not exceed the outstanding term of the loan/line of credit, as limited in paragraph IV A of this exhibit or 10 years, whichever is less.

I. The lender may charge a fixed or variable interest rate during the term of the Interest Assistance Agreement. The type of rate must be the same as the type of rate in the underlying note or line of credit agreement. The interest rate that the lender will charge will be clearly indicated in the Request for Interest Assistance. If a variable rate will be charged, the base rate, basis points and adjustment interval not only will be clearly set forth in the Request for Interest Assistance but also will comply with § 1980.175(e) of this subpart. If the lender uses a variable rate, the rate may be changed only once each year. During the term of the Interest Assistance Agreement, variable interest rates may not be increased by more than a total of 3 percent above the effective note rate of interest at the time this agreement is entered into. This cap on interest increases will be clearly spelled out in the note/line of credit agreement or in an allonge attached to the note/line of credit agreement or other legally effective amendment of the interest rate; however, no new note or line of credit agreement may be issued. The date of interest rate adjustment shall coincide with the annual payment date on loans/lines of credit with annual payments. On other loans/lines of credit, the annual review date will be clearly set out in the note/line of credit agreement.

J. If the loan applicant has previously been required to obtain training in accordance with § 1980.191 of this subpart, the loan applicant must be enrolled in and attending, or have satisfactorily completed, the training required.

V. Requests for Interior Assistance

A. Applications for guaranteed loans(s)/line(s) of credit shall be processed in accordance with § 1980.113 of this subpart and with this section.

B. To apply for Interest Assistance in conjunction with a request for guarantee, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-25, “Farmer Programs Application.” Additionally, such application must include a copy of Attachment 2 to this exhibit completed by the lender. A proposed debt repayment schedule which shows principal and interest payments for the proposed loan, in each year of the loan, will also be submitted with the application.

C. To request Interest Assistance on an existing guaranteed loan, the lender shall submit to FmHA or its successor agency under Public Law 103-354 the following:

1. Form FmHA or its successor agency under Public Law 103-354 1980-25.

2. Attachment 2 to this exhibit.

3. Proposed debt repayment schedule which shows scheduled principal and interest payments for the subject loan, in each of the remaining years of the loan.

4. Cash flow budgets, pro forma income and expense statements, and supporting justification to document that the request meets the requirements outlined in paragraph IV of this exhibit.

5. Verification of non-farm income. The lender may use Form FmHA or its successor agency under Public Law 103-354 1910-5, “Request for Verification of Employment,” or other similar documentation.

6. Verification of all debts of $1,000 or more. The lender may use Form FmHA or its successor agency under Public Law 103-354 440-32, “Request for State of Debts and Collateral,” or any other documentation.

7. Documentation of the borrower's and lender's compliance with the requirements of exhibit M to subpart G of part 1940 of this chapter, if the affected loan/line of credit is not already subjected to this provision.

D. Requests for Interest Assistance on Contracts of Guarantee (Lines of Credit) or Loan Note Guarantees for annual operating purposes must be accompanied by a projected monthly cash flow budget.

VI. FmHA or its successor agency under Public Law 103-354Evaluation of Applications

Applications will be evaluated in accordance with § 1980.114 of this subpart. Additionally, the authorized approval official will determine whether or not all applicable provisions of this exhibit have been met. The approval official will check that:

A. Each item input on Attachment 2 is realistic for the area and type of operation and consistent with information provided in the request for guarantee and supporting documentation.

B. All mathematical computations are accurate.

C. The “Needs Test” was properly applied.

D. The loan/line of credit and applicant/borrower are eligible to receive interest assistance.

E. Nonessential assets were identified and that the computations were based on the assumption that these assets will be sold and the proceeds utilized to reduce debt.

Using Attachment 2 of this exhibit (including any necessary corrections), the approval official will determine the level of subsidy to be approved.

VII. Denial or Decrease of Interest Assistance Requested

If applicant is found ineligible for the loan guarantee or the guarantee cannot be approved for other reasons, the approval official will notify the lender and applicant in accordance with § 1980.114 or § 1980.115 of this subpart, respectively.

If the request for guarantee can be approved or has previously been approved and the request for interest assistance is denied or approved at a level less than that requested, the lender will be notified in accordance with paragraph XII of this exhibit.

VIII. Approval of Interest Assistance

If the approval official determines that Interest Assistance can be approved in accordance with paragraph IV of this exhibit, the approval official will:

A. Prepare Form FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans.” This form will be used to obligate interest assistance and loan funds for new loans and Interest Assistance funds only for those existing loans which are presently guaranteed without Interest Assistance.

B. Execute Form FmHA or its successor agency under Public Law 103-354 1940-3 and distribute copies in accordance with the Forms Manual Insert (FMI).

C. Verify that the obligation of funds has been completed on Automated Discrepancy Processing System. A hard copy of this verification will be made and placed in the County Office case file.

D. For requests which include requesting funds in order to issue a guarantee on the loan/line of credit, prepare Form FmHA or its successor agency under Public Law 103-354 1980-15, “Conditional Commitment (Farmer Programs).” In no case will Form FmHA or its successor agency under Public Law 103-354 1980-15 be executed prior to verification of the obligation of both loan/line of credit and Interest Assistance funds.

E. The approval official will complete the following statement and insert it on the conditional commitment:

“The subject guranteed loan has been approved for participation in the Interest Assistance program. Interest Assistance during the first annual operating plan period will be ___ percent per annum of average outstanding principal. The Maximum Rate of Interest Assistance Available (MRIAA) under this commitment is ___ percent per annum of average outstanding principal balance. Interest Assistance is available under this commitment for a period not to exceed ___ years. Availability of Interest Assistance is subject to the loan being closed in accordance with the conditions of this commitment and with FmHA or its successor agency under Public Law 103-354 regulations. Interest Assistance availability is also subject to the execution of Form FmHA or its successor agency under Public Law 103-354 1980-64, “Interest Assistance Agreement,” and compliance with the conditions of that agreement. Conditions include the requirement that the rate of Interest Assistance be adjusted annually based on an analysis of the borrower's need for Interest Assistance, which the lender is required to perform and obtain FmHA or its successor agency under Public Law 103-354 concurrence with.”

F. For requests for Interest Assistance on existing guaranteed loans, the approval official will notify the lender, in writing, that the request has been approved. The letter will include the statement in paragraph VIII E of this exhibit and any special conditions.

IX. Interest Assistance Closing

A. The lender will prepare, and deliver to FmHA or its successor agency under Public Law 103-354, a Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” for each initial and existing guaranteed loan/line of credit which has been granted Interest Assistance under this exhibit.

B. The guarantee will be closed in accordance with § 1980.61 of subpart A of this part and § 1980.118 of this subpart.

1. If FmHA or its successor agency under Public Law 103-354 finds that all requirements have been met, the lender and FmHA or its successor agency under Public Law 103-354 will execute Form FmHA or its successor agency under Public Law 103-354 1980-64, “Interest Assistance Agreement.” The borrower will acknowledge the agreement with its signature.

2. An original Form FmHA or its successor agency under Public Law 103-354 1980-64 will be prepared for each note or line of credit agreement executed. All originals of Form FmHA or its successor agency under Public Law 103-354 1980-64 will be provided to the lender and attached to the note(s) with the original Loan Note Guarantee or Contract of Guarantee.

X. Annual Interest Assistance Claims and Payments

The Interest Assistance claim will be prepared by the lender using Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request for Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender.”

A. The first claim will be submitted to FmHA or its successor agency under Public Law 103-354 within 60 days after date of the initial annual payment/review date which is stated on this agreement. The claim will cover the entire period between the effective date of the agreement and the annual review/payment date.

B. Subsequent claims will cover the period between annual payment/review dates and will be prepared by the lender and submitted within 60 days following the annual payment review date.

C. Upon full payment of the note or line of credit, the lender will immediately prepare Form FmHA or its successor agency under Public Law 103-354 1980-24 and submit it to the FmHA or its successor agency under Public Law 103-354 servicing office.

D. Interest Assistance payments shall cease upon the assumption/transfer of the loan if the transferee was not liable for the debt on the effective date of the Interest Assistance Agreement. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24 to request payment through the date of the transfer or assumption.

E. All claims for Interest Assistance other than final claims must be accompanied by an analysis of the applicant's continued need for assistance, during the period following the one for which the claim is made, as outlined in paragraph XI of this exhibit.

F. All claims will be submitted to the FmHA or its successor agency under Public Law 103-354 servicing office with documentation to support the assistance claim. The documentation will include:

1. A detailed statement of activity including all disbursements and payments applied to the loan/line of credit account.

2. Detailed calculations of interest charged, actual daily principal balances during the claim period and average principal balance for the claim period.

G. The authorized FmHA or its successor agency under Public Law 103-354 loan servicing official will review the information on Form FmHA or its successor agency under Public Law 103-354 1980-24 and the supporting documentation. If the request is correct, the loan servicing official will approve and process the request. If the information on Form FmHA or its successor agency under Public Law 103-354 1980-24 and the supporting documentation is not complete and/or correct, the loan servicing official will notify the lender in writing of the actions needed to correct the request. The notification letter will be in accordance with paragraph XII of this exhibit.

H. If the lender of the loan/line of credit is changed through a substitution of lender, a claim for the first lender's Interest Assistance, through the effective date of the substitution, will be submitted by the first lender and processed at the time the substitution takes place.

I. Interest Assistance claims shall be submitted concurrently with the submission of final loss claims and any estimated loss claims which cause interest to cease to accrue.

XI. Annual Request for Continuation/Adjustment of Interest Assistance

A. For all Interest Assistance Agreements that exceed one year, the lender will perform an annual analysis of the applicant's farming operation and need for continued Interest Assistance. This analysis will include the following:

1. A summary of the operation's actual financial performance in the previous year, including a detailed income and expense statement.

2. A narrative description of the causes of any major differences between the previous year's cash flow budget and actual performance.

3. A current balance sheet.

4. A copy of attachment 2 to this exhibit which has been completed based on the planned year's cash flow budget.

5. A cash flow budget for the year being planned. A monthly cash flow budget is required for all lines of credit and operating loans made for annual operating purposes. All other loans may include either annual or monthly cash flow budget.

The documentation listed above will be provided to FmHA or its successor agency under Public Law 103-354 concurrently with the lender's submission of Form FmHA or its successor agency under Public Law 103-354 1980-24. Parts I and II of Form FmHA or its successor agency under Public Law 103-354 1980-24 must be completed by the lender. This information will be provided to FmHA or its successor agency under Public Law 103-354 within 60 days after the annual payment/review date specified on the Interest Assistance Agreement.

B. The request for continuation/adjustment of Interest Assistance will be checked and evaluated by the authorized FmHA or its successor agency under Public Law 103-354 approval official in accordance with paragraph VI of this exhibit.

1. If the approval official's evaluation substantiates the requested level of Interest Assistance and it is equal to or less than the MRIAA stated on the Interest Assistance Agreement, the approval official will approve the request.

2. If the evaluation indicates that the borrower needs a higher level of Interest Assistance than the MRIAA provided for in the original Interest Assistance Agreement, and the current MRIAA is less than or equal to the MRIAA provided for in the original Interest Assistance Agreement, then the FmHA or its successor agency under Public Law 103-354 approval official will deny the continuation of Interest Assistance. Interest Assistance will be reduced to zero during that annual review period. The lender will be notified in accordance with paragraph XII of this exhibit.

3. If the evaluation indicates that the borrower needs a higher level of Interest Assistance than the MRIAA provided for in the original Interest Assistance Agreement, and the current MRIAA is higher than the MRIAA provided for in the original Interest Assistance Agreement, and the need does not exceed the current MRIAA, the FmHA or its successor agency under Public Law 103-354 approval official shall request additional subsidy funds using Form FmHA or its successor agency under Public Law 103-354 1940-3.

a. If funds are available, the approval official will approve Interest Assistance at the level requested for the planned year only. For subsequent years the higher level of Interest Assistance will be subject to the availability of funds and the borrower's continued need.

b. If additional funds are not available, the request for Interest Assistance will be denied and the rate of Interest Assistance will be reduced to zero for that period. The lender will be notified in accordance with paragraph XII of this exhibit.

4. If the amount of Interest Assistance approved is less than that requested, the lender will be notified in accordance with paragraph XII of this exhibit.

5. The approval official will complete the appropriate portion of FmHA or its successor agency under Public Law 103-354 Form 1980-24 to reflect the amount of Interest Assistance which has been approved for the year. This should be completed even if this year's assistance level will be zero percent so that adjustments in the obligation records can be made. The original will be returned to the lender for attachment to the original Interest Assistance Agreement.

XII. Notification of Adverse Action

The lender will be notified in writing of all FmHA or its successor agency under Public Law 103-354 decisions in which request for Interest Assistance, a request for continuation/adjustment of Interest Assistance or a lender's claim for Interest Assistance are denied or approved a level less than requested.

The notification letter will provide specific reasons for the decision and appeals will be handled in accordance with § 1980.80 of this subpart. In addition, if the reason for the reduction/denial is that the rate of Interest Assistance requested exceeds the maximum amount allowed under this exhibit, then exhibit C of subpart B of part 1900 of this chapter will be sent to the lender.

XIII. Servicing of Loans/Lines of Credit Covered by an Interest Assistance Agreement

A. Loans/lines of credit covered by Interest Assistance Agreements cannot be consolidated.

B. Transfers will be processed in accordance with § 1980.123 of this subpart. The loan/line of credit will be transferred with the Interest Assistance Agreement only in cases where the transferee was liable for the debt at the time the Interest Assistance was granted. UNDER NO OTHER CIRCUMSTANCES WILL THE INTEREST ASSISTANCE BE TRANSFERRED. If Interest Assistance is necessary for the transferee to achieve a positive cash flow, the lender may request a new Interest Assistance Agreement which may be approved if Interest Assistance funds are available and the applicant is eligible. The request for the obligation of these funds will be processed using Form FmHA or its successor agency under Public Law 103-354 1940-3. If Interest Assistance is necessary for a positive cash flow and funds are not available, the request for assumption of the FmHA or its successor agency under Public Law 103-354 guaranteed debt will be denied.

C. When consideration is given to using a debt writedown to service a delinquent account, the subsidy level will be recalculated prior to any writedown. If a feasible plan can be obtained using a level of Interest Assistance less than or equal to the original MRIAA for this loan, then the Interest Assistance level will be adjusted and no writedown will be approved. If a feasible plan cannot be achieved using maximum Interest Assistance, all further calculations for determining debt writedown eligibility and amounts to be written down will be based on the borrower receiving the maximum Interest Assistance available.

D. In the event of reamortization, rescheduling or deferral of loans with Interest Assistance, Interest Assistance will remain available for that loan under the terms of the existing Interest Assistance Agreement. If additional Interest Assistance is needed to produce a positive cash flow throughout the life of the rescheduled/reamortized loan and funds are not available for the additional Interest Assistance, then the rescheduling/reamortization will not be approved by the agency. In no case, will the subsidy be extended more than ten years from the initial effective date of the original Interest Assistance Agreement.

E. In a reorganization bankruptcy (chapter 11, 12 or 13) the court may order a temporary or permanent reduction in the interest rate that a lender may charge on a loan/line of credit. In cases where the interest on a loan/line of credit covered by an Interest Assistance Agreement is reduced by court order, the Interest Assistance Agreement will be terminated effective on the date of the court ordered interest reduction. The lender will file a Form FmHA or its successor agency under Public Law 103-354 1980-24 to collect interest assistance due through the effective date of the court ordered interest reduction. Interest loss payments will be processed in accordance with § 1980.144 of this subpart. Guaranteed loans which have had their interest reduced by bankruptcy court order are not eligible to subsequently receive Interest Assistance under this exhibit.

F. For Loan Note Guarantees held by holders, Agency purchase of the guaranteed portion of the loan will stop Interest Assistance payments on that portion. Interest Assistance payments will cease upon termination of the Loan Note Guarantee or Contract of Guarantee by expiration of the document or cancellation by the Government.

G. A lender will notify the Agency when a borrower who is not receiving maximum Interest Assistance is 30 days past due on a payment and is unable to bring the account current within 30 days. The lender will request that the Agency make a determination as to the borrower's eligibility for Interest Assistance. The lender will submit a plan of operation for the farm projecting the repayment ability of the borrower with and without Interest Assistance. Upon receipt of the agency's determination, the lender may request Interest Assistance. If the lender declines Interest Assistance, the lender will notify the Agency in writing within 30 days.

XIV. Cancellation of Interest Assistance Agreement

Form FmHA or its successor agency under Public Law 103-354 1980-64 is incontestable except for fraud or misrepresentation, of which the lender and borrower have actual knowledge at the time that the Interest Assistance Agreement is executed, or which the lender/borrower participates in or condones.

XV. Mid-Year Adjustment of Assistance Level

After the initial or annual request for interest assistance is processed, no adjustments in the level of subsidy can be made until the next annual payment/review date.

XVI. Excessive Interest Assistance

Upon written notice to the lender, borrower and any holder, the Government may amend or cancel the Interest Assistance Agreement and collect from the lender any amount of Interest Assistance granted which resulted from incomplete or inaccurate information (of which the lender was aware), an error in computation, or any other reason which resulted in payment that the lender was not entitled to receive.

XVII. List of Eligible Lenders

The County Supervisor will maintain a current list of lenders in the area that participate in the guaranteed farm loan program and other lenders who express a desire to participate in the guaranteed farm program. This list will be made available to farmers upon request.

XVIII. Relationship of Interest Assistance Program With Interest Rate Buydown Program

A. The Interest Assistance Program replaces the Interest Rate Buydown (IRBD) Program which was previously described in this exhibit, effective February 28, 1991.

B. A guaranteed loan will not be covered by both an Interest Rate Buydown Agreement and an Interest Assistance Agreement simultaneously.

C. Loans covered by IRBD Agreements will continue to be serviced, and requests for payments will be made and paid, in accordance with the terms of the “Interest Rate Buydown Agreement,” Form FmHA or its successor agency under Public Law 103-354 1980-58.

D. Existing IRBD Agreements will expire on the date scheduled on Form FmHA or its successor agency under Public Law 103-354 1980-58. Extensions of these agreements are prohibited.

E. If a request for Interest Assistance is made on an existing guaranteed loan which has previously been covered by an IRBD Agreement, the time that Form FmHA or its successor agency under Public Law 103-354 1980-58 was in effect (rounded to the next full year) will be deducted from the 10 years to determine the maximum term that Interest Assistance can be granted. Example: If the borrower has a 20-year guaranteed FO loan with 15 years remaining on the term and the borrower had previously received 3 years of IRBD, the maximum term of Interest Assistance is 7 years.

F. A lender may cancel its IRBD Agreement by notifying FmHA or its successor agency under Public Law 103-354. Such notification shall be made by executing Form FmHA or its successor agency under Public Law 103-354 1980-24 and indicating that they wish the IRBD Agreement terminated. When the lender entered into the IRBD Agreement, the lender modified the borrower's interest rate to a final rate for the term of the original IRBD Agreement. Therefore, even if a lender cancels the IRBD Agreement the effective rate to the borrower will continue as indicated in the allonge or line of credit agreement. If the lender subsequently requests Interest Assistance on this loan, the existing note rate used in calculating the need for Interest Assistance will be the rate which is specified in the IRBD allonge. This rate will also be used in calculating any loss claims payment which may be made on these loans/lines of credit.

G. Since 1987, IRBD program lenders have been required to agree that they will consider the IRBD program prior to the liquidation of guaranteed loans. This requirement has been included in § 1980.115 of this subpart and in various lenders agreements and conditional commitments. In all documents references to the IRBD program are now defined as meaning the Interest Assistance Program.

Attachment 1—Request for Interest AssistanceBorrower/Applicant Name ______.Borrower/Applicant Social Security/Tax ID number ______.I. Type of Request

A. Request for Interest Assistance in conjunction with a request for guarantee.

1. Loan amount/line of credit ceiling ______.

2. The interest rate charged the lender's average farm customer, ______%. (Specify fixed or variable. If variable rates are used, the average farm customer's variable rate for the past 90 days shall be inserted.)

3. The proposed note interest rate to the subject borrower prior to Interest Assistance is ______% (may not exceed A.2). If variable, describe conditions for adjustment (i.e., base rate, basis points, and adjustment interval).

B. Request for Interest Assistance on an existing guaranteed loan. Original Loan/Line of Credit closing date ______. Current principal balance ______. Unpaid interest ______. Has the Loan/Line of Credit been fully advanced ______. Final due date of loan ______. Current note rate (before Interest Assistance) ______. If variable, describe conditions for adjustment (a base rate, basis points, and adjustment interval)

II. Level of Interest Assistance requested for initial year, (cannot exceed MRIAA and must be in increments of .25%) ______%.

III. Has this loan been previously covered by an Interest Rate Buydown (IRBD) or Interest Assistance Agreement? Yes/No ______, If yes, how long was Agreement effective (rounded up to next full year) ______ years. Requested term of the Interest Assistance agreement (cannot exceed term of the loan or 10 years including previous IRBD time, whichever is less) ______ years.

IV. In connection with the subject request the lender certifies that:

A. The amount of interest resulting from the percentage of interest which FmHA or its successor agency under Public Law 103-354 agrees to pay will be permanently cancelled as it becomes due and that no attempt will be made to collect that portion of the debt from the borrower.

B. The lender's reduction in interest charged to the borrower will result in a reduced payment schedule for the borrower and a projected positive cash flow (as defined in paragraph III D of this exhibit D to 7 CFR part 1980, subpart B) throughout the term of the Interest Assistance Agreement.

C. The borrower's cash flow projections and/or typical plan of operation have been prepared in accordance with 7 CFR part 1980, subpart B, § 1980.113(d)(8), and are attached to this document. For lines of credit and operating loans for annual operating purposes, a monthly cash flow budget (as defined in paragraph III B of exhibit D to 7 CFR part 1980, subpart B) has been prepared and is attached.

D. A copy of Attachment 2 to this exhibit, “Interest Assistance Worksheet/Needs Test,” has been completed and attached.

Warning: Section 1001 of title 18, United States Code provides: “Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up . . . a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than 5 years, or both.”

(Name of Lender)ByTitleLender's IRS ID No.Date ______.Attachment 2—Interest Assistance Worksheet/Needs TestEffective Dates of ReviewPeriod _____ to _____.Applicant/BorrowerName ________.Social Security/Tax Payer IDNumber _______.

The Needs Test below will be used to calculate the needed level of interest assistance subsidy. The level of Interest Assistance will be either zero or four percent. Requests for new or continuing Interest Assistance must meet all requirements of this exhibit and subpart.

Determine if borrower needs Interest Assistance:When either the TDCLC Ratio is <1.10,Or Margin after Cash Asset Purchases is <0,Then calculate repayment with a 4% subsidy.After calculating repayment with a 4% subsidy:If TDCLC Ratio is "1.10,And Margin after Cash Asset Purchases is "0,Then Interest Assistance will be granted at 4%.

If the above test is not met (TDCLC Ratio is <1.10 or Margin after Cash Asset Purchases is <0), then Interest Assistance will not be granted. For a request on a new loan, the guarantee will not be issued or for a continuation request, the assistance level will be zero.

For existing loans, enter the FmHA or its successor agency under Public Law 103-354 loan number (i.e., 44-51) and/or for requests in conjunction with a request for guarantee, enter the request number from Part 6 of the Form FmHA or its successor agency under Public Law 103-354 1980-25:

_______________Level of InterestAssistance requested:(0 or 4 percent)_______________Preparer's SignatureTitleDateAttachment 3—Interest Assistance Information LetterUnited States Department of AgricultureFarmers Home Administration or its successor agency under Public Law 103-354

(Location)

Dear _____:

The Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) has authority to make payments to lenders to reduce eligible borrower interest rates on guaranteed farm loans. The Interest Assistance Program provides lenders with a tool to enable them to provide credit to family farm operators who are unable to project a positive cash flow on all income and expenses, including debt service, without a reduction in the interest rate.

Lenders that participate in this program enter into an agreement with FmHA or its successor agency under Public Law 103-354 to reduce the interest rate paid by the borrower on a loan guaranteed by FmHA or its successor agency under Public Law 103-354. In return, FmHA or its successor agency under Public Law 103-354 will make annual payments to the lender in the amount of the reduction in interest. Payments made to a lender under this authority are currently limited to __ percent of the outstanding principal per annum. This limit is subject to periodic changes.

Borrowers with guaranteed Farm Operating (OL), Farm Ownership (FO), and Soil and Water (SW) loans may be included in this program.

If you would like additional information regarding the Interest Assistance Program for guaranteed loans and how to apply, you should contact this office.

I will be glad to discuss this program in detail with you.

Sincerely,

County Supervisor Pt. 1980, Subpt. B, Exh. EExhibit E—Demonstration Project for Purchase of Certain Farm Credit System Acquired FarmlandI. General.

This Exhibit contains the policies and procedures pertaining to a Demonstration Project for purchase of certain Farm Credit System acquired farmland (FCS Demonstration Project) for guaranteed Farm Ownership (FO) loans described in § 1980.180 of this subpart. Subparts A and B of this part are applicable to this exhibit except as modified by exhibit A of this subpart and this exhibit. Authority to enter into the FCS Demonstration Project expires January 6, 1992. Attachment 1 is the Farm Credit Bank Agreement to be executed by the Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) and the President of each Farm Credit Bank of those Districts which are certified to participate in the “Demonstration Project for the Purchase of Farm Credit System Land.” When a District is certified by the Farm Credit System Assistance Board (FCSAB), the President of the District will sign the Agreement and forward it to the FmHA or its successor agency under Public Law 103-354 Administrator for signature. The original Agreement will be retained by FmHA or its successor agency under Public Law 103-354 with a conformed copy to the District and the FCSAB.

II. Introduction.

This Exhibit contains a means by which the Farm Credit System (FCS) can make available for sale certain acquired lands to eligible FO applicants, as provided by § 351(h) of the Consolidated Farm and Rural Development Act. Each FCS District President and FmHA or its successor agency under Public Law 103-354 State Director, who will be involved in the Demonstration Project will provide ample notice of the project as outlined in Attachment 1 of this exhibit. Only those properties owned by FCS member institutions certified to issue preferred stock under § 6.27 of the Farm Credit Act of 1971 may be purchased under this exhibit. The Farm Credit Administration (FCA) will provide the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) with a list of these certified FCS member institutions, as further explained in Memorandum of Understanding between FmHA or its successor agency under Public Law 103-354 and FCA found in FmHA or its successor agency under Public Law 103-354 Instruction 2000-MM (available in any FmHA or its successor agency under Public Law 103-354 office). FmHA or its successor agency under Public Law 103-354 may issue certificates of eligibility to eligible borrowers to reduce the interest rate paid by such borrowers on FmHA or its successor agency under Public Law 103-354 guaranteed loans obtained from eligible Farmer Program lenders to purchase properties owned by the Farm Credit System. The sale of land by the Farm Credit System under this program is limited to an aggregate land value not to exceed $250,000,000 at fair market value each fiscal year.

Lenders that participate in this FCS Demonstration Project may enter into an agreement with FmHA or its successor agency under Public Law 103-354 to reduce the interest rate paid on a loan. In return, FmHA or its successor agency under Public Law 103-354 will make annual interest rate buydown payments to the lender in the amount of 4 percentage points. Those lenders who permanently reduce the interest rate charged on the guaranteed loan by at least 1 full percentage point will receive a 95 percent guarantee. The reduction of interest by FmHA or its successor agency under Public Law 103-354 will be in effect for a term equal to the outstanding term of such loan, or 5 years, whichever is less.

III. Definitions.

A. Cash Flow—A projection listing on a typical 24-month basis, of all anticipated cash inflows (including all farm and non-farm income) and all expenses to be incurred by the borrower during such period (including all farm and non-farm debt service and other expenses). Production records and prices used in the preparation of a cash flow will be calculated in accordance with Section 1980.113(d)(8) of this subpart.

B. Certificate of Eligibility—The County Committee will certify on Form FmHA or its successor agency under Public Law 103-354 440-2, “County Committee Certification or Recommendation” the following:

(1) That the borrower is eligible for a guaranteed FO loan.

(2) The farm is eligible for the program in accordance with § 1980.106(b) of this subpart.

(3) The borrower is eligible for an interest rate reduction.

C. Interest Rate Buydown Agreement—(Form FmHA or its successor agency under Public Law 103-354 1980-58) The signed agreement between FmHA or its successor agency under Public Law 103-354, the lender, and the borrower, setting forth the terms and conditions of the interest rate reduction.

D. Personal Funds— Any funds listed on a borrower's financial statement or obtained through a loan, whether or not secured by other property.

E. Positive Cash Flow—A cash flow projection, as defined in § 1980.106(b) of this subpart, except that the Term Debt and Capital Lease Coverage Ratio must be at least 1.0 times.

IV. Program Administration.

County Supervisors are authorized to approve Interest Rate Buydown Agreements for the FCS Demonstration Project providing the following requirements are met by the applicant, FCS and the lender.

A. Applications from individuals who are seeking to purchase FCS acquired farmlands with a guaranteed FO loan shall be processed in accordance with § 1980.113 of this subpart and this exhibit. In addition, the lender will submit attachment 2 of exhibit D with the application. The lender must demonstrate that a positive cash flow projection is not possible without reducing the interest rate on the FO loan.

B. Prospective borrowers who seek to purchase FCS acquired farmlands and who do not have a lender involved in that purchase will submit an application to FmHA or its successor agency under Public Law 103-354. The County Committee will review the application, which will also include a description of the property, and render a decision as to the eligibility of the prospective borrower and farm. If the County Committee determines the prospective borrower is eligible and that the farm meets the requirements of § 1980.106(b) of this subpart, then the County Supervisor will determine if the request is feasible. If the request is rejected by either the County Committee or the County Supervisor, the prospective borrower and the lender will be advised of the opportunity for an appeal as set out in subpart B of part 1900 of this chapter.

C. Prospective borrower must provide a down payment equal to at least 15 percent of the land purchase price using personal funds, as defined in paragraph III D of this exhibit.

D. Prospective borrowers must meet the applicable requirements of subpart G of part 1940 of this chapter, including providing Form SCS-CPA-026, “Highly Erodible Land and Wetland Conservation Determination,” and Form AD-1026, “Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification,” as required by exhibit M to subpart G of part 1940 of this chapter.

E. The FCS must price suitable farmland (family farm size as determined by the County Committee) to eligible prospective borrowers at fair market value.

F. FmHA or its successor agency under Public Law 103-354 will pay the lender an interest rate reduction of 4 percentage points.

G. The loan will be guaranteed at 90 percent in connection with a 4 percentage point interest rate reduction.

H. A lender who permanently reduces the interest rate currently charged on the loan by at least 1 full percentage point will receive a 95 percent guarantee.

I. The terms of the reduction will not exceed the outstanding term of such loan, or 5 years, whichever is less.

J. In order for the prospective borrower to qualify for a loan and an interest rate reduction, a typical plan of operation must show that a positive cash flow can be expected during the reduction period and after the Interest Rate Buydown Agreement expires.

K. The Interest Rate Buydown Agreement will be attached to the promissory note(s). The promissory note(s) cannot exceed the interest rate the lender charges the average farm customer, prior to any write down by the lender, as outlined in § 1980.175(e)(2) of this subpart. The lender may only charge a fixed rate of interest during the term of the buydown agreement. The lender is responsible for the legal documentation of interest rate changes by an “allonge” attached to the promissory note(s) or other legally effective amendment of the interest rate; however, no new notes may be issued. If the lender elects to use a variable rate note, the fixed rate of interest charged during the reduction period will be calculated not to exceed the average variable rate charged the lender's average farm customer (as defined in § 1980.175(e)(2)) of this subpart over the past 90 days. The promissory note(s) and any attachments to these agreements, must schedule repayment in accordance with the terms for the loan set forth in Section 1980.180(e) and (f) of this subpart.

V. Approval of Loan Guarantees and Interest Rate Reduction.

Authority to approve loan guarantees and Interest Rate Buydown Agreements expires January 6, 1991. If the FmHA or its successor agency under Public Law 103-354 approval official determines the reduction will be in accordance with paragraph VI of this Exhibit, in addition to the determinations required in § 1980.115, Administrative paragraphs A and B, of this subpart the approval official will:

A. Prepare Form FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans.” The request for obligation of funds must include the amount of the loan and its respective buydown.

B. Execute Form FmHA or its successor agency under Public Law 103-354 1940-3 and distribute copies in accordance with the FMI. The Finance Office will enter the obligation of funds on their records for the interest rate reduction and notify the approval official by forwarding the original and one copy of Form FmHA or its successor agency under Public Law 103-354 440-57, “Acknowledgement of Obligated Funds/Check Request.”

VI. Interest Rate Reduction Closing.

A. The lender will prepare and deliver a Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” for each guaranteed loan in which the interest rate is reduced under this exhibit.

B. See § 1980.61(b)(1), § 1980.118(c) and Administrative paragraph B of this subpart.

1. If FmHA or its successor agency under Public Law 103-354 finds that all requirements have been met, the lender, FmHA or its successor agency under Public Law 103-354 and the borrower will execute Form FmHA or its successor agency under Public Law 103-354 1980-58, “Interest Rate Buydown Agreement.” In NO CASE will Form FmHA or its successor agency under Public Law 103-354 1980-58 be executed prior to the determination of availability of funds for the loan and interest reduction as evidenced on Form FmHA or its successor agency under Public Law 103-354 440-57.

2. An original Form FmHA or its successor agency under Public Law 103-354 1980-58 will be prepared for each note executed. All originals of Form FmHA or its successor agency under Public Law 103-354 1980-58 will be provided to the lender and attached to the note(s) with the original Loan Note Guarantee. In the event the lender assigns the guaranteed portion of the loan to holder(s), a copy of Form FmHA or its successor agency under Public Law 103-354 1980-58 will be attached to the original Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement,” along with a copy of the borrower's note(s) with “allonge” and Loan Note Guarantee. Form FmHA or its successor agency under Public Law 103-354 449-36 will be revised to reflect the note amounts. At the top of the face of the document type: “This Assignment Guarantee Agreement is subject to an attachment(s) to the promissory note dated___ and Form FmHA or its successor agency under Public Law 103-354 1980-58, “Interest Rate Buydown Agreement,” which reduces the interest rate on the promissory note to an effective interest rate of __%. This reduction is ___ (insert “temporary” if there is no 95 percent guarantee involved or “permanent” if a 95 percent guarantee is involved.)” This revision will be initialed and dated by the lender, holder, and FmHA or its successor agency under Public Law 103-354. Copy(ies) of the Interest Rate Buydown Agreement will be kept in the County Office, and attached to the appropriate Loan Note Guarantee. Additional copies may be retained by the State Office. Copies of all issued Interest Rate Buydown Agreements will be kept in the file. Copies may be retained by the State Office. Copies of all issued Interest Rate Buydown Agreements will be kept in the file.

3. Repurchase of guaranteed loans having interest rate reduction under this FCS Demonstration Project. See item number 10 of Form FmHA or its successor agency under Public Law 103-354 449-36 and item number 6 of Form FmHA or its successor agency under Public Law 103-354 1980-58. When FmHA or its successor agency under Public Law 103-354 purchases a portion of the guaranteed loan, buydown payments on that portion shall cease, but the interest rate reduction shall remain in effect. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the buydown/subsidy through the date of the FmHA or its successor agency under Public Law 103-354 purchase.

VII. Interest Rate Reduction Claims and Payments.

Claims and payments will be processed in accordance with paragraphs 2 and 3 of Form FMHA 1980-58.

VIII. Term of Buydown Agreement.

The term of a buydown agreement entered into under this Exhibit shall not exceed 5 years or the outstanding term of the loan involving the interest rate reduction, whichever is less.

IX. Cancellation of Interest Rate Reduction.

Form FmHA or its successor agency under Public Law 103-354 1980-58 is incontestable, except for fraud or misrepresentation, of which the lender has actual knowledge at the time the Interest Rate Buydown Agreement is executed, or for which the lender participates in or condones. In the event that the buydown agreement is to be cancelled prior to the expiration of the buydown period, the field office should submit Form FmHA or its successor agency under Public Law 103-354 1980-51, “Add, Change, or Delete Guaranteed Loan Record,” with item numbers 1, 2, 3, 4, 12, and 13 completed, to the Finance Office.

X. Excessive Interest Rate Reduction.

Upon written notice to the lender, borrower and any holder(s), the Government may amend or cancel the Interest Rate Buydown Agreement and collect from the lender any amount of reduction granted which resulted from incomplete or inaccurate information (of which the lender was aware), an error in computation, or any other reason which resulted in payment that the lender was not entitled to receive.

XI. Transfer and Assumption of Loans Involving Interest Rate Reduction.

Transfers will be processed under this exhibit. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the buydown/subsidy through the date of the transfer or assumption of the guaranteed loan under the transferor's case number. If the reduction is necessary for the transferee to achieve a positive cash flow, the lender must make application for an initial reduction under this exhibit.

XII. Review by FmHA or its successor agency under Public Law 103-354 Employees.

The lender will submit Form FmHA or its successor agency under Public Law 103-354 1980-24 annually along with detailed calculations and a statement of activity of the borrower's account to support forward to the Finance Office for payment. FmHA or its successor agency under Public Law 103-354 may review audit reports by the lender's supervising agency when reduction claims are involved.

Attachment 1—Farmers Home Administration or its successor agency under Public Law 103-354 Demonstration Project for the Purchase of Farm Credit System LandFarm Credit Bank Agreement

I. General: This agreement provides the guidelines for the implementation of the Demonstration Project for the Purchase of Certain Farm Credit System Acquired Land (FCS Demonstration Project) between Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) and the Farm Credit Bank of _____ (Bank) to carry out the goals and objectives of Section 351(h) of the Consolidated Farm and Rural Development Act (7 U.S.C. § 1999(h)) as described in exhibit E of 7 CFR part 1980, subpart B.

The Parties Agree That:

I. The Bank will make available for purchase by qualified borrowers property eligible for the FCS Demonstration Project as further explained in paragraph II of exhibit E of 7 CFR part 1980, subpart B.

II. The Bank may, at its discretion and for the purpose of maximizing the economic return on the sale of acquired property, subdivide tracts of land to make available parcels that permit eligible borrowers to purchase the parcels consistent with limits placed on the size of loans made, insured, or guaranteed under the Consolidated Farm and Rural Development Act.

III. The Bank will periodically provide the FmHA or its successor agency under Public Law 103-354 State Director with current inventories of properties that may be eligible for the FCS Demonstration Project.

IV. The Bank, through private sale, will sell land at fair market value, as determined by the Bank, to eligible borrowers.

V. The Bank reserves the right to market and sell its acquired property to any qualified individual until, under the terms of the FCS Demonstration Project, FmHA or its successor agency under Public Law 103-354 has determined the eligibility of the borrower and suitability of the property, and a purchase agreement has been executed between the eligible borrower and the Bank.

VI. The Bank will provide technical assistance to the extent possible in connection with the implementation of the FCS Demonstration Project.

VII. The Bank will dispose of properties listed under the FCS Demonstration Project in a manner consistent with the applicable provisions of Section 4.36 of the Farm Credit Act of 1971, as amended, governing the rights of first refusal of former owners.

VIII. The FmHA or its successor agency under Public Law 103-354 will process applications for participation in the FCS Demonstration Project in accordance with FmHA or its successor agency under Public Law 103-354 regulations, including those set out in 7 CFR part 1980, subparts A and B.

IX. The FmHA or its successor agency under Public Law 103-354 will determine the eligibility of the prospective borrower and the property for the FmHA or its successor agency under Public Law 103-354 guaranteed program.

X. The FmHA or its successor agency under Public Law 103-354 will provide certificates of eligibility to eligible borrowers on a timely basis consistent with the availability of acquired property owned by institutions of the Farm Credit System certified to issue preferred stock under Section 6.27 of the Farm Credit Act of 1971.

XI. The Bank and FmHA or its successor agency under Public Law 103-354 are independently responsible for providing adequate media coverage of the FCS Demonstration Project. Media coverage will include news releases for local newspapers, radio, and television.

This Agreement is effective upon signing by both the Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 and President of the Farm Credit Bank of ____. This Agreement may be amended at any time by written agreement of both parties, and shall terminate with the expiration of the authority for the FCS Demonstration Project.

ByAdministrator, Farmers Home Administration or its successor agency under Public Law 103-354Date:By:President of the Farm Credit Bank ofDate: Pt. 1980, Subpt. B, Exh. FExhibit F—(Prepare One for Each Loan/Line of Credit to be Written Down) Shared Appreciation Agreement

This Agreement is entered into between (Lender's name) (called “Lender”) and (Borrower's name) (called “Borrower”) on (date) and expires on (Date) (maximum term of ten (10) years).

Borrower is indebted to Lender for a loan or line of credit as evidenced by the note(s) or line of credit agreement(s) described below:

DatePrincipal amountInterest rateDue date

This Agreement is attached to the note(s) or line of credit agreement(s) described above. As of the date of this Agreement, before write down, the unpaid principal balance on this note or line of credit agreement was $___ and the unpaid interest balance was $___. If a line of credit agreement is involved, the new line of credit ceiling is $___, and no increase will be made under the line of credit agreement(s). The value of the security covered by this agreement at the time of write down is $___.

The note or line of credit agreement described above is secured by the following real estate security instruments:

GrantorDate of security instrumentRecords ofCountyStateBook or reelPage

Lender agrees to write down $___ of principal and accrued interest of the above-described note or line of credit agreement. After the write down, there is now due and owing the principal sum of $___ plus interest in the sum of $___ together with interest accruing from the date of this agreement on the unpaid principal balance at the rate of __%.

As a condition to, and in consideration of, Lender writing down the above amounts and restructuring the loan, Borrower agrees to recapture by the Lender an amount according to one of the following schedules:

1. Seventy-five (75) percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement as described in the above security instrument(s) between the date of this Agreement and either the expiration date of this Agreement or the date Borrower pays all guaranteed loan(s) or lines of credit in full, ceases farming or transfers title of the security, if such event occurs four (4) years or less from the date of this Agreement.

2. Fifty (50) percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement above as described in the security instruments between the date of this Agreement and either the expiration date of this Agreement or the date Borrower pays all guaranteed loans or lines of credit in full, ceases farming or transfers title of the security, if such event occurs after four (4) years but before the expiration date of this Agreement.

The amount of recapture by Lender will be based on the difference between the value of the security at the time of disposal or cessation by Borrower of farming and the value of the security at the time this Agreement is entered into. Both values will be determined thorough an appraisal conducted by Lender. The amount of recapture will not exceed the amount of write down as stated on this form. Repayment of the recapture amount may be rescheduled or reamortized if the borrower is unable to pay the recapture amount at the expiration date of this agreement.

(Borrower signature)(Lender signature) Pt. 1980, Subpt. B, Exh. GExhibit G—1990 Farm Operating Loans Authorized By The “Disaster Assistance Act of 1989”I. General

This exhibit contains policies and procedures modifying the guaranteed operating (OL) loan regulations, Loan Note Guarantees Only, as described in § 1980.175 of this subpart, to implement the provisions of Public Law 101-82, the “Disaster Assistance Act of 1989.” Subparts A and B of part 1980 are applicable to this program, except as modified by this exhibit. OL loan note guarantee requests from lenders, under this Exhibit, must be approved on or before September 30, 1990.

II. Introduction

The authorities contained in this exhibit enable FmHA or its successor agency under Public Law 103-354 to guarantee loans made by lenders, as set forth in subparts A and B of part 1980, under subtitle B of the Consolidated Farm and Rural Development Act, as modified by title III, section 302, of the “Disaster Assistance Act of 1989.” The purposes of these OL loans include: refinancing and reamortizing 1989 annual operating loans, and/or 1989 and/or 1990 installments that are or will become due and payable during 1989 and/or 1990 on real estate debt (including buildings and storage facilities), farm equipment debt, livestock debt, or other operating debt of farmers and ranchers that otherwise cannot be repaid due to major production losses sustained as a result of drought or related condition occurring in 1988 or 1989, or excess moisture, freeze, storm or related condition occurring in 1989.

III. Definitions

A. Farmer. A producer of agricultural crops/commodities for sale in the market place. Includes crop farmers, livestock ranchers and producers of livestock products.

B. Installment. An amortized payment scheduled under the terms of a promissory note. For loans made as annual crop loans, the total amount due is the installment. For notes with a demand payment feature, refer to paragraph IV C(5) of this Exhibit for clarification of conditions that pertain to refinancing such notes.

C. Major losses. Production losses, as defined by ASCS, of sufficient magnitude to qualify a producer for ASCS emergency livestock assistance or disaster program payments.

D. Operating loan. A loan made for any authorized annual operating loan purpose, for calendar year 1989, as stated in § 1980.175(c) of subpart B, for which payment cannot be made due to drought or related condition occurring in 1988 or 1989, or excess moisture, freeze, storm or related condition occurring in 1989.

IV. Program Administration

Loan guarantee requests will not be approved until a determination is made by the Agricultural Stabilization and Conservation Service (ASCS) that the applicant is eligible for benefits under an ASCS livestock feed program or disaster payment program, or that the borrower incurred major production losses as determined by ASCS, but for other reasons is not eligible for ASCS disaster program benefits. The use of such benefits must be considered first for reducing the applicant's outstanding financial obligations incurred in the disaster year. This is to ensure that loan guarantees are not approved in excess of the farmer's actual financial needs.

A. Eligibility. Farmers and ranchers who are determined eligible to receive disaster program benefits from ASCS, based on production losses to any commercial crop grown for harvest in 1989, may receive loans from lenders, guaranteed by FmHA or its successor agency under Public Law 103-354, subject to the eligibility requirements contained in § 1980.175(b) of this subpart, and the following:

(1) Guarantees will be approved only for those farmers unable to make scheduled payments on their 1989 annual operating loans and/or 1989 and/or 1990 scheduled installments on other farm debts, as a result of the conditions stated in paragraph II of this exhibit. If a request is made to refinance an installment not yet due and payable, the projected plan of operation must show that the applicant will be unable to meet the installment when it comes due.

(2) Farmers must otherwise be current with their obligations to the lender making the guaranteed loan, when the guarantee is approved. If a guarantee is approved to refinance installments due more than one creditor, the applicant must be current with all creditors refinanced, when the guarantee is approved.

(3) The lender's guarantee request package, as prescribed in § 1980.113 and Exhibit A of this subpart, will contain a properly executed (signed by an authorized ASCS official) Form CCC 441, “Application for 1989 Disaster Benefits,” with attached worksheet, “1989 Disaster System Producer Calculated Payment Report,” for each farm. This will establish that the farmer has been determined eligible by ASCS for a disaster program(s) payment(s).

(4) The FmHA or its successor agency under Public Law 103-354 County Committee will certify that the applicant meets the requirements contained in § 1980.175(b).

B. Limitations. Farmers will not be eligible for loan guarantees under this Exhibit, if their ASCS disaster benefits are only in the form(s) of:

1. Assistance for haying and grazing CRP acreage, as addressed in subtitle D of title I of the Act;

2. Assistance for orchard farmers, under subtitle B of title I of the Act;

3. Emergency livestock assistance, under title II of the Act;

4. Livestock water assistance, under section 502 of title V of the Act; or

5. Forest crop assistance, under subtitle C of title I of the Act.

C. Loan Purposes. Eligible loan purposes include any of the following:

1. Refinancing 1989 annual operating loans.

2. Refinancing 1989 loan installments.

3. Refinancing 1990 loan installments.

4. Loans or loan installments to be refinanced must be due or will become due and payable during 1989 or 1990, and must have been incurred for:

(a) real estate debt (including buildings and storage facilities);

(b) farm equipment debt;

(c) livestock debt; or

(d) other operating debt.

5. When a creditor or lender requests refinancing of a promissory note that contains a demand payment feature, and the debt was incurred for more than one purpose, e.g., operating expenses, machinery and/or equipment purchase, debt carryover, and other capital expenditures, only the annual operating expense portion, plus an amount equivalent to an annual installment(s) for each of the other purposes, can be included in the guaranteed loan.

D. Terms. 1989 annual operating loans and/or 1989 and/or 1990 installments refinanced will be scheduled for repayment on terms that will provide the borrower a reasonable opportunity to continue to receive new operating credit while repaying the guaranteed loan. When a loan is made to refinance more than one installment with the same creditor, or more than one installment with different creditors, the term of the guaranteed loan will be limited to not more than 6 years from the original due date of any installment being refinanced.

1. This Exhibit does not preclude participation by more than one lender.

2. Different lenders of the same applicant may request separate guarantees when refinancing their installments, provided:

(a) Separate notes are taken and repayment of each note does not exceed 6 years from the original installment due date; and

(b) The security requirements in § 1980.175 (g) and (h) are met, except as stipulated in paragraph IV E of this exhibit.

E. Security. Adequate security must exist and be maintained for the proposed debt(s) to be refinanced. A current market value appraisal will be completed in accordance with § 1980.113(d)(9) of this subpart to ensure that sufficient collateral equity exists to fully secure the loan being guaranteed.

1. Section 1980.175(d)(5) of this subpart, which requires separate and identifiable security, will not apply. Junior liens on collateral may be accepted when practical and agreeable with the lender proposing the loan.

2. When a lender requests a guarantee for refinancing its own debt secured by chattels, a new financing statement will be required to implement the requirements of § 1980.109(b) (1) and (2). A lien search will be made to show that the proposed collateral is, in fact, encumbered by the lender; and the subsequent filing will give the intended junior lien position. For these loans, the loan agreement, promissory note, and any new security instruments will include language stating:

(a) The security position of the guaranteed loan being made is junior to the lender's original lien, and

(b) The amount of the prior lien.

3. For real estate installments being refinanced, the best lien obtainable on the real estate serving as collateral for the loan, may be accepted, provided the junior lien position will afford sufficient collateral equity to fully secure the guaranteed loan being made. If the junior lien will not fully secure the new loan, lender must obtain additional collateral having sufficient equity to assure the new guaranteed loan will be fully secured. This will be accomplished by either subordination of an existing lien(s) on the real estate in question or a lien on other real estate having sufficient collateral equity to make up the deficiency in security value.

4. When a single loan is made to refinance more than one creditors’ installments, the best lien obtainable may be taken, as a minimum, on the same items of collateral that serve as security for the loan installments being refinanced, provided the sum of the liens against the collateral does not exceed the present market value of the collateral.

F. Servicing. 1. Servicing of loans made under this Exhibit will be in accordance with § 1980.130 of this subpart, paragraph IX of form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement,” and paragraph VII of exhibit A, attachment 1, “Approved Lender Program, Lender's Agreement.”

2. If it becomes necessary for the lender to make a protective advance to protect or preserve the collateral, or if liquidation becomes necessary, the lender will determine whether a substantial recovery can be made.

G. Appeals. Adverse decisions by FmHA or its successor agency under Public Law 103-354 officials will be processed in accordance with subpart A of part 1980 and subpart B of part 1900 of this chapter.