§ 5001.31 - Guaranteed loan requirements.

(a) Interest rates. Interest rates may be fixed or variable or a combination of both, as long as they are legal. Variable interest rates must be tied to an acceptable published index and the lender must incorporate the provision for adjustment of payment installments into the Note.

(1) Negotiated rates. Interest rates, interest rate caps, and incremental adjustment limitations will be negotiated between the lender and the borrower and will be subject to concurrence by the Agency.

(2) Different rates on guaranteed and unguaranteed portion of the loan. If the lender and borrower agree, the interest rate on the guaranteed portion of a loan may differ from the rate on the unguaranteed portion provided:

(i) The rate on the unguaranteed portion is equal to or below the market rate and does not exceed that currently being charged on loans for similar purposes to borrowers under similar circumstances; and

(ii) The rate on the guaranteed portion does not exceed the rate on the unguaranteed portion unless the rate on the guaranteed portion is fixed and the unguaranteed portion is variable.

(b) Interest rate changes.

(1) General. Any change in the interest rate between issuance of the Conditional Commitment and issuance of the Loan Note Guarantee:

(i) Must be approved in writing by the Agency, unless the only change is to the base rate of a variable interest rate;

(ii) Must be shown as an amendment to the Conditional Commitment; and

(iii) Are subject to the restrictions specified in paragraphs (b)(2) and (b)(3) of this section.

(2) Reductions. The borrower, lender, and holder (if any) may collectively effect a permanent or temporary reduction in the interest rate on the guaranteed loan at any time during the life of the loan by their written agreement, subject to the conditions specified in paragraphs (b)(1)(i) through (iii) of this section. The lender must keep sufficient records to allow the Agency to calculate any loss at the reduced interest rate. The lender must notify the Agency of all permanent interest rate reductions, as specified in § 5001.4(b)(3)(ii).

(i) After a permanent reduction, the Loan Note Guarantee will only cover losses of interest at the reduced interest rate.

(ii) In a final loss settlement when qualifying rate changes are made with the required written agreements and notification, the interest will be calculated for the periods the given rates were in effect. The lender must maintain records that adequately document the accrued interest claimed.

(iii) The lender is responsible for the legal documentation of interest-rate changes by an endorsement or any other legally effective amendment to the promissory note; however, no new notes may be issued. Copies of all legal documents must be provided to the Agency.

(3) Increases. Increases in interest rates are not permitted beyond what is provided in the loan documents. Increases from a variable interest rate to a higher interest rate that is a fixed rate are allowed, subject to concurrence by the Agency.

(c) Term length. The loan term will be based on the use of proceeds, the useful economic life of the assets being financed, and the borrower's repayment ability. In no event may the term exceed 40 years.

(d) Loan schedule and repayment. Repayment will be structured in accordance with this section and the Loan Agreement, and will be due and payable in accordance with the Note. Only loans that require a periodic payment schedule that will retire the debt over the term of the loan without a balloon payment will be guaranteed. Lenders must ensure that the principal balance of a guaranteed loan is properly amortized within the prescribed loan maturity.

(e) Maximum loan amounts. The maximum amount that may be guaranteed will be determined on a program-by-program basis and will be published each year in the Federal Register.

(f) Maximum percent of guarantee. The maximum guarantee is specified in subpart B of this part for each guaranteed loan program covered by this part.

(g) Fees. Each year, the Agency will establish, and publish in a Federal Register notice, the guarantee fee and renewal fee for each guaranteed loan program. A guarantee fee and a renewal fee will be assessed on each loan, as specified in the Federal Register notice. Both the guarantee fee and the renewal fee are nonrefundable.

(1) Guarantee fee. The guarantee fee will be paid to the Agency by the lender at the time the lender requests the Loan Note Guarantee. The fee may be passed on to the borrower.

(2) Renewal fee. As applicable, the renewal fee is assessed annually, is based on a fixed fee rate established at the time the loan is obligated, and will be calculated on the unpaid guaranteed principal balance as of close of business on December 31 of each year. The fee will be billed to the lender and may be passed on to the borrower.

(h) Lender fees. The lender may levy reasonable, routine, and customary charges and fees, including late payment fees, for the guaranteed loan provided they are similar to those charged other borrowers for the same type of loan for which a non-guaranteed borrower would be assessed. Default charges, late payment charges, and additional interest expenses will not be covered by the Loan Note Guarantee. Such charges may not be added to the principal and interest due under any guaranteed note.