[Federal Register Volume 59, Number 61 (Wednesday, March 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7545]
[[Page Unknown]]
[Federal Register: March 30, 1994]
VOL. 59, NO. 61
Wednesday, March 30, 1994
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DEPARTMENT OF AGRICULTURE
Farmers Home Administration
7 CFR Part 1980
RIN 0575-AB70
Removal of the Prohibition Against Charging Interest on Interest
on FmHA Guaranteed Loans
AGENCY: Farmers Home Administration, USDA.
ACTION: Proposed rule.
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SUMMARY: Farmers Home Administration (FmHA) proposes to amend its
guaranteed farmer programs loan making and servicing regulations to
remove the restriction against lenders charging interest on interest
when restructuring loans. The intended effect is to eliminate barriers
which prevent lenders from restructuring loans of delinquent guaranteed
borrowers.
DATES: Written comments must be submitted on or before April 14, 1994.
ADDRESSES: Submit written comments, in duplicate, to the Office of the
Chief, Regulations Analysis and Control Branch, Farmers Home
Administration, USDA, room 6348, South Agriculture Building, 14th
Street and Independence Avenue SW., Washington, DC 20250-0700. All
written comments made pursuant to this notice will be available for
public inspection during regular working hours at the above address.
FOR FURTHER INFORMATION CONTACT: Steven K. Ford, Senior Loan Officer,
Farmer Programs Loan Making Division, Farmers Home Administration,
USDA, South Agriculture Building, room 5424, 14th and Independence
Avenue, SW., Washington, DC. 20250-0700, Telephone (202) 690-0451.
SUPPLEMENTARY INFORMATION:
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866, and the Office of Management and Budget (OMB) has
determined that it is a ``significant regulatory action.'' Based on
information compiled by the Department, OMB has determined that this
proposed rule: (1) Would alter the budgetary impact of entitlements,
grants, user fees, or loan programs or rights and obligations of
recipients thereof; and (2) is a significant public policy issue as
related to the direction of the guaranteed loan program.
Intergovernmental Consultation
1. For the reasons set forth in the final rule related to notice 7
CFR part 3015, subpart V (48 FR 29115, June 24, 1983) and FmHA
Instruction 1940-J, ``Intergovernmental Review of Farmers Home
Administration Programs and Activities'' (December 23, 1983), Farm
Ownership Loans, Farm Operating Loans, and Emergency Loans are excluded
from the scope of Executive Order 12372, which requires
intergovernmental consultation with State and local officials.
2. The Soil and Water Loan Program is subject to the provisions of
Executive Order 12372 and FmHA Instruction 1940-J.
Programs Affected
These changes affect the following FmHA programs as listed in the
Catalog of Federal Domestic Assistance:
10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.
10.416--Soil and Water Loans.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of FmHA
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment, and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Civil Justice Reform
This document has been reviewed in accordance with Executive Order
(E.O.) 12778. It is the determination of FmHA that this action does not
unduly burden the Federal Court System in that it meets all applicable
standards provided in section 2 of the Executive Order.
Paperwork Reduction Act
The information collection requirements contained in these
regulations have been approved by the Office of Management and Budget
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been
assigned OMB control number 0575-0024 in accordance with the Paperwork
Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not
revise or impose any new information collection requirement from those
approved by OMB.
Discussion of Proposed Rule
It is the policy of this Department that rules relating to public
property, loans, grants, benefits, or contracts shall be published for
comment not withstanding the exemption of 5 U.S.C. 553 with respect to
such rules. FmHA is publishing this proposed rule with a 15-day comment
period. This proposed rule relieves the restriction prohibiting lenders
from charging interest on interest when restructuring guaranteed Farmer
Programs loans. Due to the flooding in the Midwest and the drought in
the Southeast, several farmers have experienced substantial reduction
in income and will be unable to make their annual payments on
Guaranteed loans. By permitting lenders to capitalize interest when
restructuring these loans, the loans will be more profitable and
lenders will be less resistant to rescheduling or reamortizing these
loans. This will allow the farmers to continue their operation and
avoid liquidation. Therefore, the Agency has concluded that the need to
provide immediate assistance to farmers who have suffered severe
production and physical losses as a result of natural disasters also
justifies the shortened comment period under 5 U.S.C. 553 (d).
Lenders participating in the Guaranteed Loan Program have been
reluctant to restructure the loans of delinquent guaranteed borrowers
because of restrictive regulatory requirements. FmHA requires lenders
to set aside the accrued interest portion of loans that are being
restructured. Interest is only accrued on the outstanding principal.
The restriction prohibiting lenders from charging interest on
interest was originally included in the regulations to make the
Guaranteed Program consistent with the Direct loan program. In the
past, FmHA could not capitalize interest that was not more than 90 days
past due. Due to the passage of the Food, Agriculture, Conservation and
Trade Act of 1990 (Pub. L. 101-624), this is no longer a restriction
for Direct loans. The restriction, therefore, is unique to the
Guaranteed program and should be removed.
This practice also is contrary to standard industry practice.
Lenders normally capitalize the outstanding interest portion of the
loan and reschedule or reamortize the payments based on the new
principal amount. FmHA's restriction on capitalizing interest
necessitates a unique treatment for guaranteed loans with additional
bookkeeping efforts. It also reduces the lender's return on the
guaranteed loans.
FmHA proposes to remove the restriction prohibiting lenders from
capitalizing interest on guaranteed loans when restructuring. By
removing this restriction, lenders will no longer be required to
maintain a separate accounting system for the accrued interest when a
delinquent loan is restructured. This separate system is
administratively expensive for lenders to maintain; therefore, lenders
have been reluctant to restructure loans.
By removing this restriction, FmHA will pay an additional amount in
loss claims in cases where the lender has restructured the loan and
capitalized the interest. FmHA estimates that the increase in loss
payments should be limited to 1 percent of the current loss payment
level.
Lenders will also be able to use their standard notes without
modification. Some lenders customarily charge borrowers interest on
delinquent interest as a late payment fee. FmHA requires this clause to
be removed by modifying the note or attaching an allonge. The proposed
change will permit lenders to charge late payment fees that are
customary for their non-guaranteed loans; however, it will not change 7
CFR part 1980, subpart A, Section 1980.22 which prohibits these charges
from being covered by the guarantee. Any other capitalization of
interest when restructuring will be permitted, and will be covered by
the guarantee, providing the interest and other charges do not exceed
those charged to the lenders' non-guaranteed farm customers.
This change will only apply to Farmer Program Guaranteed loans,
since it is intended to respond to farmers' reduction in income and
agricultural lenders reluctance to restructure guaranteed loans without
capitalizing interest. Similar hardships have not been identified in
the Housing or Business and Industry programs.
This revision will also reduce the difference in the profitability
of guaranteed loans compared with the lenders' non-guaranteed loans.
Lenders will be more willing to restructure the loans of delinquent
guaranteed borrowers instead of liquidating the security. While some
borrowers will pay more after their loans are restructured, many more
borrowers will be able to continue farming with restructured loans.
The revision will apply to new loans made as well as existing
guaranteed loans. Forms FmHA 449-34, ``Loan Note Guarantee,'' FmHA
1980-27, ``Contract of Guarantee (Line of Credit),'' and FmHA 1980-38,
``Agreement for Participation in Farmer Programs Guaranteed Loan
Programs of the United States Government,'' executed for previous
loans, contain prohibitions against charging interest on interest.
Since removing this restriction will be to the lenders' benefit, FmHA
proposes to permit lenders to capitalize interest when restructuring
guaranteed loans. Thus, when FmHA concurs with the restructuring plan,
the County Supervisor will provide the lender with an attachment to
these forms modifying the restriction in cases of restructuring within
statutory loan limits, and setting any new principal and guaranteed
amounts. These forms will be amended accordingly for new guaranteed
loans, but an attachment will be needed at restructuring to identify
any new principal and guaranteed amounts which exceed the amounts
listed on the guaranteed loan documents.
The Agency also proposes to eliminate the requirement that
principal payments be made which are at least equal to the amount of
the depreciation of the security. It is unrealistic to expect that a
farmer in need of restructuring could make such a principal payment.
For example, if a loan with a $100,000 outstanding balance, and
$400,000 of security is restructured, the borrower currently must
reduce the principal by $40,000 (assuming the security depreciates at
10 percent per year). This requirement has proven to be a hindrance to
necessary loan restructuring.
The principal reduction requirement was originally adopted along
with the requirement that Guaranteed loans be fully secured to be
restructured. In 1989, FmHA removed the requirement that loans be
secured to receive restructuring. There may be situations where the
loan will not be fully secured; however, the risk to the agency is
minimized by other requirements for restructuring, such as
demonstrating a feasible plan, and restricting the number of years over
which a loan may be rescheduled/reamortized.
List of Subjects in 7 CFR Part 1980
Agriculture, Loan programs--Agriculture, Loan Programs--Business
and Industry--Rural development assistance, Loan programs--Housing and
Community development.
Therefore, chapter XVIII, title 7, Code of Federal Regulations is
proposed to be amended as follows:
PART 1980--GENERAL
1. The authority citation for part 1980 continues to read as
follows:
Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR
2.23 and 2.70.
Subpart A--General
2. Section 1980.11 is revised to read as follows:
Sec. 1980.11 Full faith and credit.
The Loan Note Guarantee and Contract of Guarantee constitute
obligations supported by the full faith and credit of the United States
and are incontestable except for fraud or misrepresentation of which
the lender or holder has actual knowledge at the time it becomes such
lender or holder or which lender or holder participates in or condones.
A note which provides for the payment of interest on interest shall not
be guaranteed. Any Loan Note Guarantee, Contract of Guarantee or
Assignment Guarantee Agreement attached to or relating to a note which
provides for payment of interest on interest is void. Except in the
case of Farmer Program loans, a note which provides for the
capitalization of interest as a result of restructuring the loan and
not exceeding statutory loan limits or as a customary late payment fee
may be guaranteed, and any Loan Note Guarantee, Contract of Guarantee
or Assignment Guarantee Agreement attached to or relating to such note
is not void. The guarantee and right to require purchase will be
directly enforceable by holder notwithstanding any fraud or
misrepresentation by the lender or any unenforceability of the Loan
Note Guarantee by the lender. The Loan Note Guarantee or Contract of
Guarantee will be unenforceable by the lender to the extent any loss is
occasioned by violation of usury laws, negligent servicing or failure
to obtain the required security regardless of the time at which FmHA
acquires knowledge of the foregoing. Any losses occasioned will be
unenforceable by the lender to the extent that loan funds are used for
purposes other than those specifically approved by FmHA in its Form
FmHA 1980-15. Negligent servicing is defined as the failure to perform
those services which a reasonably prudent lender would perform in
servicing its own portfolio of loans that are not guaranteed. The term
includes not only the concept of a failure to act but also not acting
in a timely manner or acting in a manner contrary to the manner in
which a reasonably prudent lender would act up to the time of loan
maturity or until a final loss is paid. The Loan Note Guarantee or
Assignment Guarantee Agreement in the hands of a holder shall not cover
interest accruing 90 days after the holder has demanded repurchase by
the lender, nor shall the Loan Note Guarantee or Assignment Guarantee
Agreement in the hands of a holder cover interest accruing 90 days
after the lender or FmHA has requested the holder to surrender the
evidence of debt for repurchase.
3. Section 1980.20 (a) introductory text is revised to read as
follows:
Sec. 1980.20 Loan guarantee limits.
(a) Lenders and applicants will propose the percentage of
guarantee. Lenders and applicants will be advised in writing on Form
FmHA 449-14 by FmHA of any percentage of guarantee less than proposed
by the lender and applicant, and the reasons therefore. (See
Sec. 1980.80 of this subpart regarding appeals.) The maximum percentage
of guarantee (as opposed to the maximum loss covered by the guarantee)
on a Business and Industrial loan is defined in Sec. 1980.420 of
subpart E of this part. The maximum percentage of guarantee for DARBE
guaranteed loans in excess of $2,000,000 will be calculated so that the
guaranteed portion of the principal amount of the loan cannot exceed
$2,000,000. The maximum percentage of guarantee for all other loans
covered by this section will be 90 percent. Also, except in regards to
D&D and DARBE guaranteed loans (see subpart E of this part) or as
modified for Farmer Programs guaranteed loans (see subpart B of this
part), the maximum loss covered by Form FmHA 449-34 or Form FmHA 1980-
27 can never exceed the lesser of:
* * * * *
4. Section 1980.83 (b) is amended by adding two new entries at the
end of the table to read as follows:
Sec. 1980.83 FmHA Forms.
* * * * *
(b) * * *
FmHA
------------------------------------------------------------------------
Form No. Title of form Purpose and code\1\
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1980-84... Modification of New Contract Used to permit capitalization
Relating to Farmer Programs of interest. (2)
Guaranteed Loan/Line of
Credit.
1980-85... Modification of Existing Used to permit capitalization
Contract Relating to Farmer of interest. (2)
Programs Guaranteed Loan/
Line of Credit.
------------------------------------------------------------------------
\1\Code: *** (2) FmHA and lender use, ***
5. Appendix A to Subpart A is revised to read as follows:
Appendix A to Subpart A
USDA-FmHA
Form FmHA 449-34
(Rev. 4-94)
Type of Loan: __________
Loan Note Guarantee
Applicable 7 C.F.R. Part 1980
Subpart
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Borrower
----------------------------------------------------------------------
Lender
----------------------------------------------------------------------
Lender's Address
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State
----------------------------------------------------------------------
County
----------------------------------------------------------------------
Date of Note
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FmHA Loan Identification Number
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Lender's IRS ID Tax Number
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Principal Amount of Loan
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The guaranteed portion of the loan is $__________ which is__________
(__________%) percent of a loan principal. The principal amount of
loan is evidenced by ____________ note(s) includes bonds as
appropriate) described below. The guaranteed portion of each note is
indicated below. This instrument is attached to note __________ in
the face amount of $________ and is number ________ of ________.
------------------------------------------------------------------------
Percent
Lender's identifying of total
No. Face amount face Amount guaranteed
amount
------------------------------------------------------------------------
$ % $
------------------------------------------------------------------------
Total $________ 100% $________
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In consideration of the making of the subject loan by the above
named Lender, the United States of America, acting through the
Farmers Home Administration of the United States Department of
Agriculture (herein called ``FmHA''), pursuant to the Consolidated
Farm and Rural Development Act (7 U.S.C. 1921 et. seq.), the
Emergency Livestock Credit Act of 1974 (7 U.S.C. note preceding 1961
P.L. 93-357 as amended), the Emergency Agriculture, Credit
Adjustment Act of 1978 (7 U.S.C. note preceding 1961 P.L. 93-357 as
amended), the Emergency Agriculture, Credit Adjustment Act of 1978
(7 U.S.C. note preceding 1921, P.L. 95-334, or Title V of the
Housing Act of 1949 (42 U.S.C. 1471 et. seq.) does hereby agree that
in accordance with and subject to the conditions and requirements
herein, it will pay to:
A. Any Holder 100 percent of any loss sustained by such Holder
on the guaranteed portion and on interest due (including any loan
subsidy) on such portion and any capitalized interest on such
portion resulting from the restructuring of a Guaranteed Farmer
Programs loan and not exceeding statutory loan limits.
B. The Lender the lesser of 1. or 2. below:
1. Any loss sustained by such Lender on the guaranteed portion
including:
a. Principal and interest indebtedness as evidenced by said
note(s) or by assumption agreement(s), and
b. Any loan subsidy due and owing, and
c. Principal and interest indebtedness on secured protective
advances for protection and preservation of collateral made with
FmHA's authorization, including but not limited to, advances for
taxes, annual assessments, any ground rents, and hazard or flood
insurance premiums affecting the collateral, or
d. and, Capitalized interest on such portion resulting from the
restructuring of a Guaranteed Farmer Programs loan and not exceeding
statutory loan limits, or
2. The guaranteed principal advanced to or assumed by the
Borrower under said note(s) or assumption agreement(s) and any
interest due (including any loan subsidy) thereon and any
capitalized interest resulting from the restructuring of a
Guaranteed Farmer Programs loan and not exceeding statutory loan
limits.
If FmHA conducts the liquidation of the loan, loss occasioned to
a Lender by accruing interest (including any loan subsidy) after the
date FmHA accepts responsibility for liquidation will not be covered
by this Loan Note Guarantee. If Lender conducts the liquidation of
the loan accruing interest (including any loan subsidy) shall be
covered by this Loan Note Guarantee to date of final settlement when
the Lender conducts the liquidation expeditiously in accordance with
the liquidation plan approved by FmHA.
Definition of Holder
The Holder is the person or organization other than the Lender
who holds all or part of the guaranteed portion of the loan with no
servicing responsibilities. Holders are prohibited from obtaining
any part(s) of the Guaranteed portion of the loan with proceeds from
any obligation, the interest on which is excludable from income,
under Section 103 of the Internal Revenue Code of 1954, as amended
(IRC). When the Lender assigns a part(s) of the guaranteed loan to
an assignee, the assignee becomes a Holder only when Form FmHA 449-
36, ``Assignment Guarantee Agreement,'' is used.
Definition of Lender
The Lender is the person or organization making and servicing
the loan which is guaranteed under the provisions of the applicable
Subpart 7 CFR of Part 1980. The Lender is also the party requesting
a loan guarantee.
Conditions of Guarantee
1. Loan Servicing
Lender will be responsible for servicing the entire loan, and
Lender will remain mortgagee and/or secured party of record not
withstanding the fact that another party may hold a portion of the
loan. When multiple notes are used to evidence a loan, Lender will
structure repayments as provided in the loan agreement. In the case
of Farm Ownership, Soil and Water, or Operating Loans, the Lender
agrees that if liquidation of the account becomes imminent, the
Lender will consider the Borrower for an Interest Rate Buydown under
Exhibit C of Subpart B of 7 CFR, Part 1980, and request a
determination of the Borrower's eligibility by FmHA. The Lender may
not initiate foreclose 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.
2. Priorities
The entire loan will be secured by the same security with equal
lien priority for the guaranteed and unguaranteed portions of the
loan. The unguaranteed portion of the loan will not be paid first
nor given any preference or priority over the guaranteed portion.
3. Full Faith and Credit
The Loan Note Guarantee constitutes an obligation supported by
the full faith and credit of the United States and is incontestable
except for fraud or misrepresentation of which Lender or any Holder
has actual knowledge at the time it became such Lender or Holder or
which Lender or any Holder participates in or condones. If the note
to which this is attached or relates provides for the payment of
interest on interest, then this Loan Note Guarantee is void.
However, in the case of the Farmer Programs loans, the
capitalization of interest when restructuring loans and the charging
of customary late fees will not void this Loan Note Guarantee. In
addition, the Loan Note Guarantee will be unenforceable by Lender to
the extent any loss is occasioned by the violation of usury laws,
negligent servicing, or failure to obtain the required security
regardless of the time at which FmHA acquires knowledge of the
foregoing. Any losses occasioned will be unenforceable to the extent
that loan funds are used for purposes other than those specifically
approved by FmHA in its Conditional Commitment for Guarantee.
Negligent servicing is defined as the failure to perform those
services which a reasonably prudent lender would perform in
servicing its own portfolio of loans that are not guaranteed. The
term includes not only the concept of a failure to act but also not
acting in a timely manner or acting in a manner contrary to the
manner in which a reasonably prudent lender would act up to the time
of loan maturity or until a final loss is paid.
4. Rights and Liabilities
The guarantee and right to require purchase will be directly
enforceable by Holder notwithstanding any fraud or misrepresentation
by Lender or any unenforceability of this Loan Note Guarantee by
Lender. Nothing contained herein will constitute any waiver by FmHA
of any rights it possesses against the Lender. Lender will be liable
for and will promptly pay to FmFA any payment made by FmHA to Holder
which if such Lender had held the guaranteed portion of the loan,
FmHA would not be required to make.
5. Payments
Lender will receive all payments of principal, or interest, and
any loan subsidy on account of the entire loan and will promptly
remit to Holder(s) its pro rata share thereof determined according
to its respective interest in the loan, less only Lender's servicing
fee.
6. Protective Advances
Protective advances made by Lender pursuant to the regulations
will be guaranteed against a percentage of loss to the same extent
as provided in this Loan Note Guarantee notwithstanding the
guaranteed portion of the loan that is held by another.
7. Repurchase by Lender
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 on principal or interest due on the loan or (b)
the Lender has failed to remit to the Holder(s) its pro rate share
of any payment made by the borrower or any loan subsidy within 30
days of its receipt thereof. The repurchase by the Lender will be
for an amount equal to the unpaid guaranteed portion of principal
and accured interest (including any loan subsidy) 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. Holder(s) will concurrently send a copy of demand of
FmHA. 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 of its
decision.
8. FmHA Purchase
If Lender does not repurchase as provided by paragraph 7 hereof,
FmHA will purchase from Holder the unpaid principal balance of the
guaranteed portion together with accrued interest (including any
loan subsidy) to date of repurchase less Lender's servicing fee,
within thirty (30) days after written demand to FmHA from Holder.
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 original demand letter of the Holder 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. Such evidence will consist of either the original
of the Loan Note Guarantee properly endorsed to FmHA or the original
of the Assignment Guarantee Agreement properly assigned to FmHA
without recourse including all rights, title, and interest in the
loan. FmHA 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 (including any loan subsidy) to date of
demand and interest (including any loan subsidy) subsequently
accruing from date of demand to proposed payment date. Unless
otherwise agreed to by FmHA, such proposed payment will not be later
than 30 days from the date of demand.
The FmHA will promptly notify the Lender of its receipt of the
Holder(s)'s demand for payment. The Lender will promptly provide the
FmHA with the information necessary for FmHA 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 will
notify both parties who must resolve the conflict before payment by
FmHA will be approved. Such conflict will suspend the running of the
30 day payment requirement. Upon receipt of the appropriate
information, FmHA 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 Finance Office for
issuance of the appropriate check. Upon issuance, the Finance Office
will notify the office servicing the borrower and State Director and
remit the check(s) to the Holder(s).
9. Lender's Obligation
Lender consents to the purchase by FmHA and agrees to furnish on
request by FmHA a current statement certified by an appropriate
authorized officer of the Lender of the unpaid principal and
interest then owed by Borrowers on the loan and the amount including
any loan subsidy then owed to any Holder(s). Lender agrees that any
purchase by FmHA does not change, alter or modify any of the
Lender's obligations to FmHA arising from said loan or guarantee nor
does it waive any of FmHA's rights against Lender, and that FmHA
will have the right to set-off against Lender all rights inuring to
FmHA as the Holder of this instrument against FmHA's obligation to
Lender under the Loan Note Guarantee.
10. Repurchase by Lender for Servicing
If, in the opinion of the Lender, repurchase of the guaranteed
portion of the loan is necessary to adequately service the loan, the
Holder will sell the portion of the loan to the Lender for an amount
equal to the unpaid principal and interest (including any loan
subsidy) on such portion less Lender's servicing fee. The Loan Note
Guarantee will not cover the note interest to the Holder on the
guaranteed loans accruing after 90 days from the date of the demand
letter of the Lender or FmHA to the Holder(s) requesting the
Holder(s) to tender their guaranteed portion(s).
a. The Lender will not repurchase from the Holder(s) for
arbitrage purposes or other purposes to further its own financial
gain.
b. Any repurchase will only be made after the Lender obtains
FmHA written approval.
c. If the Lender does not repurchase the portion from the
Holder(s), FmHA at its option may purchase such guaranteed portions
for servicing purposes.
11. Custody of Unguaranteed Portion
The Lender may retain, or sell the unguaranteed portion of the
loan only through participation. Participation, as used in this
instrument, means the sale of an interest in the loan wherein the
Lender retains the note, collateral securing the note, and all
responsibility for loan servicing and liquidation.
12. When Guarantee Terminates
This Loan Note Guarantee will terminate automatically (a) Upon
full payment of the guaranteed loan; or (b) upon full payment of any
loss obligation hereunder; or (c) upon written notice from the
Lender to FmHA that the guarantee will terminate 30 days after the
date of notice, provided the Lender holds all of the guaranteed
portion and the Loan Note Guarantee(s) are returned to be cancelled
by FmHA.
13. Settlement
The amount due under this instrument will be determined and paid
as provided in the applicable Subpart of Part 1980 of Title 7 CFR in
effect on the date of this instrument.
14. Loan Subsidy
*In addition to the interest rate of the note attached hereto,
FmHA will pay a loan subsidy of ________ percent per year. Payments
will be made annually.
15. Interest Capitalization
In the case of Farmer Programs loans, the Lender/Holder(s) may
capitalize interest only when the note is restructured. When
delinquent interest is so treated as principal, the new principal
amount may exceed the principal amount of the loan listed herein,
but may not exceed statutory loan limits. The new principal amount
and new guaranteed portion will be identified at restructuring in an
addendum to this Loan Note Guarantee. Such capitalized interest will
be covered by this Loan Note Guarantee. References to ``principal
and interest'' and ``principal advanced'' herein, therefore, shall
include any capitalized interest on the guaranteed portion of the
loan resulting from the restructuring of a Guaranteed Farmer
Programs loan and not exceeding statutory loan limits. The
capitalization of interest via a late payment fee also is
permissible if customary for the lender's non-guaranteed loans. The
late fees, however, will not be covered by the guarantee.
16. Notices
All notices will be initiated through the FmHA ____________ for
____________ (State) with mailing address at the day of this
instrument:
----------------------------------------------------------------------
----------------------------------------------------------------------
*If not applicable delete paragraph prior to execution of this
instrument.
UNITED STATES OF AMERICA
Farmers Home Administration
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
----------------------------------------------------------------------
(Date)
Assumption Agreement by __________ dated __________, 19 ______
Assumption Agreement by __________ dated __________, 19 ______
6. Appendix C to subpart A is revised to read as follows:
Position 5
Appendix C to Subpart A
USDA-FmHA
Form Approved
OMB NO. 0575-0024
Form FmHA 449-36
(Rev. 4-94)
Assignment Guarantee Agreement
Type of Loan:----------------------------------------------------------
Applicable 7 CFR Part 1980 Subpart-------------------------------------
FmHA Loan Identification Number----------------------------------------
----------------------------------------------------------------------
of---------------------------------------------------------------------
(Lender) has made a loan to--------------------------------------------
in the principal amount of $__________ as evidenced by a note(s)
dated __________. The United States of America, acting through
Farmers Home Administration (FmHA) entered into a Loan Note
Guarantee
(Form FmHA 449-34) with the Lender applicable to such loan to
guarantee the loan not to exceed __________ % of the amount of the
principal advanced and any interest (including any loan subsidy) due
thereon and any capitalized interest, resulting from the
restructuring of a Guaranteed Farmer Programs loan and not exceeding
statutory loan limits, as provided therein.
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(Holder) desires to purchase from Lender __________ % of the
guaranteed portion of such loan. Copies of Borrower's note(s) and
the Loan Note Guarantee are attached hereto as a part hereof.
Now, Therefore, the parties agree:
1. The principal amount of the loan now outstanding is
$__________. Lender hereby assigns to Holder __________ % of the
guaranteed portion of the loan representing $__________ of such loan
now outstanding in accordance with all of the terms and conditions
hereinafter set forth. The Lender and FmHA certify to the Holder
that the Lender has paid and FmHA has received the Guarantee Fee in
exchange for the issuance of the Loan Note Guarantee.
2. Loan Servicing. The Lender will be responsible for servicing
the entire loan and will remain mortgagee and/or secured party of
record. The entire loan will be secured by the same security with
equal lien priority for the guaranteed and unguaranteed portions of
the loan. The Lender will receive all payments on account of
principal of, or interest (including any loan subsidy and any
capitalized interest, resulting from the restructuring of a
Guaranteed Farmer Programs loan and not exceeding statutory loan
limits) on, the entire loan and shall promptly remit to the Holder
its pro rata share thereof determined according to their respective
interests in the loan, less only the Lender's servicing fee.
3. Servicing Fee. Holder agrees that Lender will retain a
servicing fee of __________ percent per annum of the unpaid balance
of the guaranteed portion of the loan assigned hereunder.
4. Purchase by Holder. The guaranteed portion purchased by the
Holder will always be a portion of the loan which is guaranteed. The
Holder will hereby succeed to all rights of the Lender under the
Loan Note Guarantee to the extent of the assigned portion of the
loan. The Lender, however, will remain bound by all obligations
under the Loan Note Guarantee and the program regulations found in
the applicable Subpart of 7 C.F.R. Part 1980 now in effect and
future FmHA program regulations not inconsistent with the provisions
hereof.
5. Full Faith and Credit. The Loan Note Guarantee constitutes an
obligation supported by the full faith and credit of the United
States and is incontestable except for fraud or misrepresentation of
which the Holder has actual knowledge at the time of this
assignment, or which it participates in or condones. A note which
provides for the payment of interest shall not be guaranteed. Any
Assignment Guarantee Agreement attached to or relating to a note
which provides for capitalization of interest is void. Except in the
case of Farmer Programs loans, a note which provides for the payment
of interest on interest as a result of restructuring the loan and
not exceeding statutory loan limits, or as a customary late payment
fee may be guaranteed, and any Assignment Guarantee Agreement
attached to or related to such note is not void.
6. Rights and Liabilities. The guarantee and right to require
purchase will be directly enforceable by Holder not withstanding any
fraud or misrepresentations by Lender or any unenforceability of the
Loan Note Guarantee by Lender. Nothing contained herein shall
constitute any waiver by FmHA of any rights it possesses against the
Lender, and the Lender agrees that Lender will be liable and will
promply reimburse FmHA for any payment made by FmHA to Holder which,
if such Lender had held the guaranteed portion of the loan, FmHA
would not be required to make. The Holder(s) upon written notice to
the Lender may resell the unpaid balance of the guaranteed portion
of the loan assigned hereunder. An endorsement may be added to the
Form FmHA 449-36 to effectuate the transfer.
7. Repurchase by the Lender (Defaults). 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 on
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 or any loan subsidy within 30 days of its receipt
thereof. The repurchase by the Lender will be for an amount equal to
the unpaid guaranteed portion of principal and accrued interest
(including any loan subsidy), 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. Holder(s)
will concurrently send a copy of demand to FmHA. 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 of its decision.
8. Purchase by FmHA. If Lender does not repurchase as provided
by paragraph 7, FmHA will purchase from Holder the unpaid principal
balance of the guaranteed portion together with accrued interest
(including any loan subsidy) to date of repurchase, less Lender's
servicing fee, within 30 days after written demand to FmHA from the
Holder. The Loan Note Guarantee will not cover the note interest to
the Holder on the guaranteed loans accruing after 90 days from the
date of the original demand letter of the holder 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. Such evidence will consist of either the original
of the Loan Note Guarantee properly endorsed to FmHA or the original
of the Assignment Guarantee Agreement properly assigned to FmHA
without recourse including all rights, title, and interest in the
loan. FmHA will be subrogated to all rights of Holder(s). The Holder
will include in its demand the amount due including unpaid
principal, unpaid interest (including any loan subsidy) to date of
demand and interest (including any loan subsidy) subsequently
accruing from date of demand to proposed payment date. Unless
otherwise agreed to by FmHA, such proposed payment will not be later
than 30 days from the date of demand.
The FmHA will promptly notify the Lender of its receipt of the
Holder(s)'s demand for payment. The Lender will promptly provide the
FmHA with the information necessary for FmHA'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 will
notify both parties who must resolve the conflict before payment
will be approved. Such a conflict will suspend the running of the 30
day payment requirement. Upon receipt of the appropriate
information, FmHA 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 Finance Office for
issuance of the appropriate check. Upon issuance, the Finance Office
will notify the office servicing the borrower and the State Director
and remit the check(s) to the Holder(s).
9. Lender's Obligations. Lender consents to the purchase by FmHA
and agrees to furnish on request by FmHA a current statement
certified by an appropriate authorized officer of the Lender of the
unpaid principal and interest then owed by Borrowers on the loan and
the amount then owed to any Holder(s). Lender agrees that any
purchase by FmHA does not change, alter or modify any of the
Lender's obligations to FmHA arising from said loan or guarantee nor
does it waive any of FmHA's right against Lender, and that FmHA
shall have the right to set-off against Lender all rights inuring to
FmHA as the Holder of this instrument against FmHA's obligation to
Lender under the Loan Note Guarantee.
10. Repurchase by Lender for Servicing. If, in the opinion of
the Lender, repurchase of the assigned portion of the loan is
necessary to adequately service the loan, the Holder will sell the
assigned portion of the loan to the Lender for an amount equal to
the unpaid principal and interest (including any loan subsidy) on
such portion less Lender's servicing fee. The loan note guarantee
will not cover the note interest to the Holder on the guaranteed
loans accruing after 90 days from the date of the demand letter of
the lender or FmHA to the Holder(s) requesting the Holder(s) to
tender their guaranteed portion(s).
a. The Lender will not repurchase from the Holder(s) for
arbitrage purpose or other purposes to further its own financial
gain.
b. Any repurchase will only be made after the Lender obtains
FmHA written approval.
c. If the Lender does not repurchase the portion from the
Holder(s), FmHA at its option may purchase such guaranteed portions
for servicing purposes.
11. Foreclosure. The parties owning the guaranteed portions and
unguaranteed portion of the loan will join in institute foreclosure
action, or in lieu of foreclosure, take a deed of conveyance to such
parties.
12. Reassignment. Holder upon written notice to Lender and FmHA
may reassign the unpaid guaranteed portion of the loan sold
hereunder. Upon such notification, the assignee will succeed to all
rights and obligations of the Holder hereunder.
13. Interest Capitalization. In the case of Farmer Programs
loans, the Lender may capitalize interest only when the note is
restructured. When delinquent interest is so treated as principal,
the new principal amount may exceed the line of credit listed
herein, but may not exceed statutory loan limits. The new principal
amount and new guaranteed portion will be identified at
restructuring in an addendum to this agreement. Such capitalized
interest will be covered by this Assignment Guarantee Agreement.
References to principal and interest herein, therefore, shall
include any capitalized interest on the guaranteed portion of the
loan resulting from the restructuring of a Farmer Programs loan and
not exceeding statutory loan limits. The capitalization of interest
via a late payment fee also is permissible if customary for the
lender's non-guaranteed loans. The late fees, however, will not be
covered by the guarantee.
14. Notices. All notices and actions will be initiated through
the FmHA ____________ for ____________ (state) with mailing address
at the date of this assignment: ____________
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Dated this ____________ day ____________, 19 ______.
Attest:
(Seal)
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Attest:
(Seal)
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Address:---------------------------------------------------------------
Lender:
Address:
By---------------------------------------------------------------------
Title------------------------------------------------------------------
Holder:
Address:
By---------------------------------------------------------------------
Title------------------------------------------------------------------
UNITED STATES OF AMERICA
Farmers Home Administration
By---------------------------------------------------------------------
Title------------------------------------------------------------------
7. Appendix D to Subpart A is revised to read as follows:
Appendix D to Subpart A
USDA-FmHA
Form FmHA 1980-27
(Rev. 4-94)
Contract of Guarantee
(Line of Credit)
----------------------------------------------------------------------
Lender
Lender's IRS Tax No.
Lender's Address
Borrower's Name and Address
Cont/Alt 4
----------------------------------------------------------------------
Type of Loan
{time} OL {time} {time} {time} EL {time} or {time} {time} EE
Cont/Alt 4
Case No.
State
County
Date of Line of Credit Agreement/Note
Line of Credit Ceiling $
The guaranteed portion of this line of credit is ________ % of
the principal balance owed at any one time on advances made within
an approved line of credit by the above-named Lender to the above-
named Borrower.
In consideration of making advance(s) by the Lender within the
line of credit ceiling pursuant to the Line of Credit Agreement, the
United States of America acting through the Farmers Home
Administration of the United States Department of Agriculture
(herein called ``FmHA''), pursuant to the Consolidated Farm and
Rural Development Act (7 U.S.C. 1921 et. seq.), the Emergency
Livestock Credit Act of 1974 (P.L. 93-357), as amended, or the
Emergency Agricultural Credit Adjustment Act of 1978 (P.L. 95-334)
agrees that in accordance with and subject to the conditions and
requirements in this agreement, it will pay to the Lender who holds
the line of agreement(s) (and note(s), if any exist) for said
advance(s) (or assumption agreement) covered by this contract the
lesser of 1. or 2. below:
1. Any loss sustained by such Lender on the guaranteed portion
including:
a. Principal and interest indebtedness as evidenced by said line
of credit agreement(s) (and note(s), if any exist) or by assumption
agreement(s), and any capitalized interest on such portion resulting
from the restructuring of an Operating loan and not exceeding
statutory loan limits, and
b. Principal and interest indebtedness on secured protective
advances for protection and preservation of collateral made with
FmHA's authorization, including but not limited to, advances for
delinquent taxes, annual assessments, and ground rents, and hazard
or flood insurance premiums affecting the collateral; or
2. The guaranteed principal advances to or assumed by the
Borrower under said line of credit agreement(s) (and note(s), if any
exist) or assumption agreement(s), and any interest due thereon,
including any capitalized interest on such portion resulting from
the restructuring of an Operating loan and not exceeding statutory
loan limits. If an Operating Loan Line of Credit is involved,
advances under that line of credit must be made within three years
(five for Certified Lenders) from the date of this Contract.
Advances made after that date will not be covered by this Contract.
If FmHA conducts the liquidation of the line of credit, loss
occasioned to a Lender by accruing interest after the date FmHA
accepts responsibility for liquidation will not be covered by this
Contract of Guarantee. If Lender conducts the liquidation of the
line of credit, accruing interest shall be covered by this Contract
of Guarantee to date of final settlement when the Lender conducts
the liquidation expeditiously in accordance with the liquidation
plan approved by FmHA.
Conditions of Guarantee
1. Line of Credit Servicing
Lender will be responsible for servicing the entire line of
credit, and Lender will remain mortgage and/or secured party of
record. The Lender agrees that, if liquidation of the account
becomes imminent, the Lender, will consider the Borrower of an
Operating Loan Line of Credit for an Interest Rate Buydown under
Exhibit C of Subpart B of 7 CFR, Part 1980, and request a
determination of the Borrower's eligibility by FmHA. The Lender may
not initiate foreclosure action on the line of credit 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.
2. Priorities
The entire line of credit will be secured by the same security
with equal lien priority for the guaranteed and unguaranteed
portions of the line of credit. The unguaranteed portion of the line
of credit will not be paid first nor given any preference or
priority over the guaranteed portion.
3. Full Faith and Credit
The Contract of Guarantee constitutes an obligation supported by
the full faith and credit of the United States and is incontestable
except for fraud or misrepresentation of which Lender has actual
knowledge at the time it became such Lender or which Lender
participates in or condones. If the line of credit agreement or note
to which this Contract of Guarantee is attached provides for the
payment of interest on interest, this Contract of Guarantee is void.
However, in the case of Farmer Programs loans, the capitalization of
interest when restructuring loans and through the charging of
customary late fees will not void this Contract of Guarantee.
In addition, the Contract of Guarantee will be unenforceable by
the Lender to the extent any loss is occasioned by the violation of
usury laws negligent servicing, or failure to obtain the required
security regardless of the time at which FmHA acquires knowledge of
the foregoing. Any losses occasioned will be enforceable to the
extent that loan funds are used for purposes other than those
specifically approved by FmHA in its Conditional Commitment for
Guarantee. Negligent servicing is defined as the failure to perform
those services which a reasonably prudent lender would perform in
servicing its own portfolio of loans that are not guaranteed. The
term includes not only the concept of a failure to act but also not
acting in a timely manner or acting in a manner contrary to the
manner in which a reasonably prudent lender would act up to the time
of loan maturity or until a final loss is paid.
4. Protective Advances
Protective advances made by Lender pursuant to the regulations
will be guaranteed against a percentage of loss to the extent as
provided in this Contract of Guarantee.
5. Custody of Unguaranteed Portion
The Lender may retain or sell the unguaranteed portion of the
line of credit only through participation. Participation, as used in
this instrument, means the 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.
6. When Guarantee Terminates
This Contract of Guarantee will terminate automatically (a) upon
full payment of the guaranteed line of credit occurring after the
advance period has expired; or (b) upon full payment of any loss
obligation under this Contract, or (c) upon written notice from the
Lender to FmHA that the guarantee will terminate 30 days after the
date of notice, provided the Contract is returned to FmHA to be
cancelled.
7. Settlement
The amount due under this instrument will be determined and paid
as provided in the applicable Subpart of Part 1980 of Title 7 CFR in
effect on the date of this instrument.
8. Interest Capitalization
In the case of Operating loans, the Lender may capitalize
interest only when the note is restructured. When delinquent
interest is so treated as principal, the new principal amount may
exceed the line of credit listed herein, but may not exceed
statutory loan limits. The new principal amount and new guaranteed
portion will be identified at restructuring in an addendum to this
Contract of Guarantee. Such capitalized interest will be covered by
this Contract of Guarantee. References to principal and interest
herein, therefore, shall include any capitalized interest on the
guaranteed portion of the loan resulting from the restructuring of
an Operating loan and not exceeding statutory loan limits. The
capitalization of interest via a late payment fee also is
permissible if customary for the lender's non-guaranteed loans. The
late fees, however, will not be covered by the guarantee.
9. Notices
All notices and actions will be initiated through the FmHA
County Supervisor for ____________ (County) ____________ (State)
with mailing address at the date of this instrument:
----------------------------------------------------------------------
----------------------------------------------------------------------
UNITED STATES OF AMERICA
Farmers Home Administration
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
----------------------------------------------------------------------
(Date)
Assumption Agreement by __________ dated __________, 19 ______
Assumption Agreement by __________ dated __________, 19 ______
8. Appendix E to subpart A is revised to read as follows:
Appendix E to Subpart A
Form Approved OMB No. 0575-0079
USDA-FmHA
Form FmHA 1980-38
(Rev. 4-94)
Agreement for Participation in Farmer Programs Guaranteed Loan Programs
of the United States Government
The purpose of this Agreement is to establish the Lender as an
approved participant in the Farmer Programs Guaranteed Loan Programs
of the Farmers Home Administration (FmHA), U.S. Department of
Agriculture. This Agreement provides the terms and conditions for
originating and servicing such loans, including lines of credit.
Participating Lender (``Lender''):-------------------------------------
Tax Identification Number:---------------------------------------------
Business Address:------------------------------------------------------
Telephone Number:------------------------------------------------------
Complete the appropriate section indicating participation/non-
participation in the Certified Lender Program.
Participating in the Certified Lender Program (``CLP'')
Offices Affected by Agreement All {time} As listed below {time}
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
States Affected by Agreement
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Not participating in the Certified Lender Program
Offices Affected by Agreement All {time} As listed below {time}
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
States Affected by Agreement
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Read this Agreement in its entirety and sign in the space on the
last page. Your signature indicates consent with this Agreement.
Public reporting burden for this collection of information is
estimated to average 1 hour 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 Department of
Agriculture, Clearance Officer, OIRM, AG Box 7630, Washington, DC
20250; and to the Office of Management and Budget, Paperwork
Reduction Project, (OMB No. 0575-0079), Washington, DC 20503. Please
DO NOT RETURN this form to either of these addresses. Forward to
FmHA only.
Part I--General Requirements
A. Duties and Responsibilities of FmHA (``Agency'')
1. Payment on Claims. FmHA agrees to make payment on its claims in
accordance with the terms of the guarantee and Agency regulations in
7 CFR 1980, Subparts A and B. The maximum loss payment may not
exceed the amount determined in the guarantee, including the
percentage of principal and any accrued interest. The guarantee is
supported by the full faith and credit of the United States and is
incontestable except under the circumstances of fraud or
misrepresentation of which the Lender has actual knowledge at the
execution of the guarantee or which the Lender participates in or
condones. (See 7 CFR 1980.107.)
2. Personnel Available for Consultation. FmHA shall make personnel
available for consultation on interpretations of Agency regulations
and guidelines. The Lender may consult with Agency personnel
regarding unusual underwriting, loan closing, and loan liquidation
questions.
B. General Requirements for the Lender
1. Eligibility to Participate. The Lender must meet the requirements
set forth in 7 CFR 1980.13 and be approved by FmHA to be a
participant in the Farmer Programs Guaranteed Loan Programs.
2. Knowledge of Program Requirements. The Lender is required to
obtain and keep itself informed of all program regulations and
guidelines, including all amendments and revisions. The Lender must
establish and maintain adequate and written internal policies for
loan origination and servicing to meet these requirements. These
policies will be subject to review upon the request by FmHA.
3. Notification. The Lender shall immediately notify FmHA in writing
if the Lender:
Becomes insolvent;
Has filed for any type of bankruptcy protection, has
been forced into involuntary bankruptcy, or has requested an
assignment for the benefit of creditors;
Has taken any action to cease operations, or to
discontinue servicing or liquidating any or all of its portfolio
guaranteed by FmHA;
Has changed its name, location, address, tax
identification number, or corporate structure;
Has been debarred, suspended, or sanctioned in
connection with its participation in any Federal guaranteed program;
or
Has been debarred, suspended, or sanctioned by any
Federal or State licensing or certification authority.
4. Employee Qualifications. The Lender shall maintain a staff that
is well trained and experienced in origination and loan servicing
functions, as necessary, to ensure the capability of performing all
the acts within its authority.
5. Conflict of Interest. The Lender certifies that its officers or
directors, principal stockholders (except stockholders in a Farm
Credit Bank or other Farm Credit System (FCS) institutions with
direct lending authority that have normal stock/share requirements
for participating), or other principal owners do not have, or will
not have, a substantial financial interest in, or business dealings
with, any guaranteed loan borrower. The Lender also certifies that
neither any 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 FCS 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.
6. Facilities. The Lender shall operate its facilities and branch
offices in a prudent and businesslike manner.
7. Reporting Requirements. The Lender recognizes that FmHA, as
guarantor, has a vital interest in ensuring that all acts performed
by the Lender regarding the subject loans are performed in
compliance with this Agreement and Agency regulations. Information
on the status of guaranteed loans is necessary for this purpose, as
well as to satisfy budget and accounting reporting required by the
Department of the Treasury and the Office of Management and Budget.
The Lender agrees to provide FmHA with all the data required under
Agency regulations and any additional information necessary for FmHA
to monitor the health of its guaranteed loan portfolio, and to
satisfy external reporting requirements.
The Lender also agrees to provide to FmHA, as requested by the
Agency or as required by regulation, copies of audited financial
statements, reports on internal controls, copies of compliance
audits, and such other information that may be required for FmHA to
properly monitor the Lender's performance.
C. Underwriting Requirements
1. Responsibility. The Lender is responsible for originating,
servicing, and collecting all guaranteed Farmer Programs loans in
accordance with Agency regulations.
2. Origination Process
a. General Eligibility. The Lender shall make a preliminary
determination whether loan applicants meet the general eligibility
requirements of the Farmer Programs Guaranteed Loan Programs. FmHA
will make the final determination.
b. Delinquency of Federal Debt. The Lender shall determine
whether the loan applicant is delinquent on any Federal debt. The
Lender shall use credit reports and any other credit history to make
this determination. If the loan applicant is delinquent on a federal
debt, processing of the application may only continue in accordance
with Agency regulations.
c. Appraisals of Collateral. The Lender shall ensure that the
value of any collateral property or property to be purchased is
determined by a qualified appraiser, including a State licensed or
certified appraiser when required by law or regulation.
d. Change in Borrower's Condition. Before FmHA issues a loan
guarantee, the Lender will certify that there has been no adverse
change(s) in the borrower's condition, financial or otherwise,
during the time period from issuance of a Conditional Commitment to
issuance of the guarantee of the loan. This certification by the
Lender must address all adverse changes and be supported by
financial statements of the borrower and its guarantors which are
not more than 90 days old at the time of certification. For use in
this provision alone, the term ``Borrower'' includes any member,
joint operator, partner or stockholder. (See 7 CFR 1980.117.)
e. Limitation on Guarantee. Any note requiring the payment of
interest on interest will only be guaranteed if such payment is the
result of restructuring the note and the new principal amount does
not exceed statutory loan limits. Default charges or late charges of
any kind, and/or interest accrued on interest charges other than
that resulting from restructuring the loan and within statutory loan
limits, will not be covered by the guarantee.
3. Loan Closing
a. Lender's Fee. The Lender will submit the required guarantee
fee with the Guaranteed Loan Closing Report.
b. Lender's Use of Funds. The Lender agrees funds for the
particular loan or line of credit will be used only for the purposes
authorized in 7 CFR 1980, Subparts A and B as set forth in Form FmHA
1980-15.
c. Loan Closing. All loans guaranteed by the Agency shall be
closed by attorneys, escrow companies, escrow departments of lending
institutions, or other person(s) or entities skilled and experienced
in conducting loan closings. The Lender shall:
Ensure that documents, including the mortgage and any
security agreements, chattel mortgages or equivalent documents
relating to it have been properly signed, are valid and contain
terms enforceable by the Lender;
Ensure that all security with appropriate lien
priorities is obtained in accordance with Form FmHA 1980-15, and
Agency regulations;
Ensure that all closing documents required to be
recorded are recorded accurately, in the appropriate offices, and in
a timely and accurate manner;
Ensure that security interests are perfected in
collateral according to applicable regulatory requirements and
procedures;
Ensure that all required hazard insurance is obtained
in accordance with Agency regulations;
Collect all fees and costs due and payable by the
borrower in the course of the loan transaction and disburse payment
directly to the parties for services rendered; and
Ensure that all loan proceeds are used as authorized.
The entire loan will be secured equally with the same security
and the same lien priority for both the guaranteed and unguaranteed
portions of the loan, under the assurance that the unguaranteed
portion of the loan will not be paid first nor given any preference
or priority over the guaranteed portion of the loan.
4. Lender's Sale or Assignment of Guaranteed Loan.
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.
The Lender may market all or part of the guaranteed portion of the
loan or after loan closing only if the loan is not in default as set
forth in the terms of the note. A line of credit may only be
marketed by participation. Refer to 7 CFR 1980.119 for further
guidelines.
D. Servicing Requirements
1. Responsibilities. The Lender will service the entire loan as
mortgagee and/or secured party of record in a reasonable and prudent
manner, notwithstanding the fact that another (Holder) may hold a
portion of the loan. The Lender will obtain compliance with the
covenants and provisions in the note, security instruments, and any
other agreements, and notify FmHA and the borrower of any
violations. Specific responsibilities are described in 7 CFR
1980.130.
2. Negligent Servicing. The guarantee cannot be enforced by the
Lender to the extent a loss results from a violation of usury laws
or negligent servicing regardless of when FmHA discovers such
violation or negligence. Negligent servicing is defined as the
failure to perform services which a reasonably prudent lender would
perform in servicing its own portfolio of loans that are not
guaranteed. The term includes both a failure to act and also not
acting in a timely manner in include actions taken up to the time of
loan maturity or until a final loss is paid. (See 7 CFR 1980.11.)
3. Payments. Payments from the borrower shall be processed upon
receipt according to 7 CFR 1980.119, and may include escrow premiums
for hazard insurance and real estate taxes. The Lender shall
promptly disburse to any Holder(s) their pro rata share thereof
which has been determined according to their respective interests in
the loan, less only the Lender's servicing fee.
4. Collateral
a. Insurance. The Lender shall ensure that adequate insurance is
maintained in accordance with Agency regulations, including the
maintenance of hazard insurance containing a loss payable clause in
favor of the Lender as the mortgagee or secured party.
b. Escrow Accounts. The Lender may establish separate escrow
accounts. All escrow accounts must meet applicable Federal and State
laws and regulations, and must be fully insured by the FDIC.
c. Inspection. The Lender shall inspect the collateral as often
as necessary to properly service the loan and ensure the collateral
is being properly maintained.
d. Taxes. The Lender shall ensure that taxes, assessments, or
ground rents against or affecting collateral are paid.
5. Delinquent Accounts
a. The Lender will notify FmHA using Form FmHA 1980-44,
``Guaranteed Loan Borrower Default Status,'' when a borrower is 30
days past due on a payment or if the borrower has not provided the
required financial statements to the Lender or is otherwise in
default. The Lender will continue to submit Form FmHA 1980-44 every
60 days until the default is resolved, and will notify the Agency
when the default is resolved. A meeting will be arranged by the
Lender with the borrower and FmHA to resolve the problem. Actions
taken by the Lender, with written concurrence of FmHA, may include
but are not limited to, any curative actions contained in Subpart B
or 7 CFR Part 1980 or liquidation.
b. The loan may be reamortized, rescheduled, or written down
only with the agreement of any Holder(s) of the guaranteed portion
of the loan, and only with FmHA's written agreement.
c. The Lender will negotiate in good faith to resolve any
problem in order to allow 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 Interest
Assistance under Exhibit D of Subpart B of 7 CFR Part 1980, and
request a determination of the borrower's eligibility by FmHA. The
Lender may not initiate foreclosure action on the loan until 60 days
after eligibility of the borrower to participate in the Interest
Assistance Program has been established.
d. Debt Writedown. (Refer to 7 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
(including any capitalized interest resulting from the restructuring
of the loan and not exceeding statutory loan limits) before the
writedown and the outstanding balance of the loan after the
writedown. The Lender will use Form FmHA 449-30, ``Loan Note
Guarantee Report of Loss,'' to request an estimated loss payment to
receive its pro rata share of any loss sustained. Interest will be
paid to the date of the check on all debt writedown claims.
e. The Lender must participate in any farm credit mediation
program of any State in accordance with the rules of that system and
7 CFR Part 1980, Subpart B, 1980.126.
f. When the borrower has not made payment of principal or
interest due on the loan for 60 days or more or the Lender has
failed to give the Holder(s) its pro rata share of any payment made
by the borrower within 30 days of receipt of the payment, the Holder
may request the lender to repurchase the unpaid guaranteed portion
of the guaranteed loan. If the Lender chooses not to repurchase,
FmHA will purchase the unpaid principal balance. Upon FmHA's
repurchase, the lender will liquidate the account or reimburse FmHA
the amount of the repurchase within 180 days of FmHA's repurchase.
See 7 CFR 1980.119 for further guidance on repurchasing loans from
Holder(s).
6. Default/Liquidation
a. Protective Advances. Protective advances must constitute a
debt of the borrower to the Lender and be secured by the security
instrument(s). FmHA written authorization is required on all
protective advances in excess of $3,000 made by a CLP Lender. For
non-CLP Lenders, the amount is $500. Refer to 7 CFR 1980.136.
b. Additional Loan or Advances. Except as provided for in each
Borrower's loan agreement, the Lender will not make additional
expenditures or new loans without first obtaining the written
approval of FmHA even though such expenditures or loans will not be
guaranteed.
c. Future Recovery. After a loan has been liquidated and a final
loss has been paid by FmHA, any future funds which may be recovered
by the Lender, will be pro-rated between FmHA and the Lender. FmHA
will be paid the amount recovered in proportion to the percentage it
guaranteed for the loan.
d. Transfer and Assumption Cases. Refer to 7 CFR 1980.123. If a
loss occurs upon the completion of a transfer and assumption for
less than the full amount of the debt and transferor debtor
(including Guarantors) is released from personal liability, the
Lender, if it holds the guaranteed portion, may file an estimated
Report of Loss on Form FmHA 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 449-30, the amount of the debt assumed
will be entered as Net Collateral (Recovery). Approved protective
advances and accrued interest thereon made during the arrangement of
transfer and assumption, if not assumed by the transferee, will be
entered in the appropriate space on Form FmHA 449-30.
e. Bankruptcy. The Lender is responsible for protecting the
guaranteed loan debt and all collateral securing the loan in
bankruptcy proceedings. Loss payments on bankruptcy cases will be
processed according to the terms described in 7 CFR 1980.144.
f. Liquidation. If the Lender concludes that liquidation of a
guaranteed loan account is necessary due to default or third party
actions which 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. All liquidations must receive prior
concurrence by the appropriate FmHA official. Refer to 7 CFR
1980.146 for specific guidance on the procedures for liquidation.
7. Servicer
If the lender contracts for servicing of guaranteed Farmer
Programs loans, the lender is not relieved of responsibility for
proper servicing of the loans.
E. Agency Reviews of Lender's Operations
FmHA shall have the right to conduct reviews, including on-site
reviews, of the Lender's operations and the operations of any agent
of the Lender, for the purpose of verifying compliance with this
Agreement and Agency regulations and guidelines. These reviews may
include, but are not limited to: audits of case files; interviews
with owners, managers, and staff; audits of collateral; and
inspections of the Lender's and/or its agents underwriting,
servicing, and liquidation guidelines. The Lender and/or its agents
shall provide access to all pertinent information to allow the
Agency, or any party authorized by the Agency, to conduct such
reviews.
F. Conformance to Standards
1. Standards. The Lender shall conform to the standards outlined in
this Agreement and Agency regulations for participation in Farmer
Programs Guaranteed Loan Programs. CLP Lenders must maintain
compliance with the criteria set forth in 7 CFR 1980.190. The Agency
shall determine Lender adherence to the standards based on:
Adequacy in meeting requirements for origination,
servicing, and liquidation of loans and lines of credit, including
protection of collateral;
Satisfaction of the reporting requirements of the
Agency;
Success in operating in a sound and prudent
businesslike manner;
Portfolio performance compared to overall performance
of the Farmer Program Guaranteed Loan Programs; and
Results of on-site reviews of the underwriting and/or
servicing performed by the Lender.
2. Determination of Non-Conformance. The Agency shall carefully
consider the circumstances and available facts in determining
whether there is a pattern of Lender non-conformance with applicable
standards. FmHA shall determine the propriety of any decision made
by the Lender based on the facts available at the time the specific
action was taken. It is understood by the Agency and intended by
this Agreement that the Lender has the authority to exercise
reasonable judgment in performing acts within its authority.
However, FmHA reserves the right to question any act performed or
conclusion drawn that is inconsistent with this Agreement or Agency
regulations.
3. Agency Action. If the Lender is determined to be in non-
conformance with any Federal law, State law, Agency regulation or
guideline, or the terms of this Agreement, FmHA reserves the right
to take action in accordance with its laws and regulations.
4. Lender Right of Appeal. FMHA shall provide the Lender an
opportunity to appeal, in accordance with Agency regulations at 7
CFR Part 1980, Subpart A, adverse actions taken by the Agency.
Part II--List of Agency Regulations and Guidelines and Designation of
Lender Authority To Perform Certain Acts
A. List of Agency Regulations
The following is a list of FmHA regulations which, along with
any future amendments consistent with this Agreement, contain the
information necessary for the Lender to be in compliance with Agency
requirements.
1. 7 CFR 1980 Subpart A--General
2. 7 CFR 1980 Subpart B--Farmer Program Loans
B. Authority To Perform Certain Acts
Lenders participating in the CLP may be granted special
authority to certify compliance with certain statutory or regulatory
requirements. 7 CFR 1980.190 describes authorities and
responsibilities for CLP Lenders.
Part III--Duration and Modification
A. Duration and Termination
1. Duration of Agreement. For CLP Lenders, this Agreement is valid
for five years unless terminated by the Lender or FmHA as described
below or revoked according to 7 CFR 1980.190. For non-CLP Lenders,
this Agreement will be valid indefinitely unless terminated by the
Lender or FmHA as described below.
2. Modification of Agreement. This Agreement may be modified or
extended only in writing and by consent of all parties.
3. Termination of FmHA. This Agreement may be terminated by FmHA in
accordance with Agency regulations.
4. Termination by the Lender. This Agreement may be terminated by
the Lender by providing 30 days written notice to FmHA.
5. Effect of Termination on Responsibilities and Liabilities.
Responsibilities or liabilities that existed before the termination
of the Agreement with regard to outstanding guarantees will continue
to exist after termination unless the Agency expressly releases the
Lender from such responsibilities or liabilities in writing. The
Lender shall remain obligated to service and liquidate the
guaranteed loans remaining in the portfolio unless and until FmHA or
the Lender transfers the loans. These requirements concerning loan
management by the Lender and rights of the Agency under this
Agreement shall remain in effect whether the Agreement is terminated
by the Lender or FmHA.
B. Entire Agreement
This Agreement, Parts I through IV inclusive, and any
regulations or guidelines incorporated by reference, shall
constitute the entire Agreement. There are no other agreements,
written or oral, regarding the terms in this Agreement which are or
shall be binding on the parties.
Part IV--Endorsement
The undersigned certifies that they have read and understand the
requirements of this Agreement, and in 7 CFR Part 1980, Subparts A
and B, and agree to the participation requirements and other
provisions of this Agreement.
Notice. Requests for Guarantee and any notices or actions are
expected to be initiated through the following FmHA County Offices:
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Lender: Complete this block of Section IV.
XXI. Lender
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(Name)
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(IRS I.D. Tax No.)
By:
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(Signature)
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(Name Typed or Printed)
Title------------------------------------------------------------------
Date-------------------------------------------------------------------
Attest-----------------------------------------------------------------
This block of Section IV will be completed by FmHA.
The effective date of this Agreement is--------------------------------
The expiration date of this Agreement is-------------------------------
UNITED STATES OF AMERICA
Farmers Home Administration
By:
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(Signature)
Title------------------------------------------------------------------
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(Name Typed or Printed)
Date-------------------------------------------------------------------
Subpart B--Farmer Program Loans
9. Section 1980.124 is amended by removing paragraph (d)(1); by
redesignating paragraphs (d)(2) and (d)(3) as paragraphs (d)(1) and
(d)(2), respectively; and by revising paragraphs (a)(7), (b)(6) and (e)
to read as follows:
Sec. 1980.124 Consolidation, rescheduling, reamortizing and deferral.
(a) * * *
(7) The lender may capitalize the outstanding interest when
restructuring the loan. If Forms FmHA 449-34, 449-35, 449-36, 1980-27,
or 1980-38 previously executed for the guaranteed loan/line of credit
prohibit the capitalization of interest, the County Supervisor will
provide the lender with Form FmHA 1980-85. By executing this form, FmHA
waives the restriction only for capitalization of interest resulting
from restructuring a Farmer Programs loan and not exceeding statutory
loan limits. The form will set out the new principal loan amount
(treating delinquent interest as principal) and the guaranteed portion
of the loan amount. If these forms do not prohibit the capitalization
of interest, the new principal loan and the guaranteed portion, if
greater than the original amounts of the forms, will be identified in
an addendum, Form FmHA 1980-84. The appropriate modification form will
be issued under this paragraph after the appropriate official concurs
with the restructuring. Subsequent servicing of the guaranteed loans
will take into account the new principal and guaranteed amounts.
Capitalized interest authorized under this paragraph will be treated as
part of the principal and interest indebtedness in calculating the
maximum loss amount under Sec. 1980.20 of subpart A of this part.
* * * * *
(b) * * *
(6) There is no limit on the number of times a consolidation or
rescheduling action may take place.
* * * * *
(e) Principal limit. As a result of the capitalization of interest
with restructuring, the rescheduled/reamortized note or line of credit
agreement which exists after a consolidation occurs may increase the
amount of principal which the borrower would have been required to pay
if the rescheduling, reamortization, or consolidation had not been
made. However, in no case will such principal amount ever exceed the
statutory loan limits set out in this subpart.
Dated: March 9, 1994.
Bob J. Nash,
Under Secretary for Small Community and Rural Development.
[FR Doc. 94-7545 Filed 3-29-94; 8:45 am]
BILLING CODE 3410-07-U
