[Federal Register Volume 64, Number 101 (Wednesday, May 26, 1999)]
[Rules and Regulations]
[Pages 28333-28351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13117]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 64, No. 101 / Wednesday, May 26, 1999 / Rules
and Regulations
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1980 and 3575
RIN 0575-AC17
Community Programs Guaranteed Loans
AGENCY: Rural Housing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS) is amending the Community
Programs (CP) Guaranteed Loans regulation, which is also utilized by
the Rural Utilities Service (RUS), by removing the requirements for
Community Facilities and implementing a new Community Programs
Guaranteed Loans regulation. RUS will continue to use 7 CFR part 1980,
subpart I for RUS guaranteed loans. This action is needed to streamline
and update the Community Programs Guaranteed Loans program. The
intended effect is to simplify and clarify the regulation; shift some
responsibility for loan documentation and analysis from the Government
to the lenders; make the program more responsive to the needs of
lenders, local community public bodies, and nonprofit corporations; and
provide for smoother processing of applications.
EFFECTIVE DATE: June 25, 1999.
FOR FURTHER INFORMATION CONTACT: Mel Padgett, Community Programs Senior
Loan Specialist, Rural Housing Service, U.S. Department of Agriculture,
STOP 3222, 1400 Independence Ave. SW., Washington, DC 20250-3222,
telephone: (202) 720-1495.
SUPPLEMENTARY INFORMATION:
Classification
This final rule has been determined to be not significant for the
purposes of Executive Order 12866 and, therefore, has not been reviewed
by OMB.
Programs Affected
The Catalog of Federal Domestic Assistance Programs impacted by
this action are 10.766, Community Facilities loans.
Intergovernmental Review
These loans are subject to the provisions of Executive Order 12372
which require intergovernmental consultation with State and local
officials. RHS conducts intergovernmental consultations for each loan
in the manner delineated in subpart V, part 3015 of title 7.
Civil Justice Reform
The final rule has been reviewed under Executive Order 12988, Civil
Justice Reform. In accordance with this rule: (1) All State and local
laws and regulations that are in conflict with this rule will be
preempted; (2) except as expressively provided in the regulation, no
retroactive effect will be given to this rule; and (3) administrative
proceedings of the National Appeals Division (7 CFR part 11) must be
exhausted before bringing suit in court challenging action taken under
this rule.
Environmental Impact Statement
The action has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' The Agency has determined 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, 42 U.S.C. 4321 et seq.,
an Environmental Impact Statement is not required.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2
U.S.C. chapters 17A and 25, established requirements for Federal
agencies to assess the effects of their regulatory actions on State,
local, and tribal governments and the private sector. Under section 202
of the UMRA, RHS generally must prepare a written statement, including
a cost-benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in expenditures to State, local, or tribal
governments, in the aggregate, or to the private sector, of $100
million or more in any 1 year. When such a statement is needed for a
rule, section 205 of the UMRA generally requires RHS to identify and
consider a reasonable number of regulatory alternatives and adopt the
least costly, most cost-effective, or least burdensome alternative that
achieves the objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of title II of the UMRA) for State, local, and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of sections 202 and 205 of the UMRA.
National Performance Review
This regulatory action is being taken as part of the National
Partnership for Reinventing Government to eliminate unnecessary
regulations and improve those that remain in force.
Regulatory Flexibility Act
This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has
determined and certified by signature of this document that this rule
will not have a significant economic impact on a substantial number of
small entities since this rulemaking action does not involve a new or
expanded program.
Implementation
It is the policy of this Department that rules relating to public
property, loans, grants, benefits or contracts shall comply with 5
U.S.C. 553 notwithstanding the exemption of that section with respect
to such rules.
Paperwork Reduction Act
The information collection and recordkeeping requirements contained
in this regulation have been approved by the Office of Management and
Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and were
assigned OMB control number 0575-0137, in accordance with the Paperwork
Reduction Act of 1995. Under the Paperwork Reduction Act of 1995, no
person is required to respond to a collection of information unless it
displays a valid OMB control number. This final rule does not impose
any new information or recordkeeping
[[Page 28334]]
requirements from those approved by OMB.
Discussion of the Final Rule
This action replaces the Community Facilities portion of the CP
guaranteed loan program administered under 7 CFR part 1980, subpart I.
Under the final rule, this guaranteed loan program will be more
flexible and place more reliance on lenders. There are fewer specific
requirements for lenders. The lender has added responsibility for
analyzing credit quality; for making, securing, and servicing the loan;
and for monitoring construction. Application processing procedures will
be more efficient; less burdensome for borrowers, lenders, and Rural
Development staff; and will provide for more rapid decisions.
The CP loan program was authorized by the Rural Development Act of
1972. The loans are made by private lenders to public bodies, nonprofit
corporations, and certain Indian tribes for the purpose of improving
rural living standards and for other purposes that create essential
community facilities located in cities, towns, or unincorporated areas
of up to 50,000 population required by the Federal Agriculture
Improvement and Reform Act of 1996. The previous statutory population
limit for loans for essential community facilities was 20,000. For
fiscal year 1999, the population unit will be 20,000 pursuant to
Sec. 735 of the Agriculture, Rural Development, Food and Drug
Administration and Related Agencies Appropriation Act, 1999. Since
1990, more than 355 community programs projects, totaling slightly more
than $325 million, have received loans which were guaranteed through
CP.
These loans can be made for a variety of purposes including health
care; public buildings and improvements; fire and rescue; easements;
purchase of equipment, machinery, and supplies; repair and
modernization; pollution control; and transportation studies. The rate
and terms of the loan are negotiated between the borrower and the
lender. This regulation is a high-priority effort to streamline the
administration and operation of the program, respond to the requests of
users of the program, and assist the field staff administering the
program. The revised regulation is simpler, clearer, and more logically
organized. The volume of regulatory material which a lender must review
to request, make, or service a CP guaranteed loan under the new
regulation is significantly less than the current regulation.
Clarifications of various items are also included, such as what is
meant by the term ``essential community facility.''
Except for the increase in the population limit in the definition
of ``Rural and Rural area,'' the revisions are not required by statute.
However, the President and the Secretary of Agriculture are committed
to streamlining all Federal regulations. This CP regulation streamlines
our application procedures, reduces loan application processing time by
placing greater emphasis on State resources, allows more management
flexibility and decision-making capacity at the State Office level, and
expands eligible loan purposes to include recreation.
The Agency has implemented revisions to make the program more
usable by lenders and borrowers. Also, the Agency recognizes that
changes are necessary to make the program more effective in creating
jobs and stimulating economic activity (particularly in chronically
low-income rural areas). Under the new CP regulation, the material that
must be submitted to, and reviewed by, the Agency before approval of
the guarantee has been streamlined. Some responsibilities for credit
analysis and application processing tasks will be shifted from the
Agency to the lender, where feasible. Following is a discussion of some
of the most significant policy revisions included in the final
regulation.
To streamline the regulation, the Agency has combined applicable
portions of the Direct Community Loan Programs (7 CFR part 1942,
subpart A), Fire and Rescue (7 CFR part 1942, subpart C), General
Guaranteed Regulation (7 CFR part 1980, subpart A), previously drafted
Guaranteed Community Programs Regulation, and program requirements
contained in forms which were not in regulations into the Guaranteed
Community Programs Regulation (7 CFR part 3575, subpart A). The Agency
also divided the regulation into general, processing, and servicing
sections. These actions should significantly reduce the amount of
regulatory material that a lender and a borrower must review to
determine eligibility and complete the application. This will also
simplify making and servicing a CP loan.
Additionally, the necessary information contained in the
preapplication package can be submitted simultaneously with the
application. Except the year that loan funds are received, the types of
audited financial statements will be the responsibility of the lender.
Also, we have included recreation as well as clarified that
telecommunications are eligible loan purposes.
Under the new regulation, the lender is responsible for legal
sufficiency. The lender will not only be able to negotiate interest
rates, but will also be able to negotiate incremental increases and
caps for each loan. This will give the lender more flexibility to fit
the CP guaranteed loan program to its lending policies and procedures.
The lender does not have to be a local lender provided it can
demonstrate the ability to adequately service the loan. This will
permit an expansion of eligible lenders to include such organizations
as State bond banks, the Rural Utilities Cooperative Finance
Corporation, Sallie Mae, and other lenders that are subject to credit
examination and supervision by a State or Federal entity that
supervises and regulates credit institutions. All of these
organizations have expressed an interest in the CP guaranteed lending
program in the past.
Discussion of Comments
The proposed rule was published in the Federal Register on October
7, 1997 (62 FR 52277), for public comment. Five comments were received.
All of the comments received expressed support for the changes in this
streamlined regulation. The comments ranged from making the regulation
easier to read and follow to agreeing that the regulatory burden was
lessened on the lenders as well as on our field employees. Also, the
ability to change interest rates on a quarterly basis was supported as
more in line with industry standards. Other changes which were
supported are: permitting the lender to monitor construction rather
than the Agency; permitting the preapplication information and the
application to be completed as one process; and making the lender
responsible for legal sufficiency.
One respondent requested consistent wording concerning the 5
percent which the lender must retain in its portfolio. The wording has
been changed to clarify that the amount which the lender must hold will
be 5 percent of the total loan amount and that this amount must be from
the unguaranteed portion of the loan.
One respondent wanted to know what is contained in chapter 37 of
title 31 of the United States Code. This chapter is commonly referred
to as the Debt Collection Act.
Definitions
One respondent suggested that all Rural Development program areas
have similar definitions for ``rural'' and ``rural area.'' The Agency
agrees that similar definitions would make the programs easier for our
field employees to implement. However, the Federal Agriculture
Improvement and Reform
[[Page 28335]]
Act of 1996 redefined the definition for ``rural'' and ``rural area''
as it applies to Community Facilities programs. This definition has
been incorporated into this regulation.
Except for fiscal year 1999, Community Facilities projects can be
located in incorporated cities or towns or unincorporated areas with a
population of less than 50,000; however, these projects cannot be
located in urbanized areas regardless of the population. Urbanized
areas are areas immediately adjacent to a city, town, or unincorporated
area exceeding 50,000 inhabitants. The boundaries of urbanized areas
are not limited to preexisting county or State lines. They often follow
the boundaries of small census-defined geographic units such as census
tracts and enumeration districts. Many urbanized areas cross county and
sometimes State lines.
Eligibility
One respondent wanted to include sole-member corporations as
eligible for the Community Facilities program. While this would
increase the potential number of borrowers, it goes against the concept
of broad-based community support.
One respondent suggested that business incubators be made an
eligible purpose. Business incubators are already eligible provided
they are designed as a training facility and they meet the basic
eligibility criteria of being either a nonprofit corporation or a
public body having broad-based community support.
One respondent indicated that combining the floodplain management
plan requirements with flood insurance would eliminate service to most
of his State. The Agency did not intend to change the existing
floodplain requirements. However, in our efforts to streamline the
regulations, we combined two requirements and used a conjunction which
tied the two requirements together. The Agency has separated and
reworded these requirements in this final regulation. The requirements
are the same as our existing regulation. To make a loan in a Federal
Emergency Management Agency designated 100-year floodplain, a
floodplain management plan must be in place.
Also, National Flood Insurance must be available, and the lender
must require such insurance.
As a result of internal discussions, the Environmental Requirements
section has been expanded slightly in order to highlight the existing
burden on the applicant to take no actions that would either limit the
range of alternatives to be considered or which might adversely effect
the environment prior to completion of the Agency's environmental
review.
Equal Opportunity and Fair Housing Act requirements
One respondent suggested that we list all the specific individual
requirements under these laws. These requirements are spelled out in a
separate section. If a lender needs more specific information, the
Agency can administratively handle these situations on a case-by-case
basis.
One respondent requested clarification concerning the Agency's
review of the equal opportunity and nondiscrimination requirements when
evaluating an application. The Agency will further clarify our
employees' responsibilities for reviewing loan applications in Agency
instructions.
Rates and Terms
One respondent supported permitting both variable and fixed
interest rates in the same loan but pointed out that the restriction
which requires the guaranteed portion of the loan to always have a
lower interest rate than the unguaranteed portion of the loan would
prevent lenders from making the guaranteed portion fixed and the
unguaranteed portion variable when the interest rate market is
declining. We agree, and we have removed this restriction in these
cases.
Design and Construction
One respondent said that this regulation seems to say that if the
Agency guarantees a loan on an existing building, we would not require
any changes to make the building meet the Americans with Disabilities
Act (ADA). The ADA does not require that existing buildings be made
accessible unless they are remodeled. Then only the portion which is
remodeled must be made accessible. For example, if four interior
offices were remodeled, only those four offices would have to be made
accessible. But the restrooms or the entry way would not have to be
accessible. If you remodeled the building front, then the front entry
would have to be made accessible. In conclusion, any new work must be
accessible and designed in accordance with the ADA. Any area of the
existing structure that is not remodeled does not have to meet the ADA.
Since this is not a Community Programs requirement, we will clarify
this concept for our employees in our instructions.
One respondent suggested a standard certification form for the
lender to complete certifying that construction has been completed in
accordance with the proper building codes. To maintain flexibility and
keep the regulations and public paperwork at a minimum, we have
incorporated this as a lender certification.
One respondent suggested amending our concurrence to preliminary
architectural or engineering reports or plans because many Community
Facilities projects do not require complex reports but rather simple
drawings and estimates of project costs. We agree. This was our
original intent in the proposed general portion of the design and
construction requirements section. We have added the words ``or plans''
to this section.
One respondent questioned the lack of a reference to procurement
utilizing free and open competition. The borrower and the lender both
benefit from free and open competition. In the spirit of reducing the
regulatory burden to the public, the lender will now be responsible for
determining the best method to ensure that the project is completed
within budget. If the lender determines that design and build is a
better method than sealed bids, the lender will have the flexibility to
approve such construction.
Feasibility Requirements
One respondent strongly supported the loan approval official being
able to determine if an independent feasibility analysis is necessary.
It also stated that the economic section of the regulation confuses the
lender credit analysis with the feasibility report. The Agency intends
that the loan approval official will determine whether or not an
independent feasibility analysis is necessary. Consequently, the
lender's financial credit analysis may serve as a feasibility analysis
when the loan approval official concludes sufficient economic
information is provided in their analysis. We have added a sentence to
clarify this issue.
Processing
One respondent indicated that we should have included a timeframe
to provide the lender an answer. While we agree, this is an
administrative matter within the Agency and will be incorporated into
our field employee instructions.
One respondent suggested moving the subsection concerning changing
the scope of the project from the section describing the conditions
precedent to issuing a loan note guarantee to the section discussing
the review of requirements in the conditional commitment. The Agency
agrees and has moved this subsection.
[[Page 28336]]
One respondent suggested that the number of customers discussed in
the loan application evaluation section should apply only to Water and
Waste Division projects. The Agency disagrees. The number of customers
is important for other utility-type projects such as gas distribution
systems. Also, the number of customers may play an important role in
other community facilities-type projects such as hospitals, nursing
homes, and child care.
One respondent questioned if the certifications listed under the
conditions precedent to issuance of the loan note guarantee section met
all applicable requirements set out in the regulations. It was
suggested clarification was needed. The Agency listed the items which
the lender must certify to before the loan note guarantee could be
issued. By certifying to these conditions, the lender is stating that
it has met the requirements set out in the regulation.
One respondent requested clarification concerning the title report
under the lender's certifications in the conditions precedent to
issuance of a loan note guarantee. The respondent wanted to know
whether or not the title report was referring to a final title opinion
or a preliminary title opinion. The Agency intends this to be the
lender's legal counsel's opinion which states that the loan has been
closed and proper title has been obtained in accordance with the
security instrument and other agreements between the lender and the
Agency.
One respondent requested further clarification of the guaranteed
loan closing report. This report is a Rural Development form. All
references to specific form numbers have been eliminated from the
actual text of the Federal Register. The actual form numbers will
appear in the Agency instructions to our field employees. Only the form
names appear in the Federal Register.
One respondent questioned the need to require a parity lien
position. We agree, the lender should determine that adequate security
is obtained for the loan and the Agency can either concur or choose not
to guarantee the loan accordingly. This requirement has been deleted.
One respondent requested that the Agency eliminate the test for
credit. The respondent further points out that the Rural Development
Business and Industry (B&I) program does not require such a test for
credit to be eligible for a guaranteed loan. The Agency is bound by
statute and must require this test for credit. The B&I program is
exempt from this statutory provision.
One respondent suggested that finder and packaging fees be
considered an eligible loan purpose. This comment also suggested paying
real estate broker fees. These fees are already paid as part of the
sale and purchase. To be consistent with other Community Facilities
loan programs, the Agency does not consider finder fees necessary. All
Community Programs loans have professional and technical assistance
such as architects, engineers, and accountants who provide similar
services. Consequently, the Agency feels that paying additional fees is
unnecessary.
One respondent requested clarification concerning whether or not
the preapplication forms are still necessary when the Agency receives
an application for a loan guarantee from a lender without going through
the preapplication process. The Agency will accept applications without
a preapplication package.
Servicing
Two respondents strongly suggested that the audit requirements
should be the lender's responsibility. We agree, based upon discussions
with our sister agencies and the Office of Management and Budget (OMB),
we have determined that we do not have continuing compliance
requirements as described in the OMB circular A-133. Consequently, in
the year that funds are received, the Agency will require an audit in
accordance with the OMB circular A-133. In subsequent years, the lender
(with Agency concurrence) will determine the type of financial
reporting and financial audits that will be required for the duration
of the loan.
One respondent noted that the lender and borrower visits were
omitted and suggested that they should be required periodically. While
we agree, this is an administrative matter and will be addressed in the
Agency's field instruction.
One respondent wanted to clarify that the sale of one lender to
another in a merger situation did not constitute a transfer of lender.
We agree.
One respondent suggested that we increase the amount of protective
advances from $500 to $5,000 dollars. This amount would be consistent
with other mission area regulations and would be consistent with
inflation. We agree, the amount of protective advances which the lender
can make without Agency concurrence has been increased from $500 to
$5,000.
List of Subjects
7 CFR Part 1980
Loan programs--Agriculture, Loan programs--Business and industry,
Loan programs--Housing and community development, Rural development
assisance.
7 CFR Part 3575
Community facilities, Guaranteed loans, Loan programs.
Accordingly, chapters XVIII and XXXV, title 7, Code of Federal
Regulations, are amended as follows:
PART 1980--GENERAL
1. The authority citation for part 1980 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart I--Community Programs Guaranteed Loans
Sec. 1980.801 [Amended]
2. Section 1980.801(b) is amended by removing the words ``and other
essential community'' in the first sentence.
Sec. 1980.802 [Amended]
3. Section 1980.802 is amended by removing the definition for
``Community facilities.''
Sec. 1980.805 [Amended]
4. Section 1980.805 is amended by removing the third through the
seventh sentences of the section.
Sec. 1980.813 [Amended]
5. Section 1980.813 is amended in the introductory text of
paragraph (a) by revising the words ``, and other essential community
facilities providing essential'' to read ``providing'' in the first
sentence and by removing paragraphs (a)(2), (b)(1), and (b)(2);
paragraphs (a)(3), (b)(3), and (b)(4), are redesignated as paragraphs
(a)(2), (b)(1), and (b)(2), respectively; and by removing the words
``and X-ray machines'' in newly redesignated paragraph (a)(2)(i).
Sec. 1980.814 [Amended]
6. Section 1980.814 is amended by removing paragraph (d) and
redesignating paragraphs (e) through (h) as paragraphs (d) through (g),
respectively.
7. Section 1980.844 is revised to read as follows:
Sec. 1980.844 Appraisal reports.
The borrower is responsible for the acquisition of all property
rights necessary for the project and will determine that prices paid
are reasonable and fair.
[[Page 28337]]
8. Chapter XXXV, title 7, Code of Federal Regulations is amended by
adding a new part 3575 to read as follows:
PART 3575--GENERAL
Subpart A--Community Programs Guaranteed Loans
Sec.
3575.1 General.
3575.2 Definitions.
3575.3 Full faith and credit.
3575.4 Conditions of guarantee.
3575.5-3575.7 [Reserved]
3575.8 Access to lender's records.
3575.9 Environmental requirements.
3575.10-3575.11 [Reserved]
3575.12 Inspections.
3575.13 Appeals.
3575.14-3575.16 [Reserved]
3575.17 Exception authority.
3575.18-3575.19 [Reserved]
3575.20 Eligibility.
3575.21-3575.23 [Reserved]
3575.24 Eligible loan purposes.
3575.25 Ineligible loan purposes.
3575.26 [Reserved]
3575.27 Eligible lenders.
3575.28 Transfer of lenders or borrowers (prior to issuance of Loan
Note Guarantee).
3575.29 Fees and charges by lender.
3575.30 Loan guarantee limitations.
3575.31-3575.32 [Reserved]
3575.33 Interest rates.
3575.34 Terms of loan repayment.
3575.35-3575.36 [Reserved]
3575.37 Insurance and fidelity bonds.
3575.38-3575.39 [Reserved]
3575.40 Equal opportunity and Fair Housing Act requirements.
3575.41 [Reserved]
3575.42 Design and construction requirements.
3575.43 Other Federal, State, and local requirements.
3575.44-3575.46 [Reserved]
3575.47 Economic feasibility requirements.
3575.48 Security.
3575.49-3575.51 [Reserved]
3575.52 Processing.
3575.53 Evaluation of application.
3575.54-3575.58 [Reserved]
3575.59 Review of requirements.
3575.60-3575.62 [Reserved]
3575.63 Conditions precedent to issuance of the Loan Note
Guarantee.
3575.64 Issuance of Lender's Agreement, Loan Note Guarantee, and
Assignment Guarantee Agreement.
3575.65 Lender's sale or assignment of the guaranteed portion of
loan.
3575.66-3575.68 [Reserved]
3575.69 Loan servicing.
3575.70-3575.72 [Reserved]
3575.73 Replacement of loss, theft, destruction, mutilation, or
defacement of Loan Note Guarantee or Assignment Guarantee Agreement.
3575.74 [Reserved]
3575.75 Defaults by borrower.
3575.76-3575.77 [Reserved]
3575.78 Repurchase of loan.
3575.79 [Reserved]
3575.80 Interest rate changes after loan closing.
3575.81 Liquidation.
3575.82 [Reserved]
3575.83 Protective advances.
3575.84 Additional loans or advances.
3575.85 Bankruptcy.
3575.86-3575.87 [Reserved]
3575.88 Transfer and assumptions.
3575.89 Mergers.
3575.90 Disposition of acquired property.
3575.91-3575.93 [Reserved]
3575.94 Determination and payment of loss.
3575.95 Future recovery.
3575.96 Termination of Loan Note Guarantee.
3575.97-3575.99 [Reserved]
3575.100 OMB control number.
Subpart B--[Reserved]
Authority: 5 U.S.C. 301, 7 U.S.C. 1989.
Subpart A--Community Programs Guaranteed Loans
Sec. 3575.1 General.
(a) This subpart contains the regulations for Community Programs
loans guaranteed by the Agency and applies to lenders, holders,
borrowers, and other parties involved in making, guaranteeing, holding,
servicing, or liquidating such loans.
(b) The purpose of the Community Programs guaranteed loan program
is to improve, develop, or finance essential community facilities in
rural areas. This purpose is achieved through bolstering the existing
private credit structure through the guarantee of quality loans which
will provide lasting community benefits.
Sec. 3575.2 Definitions.
The following general definitions are applicable to the terms used
in this subpart:
Agency. The Rural Housing Service which is within the Rural
Development mission area of the United States Department of Agriculture
or its successor agencies with authority delegated by the Secretary of
Agriculture to administer the Community Facilities programs.
Application. An Agency prescribed form to request an Agency
guarantee (available in any Agency office).
Arm's length transaction. The sale, release, or disposition of
assets in which the title to the property passes to a ready, willing,
and able third party who is not affiliated with, or related to, and has
no security, monetary, or stockholder interest in the borrower or
transferor at the time of the transaction.
Assignment Guarantee Agreement. The signed agreement among the
Agency, the lender, and the holder setting forth the terms and
conditions of an assignment of the guaranteed portion of a loan or any
part thereof (available in any Agency office).
Borrower. The entity that borrows money from the lender.
Collateral. Property pledged to secure the guaranteed loan.
Community facility (essential). The term ``facility'' as used in
this subpart refers to both the physical structure financed and the
resulting service provided to rural residents. An essential community
facility must:
(1) Be a function customarily provided by a local unit of
government;
(2) Be a public improvement needed for the orderly development of a
rural community;
(3) Not include private affairs or commercial or business
undertakings (except for limited authority for industrial parks);
(4) Be within the area of jurisdiction or operation for eligible
public bodies or a similar local rural service area of a not-for-profit
corporation; and
(5) Be located in a rural area.
Conditional Commitment for Guarantee. The Agency's written
statement to the lender that the material submitted is approved subject
to the completion of all conditions and requirements contained in the
commitment (available in any Agency office).
Guaranteed loan. A loan made and serviced by a lender for which the
Agency and lender have entered into a Lender's Agreement and for which
the Agency has issued a Loan Note Guarantee.
Holder. The person or entity (other than the lender) who holds all
or a part of the guaranteed portion of the loan with no servicing
responsibilities. When the lender assigns part or all of the guaranteed
portion of the loan to an assignee, the assignee becomes a holder when
the Assignment Guarantee Agreement is signed by all parties.
Immediate family. Individuals who are closely related by blood or
by marriage, or within the same household, such as a spouse, parent,
child, brother, sister, aunt, uncle, grandparent, grandchild, niece, or
nephew.
In-house expenses. In-house expenses include, but are not limited
to, employees' salaries, staff lawyers, travel, and overhead.
Insurance. Fire, windstorm, lightning, hail, explosion, riot, civil
commotion, aircraft, vehicles, smoke, builder's risk, liability,
property damage, flood or mudslide, worker's compensation, fidelity
bond, malpractice, or any similar insurance that is available and
needed to protect the security or that is required by law.
[[Page 28338]]
Joint financing. Two or more lenders (or any combination of lenders
and other financial sources) making separate relatively contemporaneous
loans to supply the funds required by one borrower. For example, such
joint financing may consist of the Agency's financial assistance with
the Economic Development Administration, Department of Housing and
Urban Development (HUD), or other Federal and State agencies, and
private and quasi-public financial institutions.
Lender. The person or organization making and responsible for
servicing the loan. The lender is also referred to in this subpart as
the applicant who is requesting a guarantee during the preapplication
and application stage of processing.
Lender's Agreement. The signed agreement between the Agency and the
lender containing the lender's responsibilities when the Loan Note
Guarantee is issued (available in any Agency office).
Loan classification system. The process by which loans are examined
and categorized by degree of potential loss in the event of default.
Loan Note Guarantee. The signed commitment issued by the Agency
containing the terms and conditions of the guarantee of an identified
loan (available in any Agency office).
Market value. The amount for which property would sell for its
highest and best use at a voluntary sale in an arm's length
transaction.
Note. An evidence of debt. In those instances where the Agency
guarantees a bond issue, ``note'' shall also be construed to include a
bond or other evidence of indebtedness, as appropriate.
Participation. Sale of an interest in a loan in which the lender
retains the note, collateral securing the note, and all responsibility
for loan servicing and liquidation.
Principals of borrowers. The owners, officers, directors, entities,
and supervisors directly involved in the operation and management of
the borrower.
Problem loan. A loan which is not complying with its terms and
conditions.
Protective advances. Advances made by the lender for the purpose of
preserving and protecting the collateral where the debtor has failed
to, and will not or cannot, meet obligations to protect or preserve
collateral.
Public body. A municipality, county, or other political subdivision
of a State, special purpose district, an Indian tribe on a Federal or
State reservation, or another federally recognized Indian tribe.
Report of loss. A form used by lenders when reporting a loss under
an Agency guarantee (available in any Agency office).
Rural and rural area. (1) For fiscal year 1999, the terms ``rural''
and ``rural area'' mean a city, town, or unincorporated area with
20,000 inhabitants or less according to the latest decennnial census.
(2) For later fiscal years, the terms ``rural'' and ``rural area''
mean a city, town, or unincorporated area that has a population of
50,000 inhabitants or less according to the latest decennial census of
the United States, other than an urbanized area immediately adjacent to
a city, town, or unincorporated area that has a population in excess of
50,000 inhabitants.
Service area. The area reasonably expected to be served by the
facility being financed by the guaranteed loan.
State. Any of the 50 States, the Commonwealth of Puerto Rico, the
Virgin Islands of the United States, Guam, American Samoa, Commonwealth
of the Northern Mariana Islands, Republic of the Marshall Islands,
Republic of Palau, and the Federated States of Micronesia.
State Bond Banks and State Bond Pools. An entity authorized by the
State to issue State debt instruments and utilize the funds received to
finance essential community facilities.
State Director. The Rural Development State Director or the staff
member who has been delegated authority to perform action on behalf of
the State Director.
Substantive change. Any change in the purpose of the loan or any
change in the financial condition of the borrower or the collateral
which would jeopardize the performance of the loan.
Transfer and assumption. The conveyance by a debtor to an assuming
party of the assets, collateral, and liabilities of the loan in return
for the assuming party's binding promise to pay the outstanding debt.
Sec. 3575.3 Full faith and credit.
The Loan Note Guarantee constitutes an obligation supported by the
full faith and credit of the United States and is not contestable
except for fraud or misrepresentation (including negligent
misrepresentation) of which the lender or holder has actual knowledge,
participates in, or condones. A note which provides for the payment of
interest on interest shall not be guaranteed and any Loan Note
Guarantee or Assignment Guarantee Agreement attached to, or relating
to, a note which provides for payment of interest on interest is void.
The Loan Note Guarantee will not be enforceable 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 the Agency acquires knowledge of the foregoing. Any
losses occasioned will not be enforceable by the lender to the extent
that loan funds are used for purposes other than those specifically
approved by the Agency 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, 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 Agency
has requested the holder to surrender the evidence of debt for
repurchase.
Sec. 3575.4 Conditions of guarantee.
A loan guarantee under this part will be evidenced by a Loan Note
Guarantee issued by the Agency. Each lender will also execute a
Lender's Agreement.
(a) The entire loan will be secured by the same security with equal
lien priority for the guaranteed and non-guaranteed portions of the
loan. The non-guaranteed portion of the loan will not be paid first nor
given any preference or priority over the guaranteed portion.
(b) The lender will be responsible for servicing the entire loan
and will remain mortgagee or secured party of record notwithstanding
the fact that another party may hold a portion of the loan.
(c) When a guaranteed portion of a loan is sold to a holder, the
holder shall have all rights of the lender under the Loan Note
Guarantee to the extent of the portion purchased. The lender will
remain bound by all the obligations under the Loan Note Guarantee,
Lender's Agreement, and Agency program regulations. If the Agency makes
a payment to a holder, then the lender must reimburse the Agency.
[[Page 28339]]
(d) A lender will receive all payments of principal and interest on
the account of the entire loan and will promptly remit to each holder a
pro rata share, less any lender servicing fee.
(e) The lender may retain all of the unguaranteed portion of the
loan or may sell part of the unguaranteed portion of the loan through
participation. However, the lender is required to retain 5 percent of
the loan amount from the unguaranteed portion in their portfolio.
Secs. 3575.5--3575.7 [Reserved]
Sec. 3575.8 Access to lender's records.
Upon request by the Agency, the lender will permit representatives
of the Agency (or other agencies of the U.S. Department of Agriculture
authorized by that Department or the U.S. Government) to inspect and
make copies of any of the records of the lender pertaining to the
guaranteed loans. Such inspection and copying may be made during
regular office hours of the lender or at any other time the lender and
the Agency agree upon.
Sec. 3575.9 Environmental requirements.
Requirements for an environmental review or mitigation actions are
contained in part 1940, subpart G, of this title. The lender must
assist the Agency to ensure that the lender's applicant complies with
any mitigation measures required by the Agency's environmental review
for the purpose of avoiding or reducing adverse environmental impacts
of construction or operation of the facility financed with the
guaranteed loan. This assistance includes ensuring that the lender's
applicant is to take no actions (for example, initiation of
construction) or incur any obligations with respect to their proposed
undertaking that would either limit the range of alternatives to be
considered during the Agency's environmental review process or which
would have an adverse effect on the environment. If construction is
started prior to completion of the environmental review and the Agency
is deprived of its opportunity to fulfill its obligation to comply with
applicable environmental requirements, the application for financial
assistance may be denied. Satisfactory completion of the environmental
review process must occur prior to Agency approval of the applicant's
request or any commitment of Agency resources.
Sec. Sec. 3575.10--3575.11 [Reserved]
Sec. 3575.12 Inspections.
The lender will notify the Agency of any scheduled field
inspections during construction and after issuance of the Loan Note
Guarantee. The Agency may attend such field inspections. Any
inspections or review conducted by the Agency, including those with the
lender, are for the benefit of the Agency only and not for the benefit
of other parties of interest. Agency inspections do not relieve any
parties of interest of their responsibilities to conduct necessary
inspections.
Sec. 3575.13 Appeals.
Only the borrower, lender, or holder can appeal an Agency decision.
In cases where the Agency has denied or reduced the amount of final
loss payment to the lender, the adverse decision may be appealed only
by the lender. A decision by a lender adverse to the interest of the
borrower is not a decision by the Agency, whether or not concurred in
by the Agency. Appeals will be handled in accordance with the
regulations of the National Appeals Division, U.S. Department of
Agriculture, published at 7 CFR part 11.
Sec. Sec. 3575.14--3575.16 [Reserved]
Sec. 3575.17 Exception authority.
The Administrator may, in individual cases, make an exception to
any requirement or provision of this subpart or address any omission of
this subpart provided the Administrator determines that application of
the requirement or provision, or failure to take action in the case of
an omission, would adversely affect the Government's financial
interest. Requests for exceptions must be in writing by the State
Director.
Sec. Sec. 3575.18--3575.19 [Reserved]
Sec. 3575.20 Eligibility.
(a) Availability of credit from other sources. The Agency must
determine that the borrower is unable to obtain the required credit
without the loan guarantee from private, commercial, or cooperative
sources at reasonable rates and terms for loans for similar purposes
and periods of time. This determination shall become a part of the
Agency casefile. The Agency must also determine if an outstanding
judgment obtained by the United States in a Federal Court (other than
the U.S. Tax Court) has been entered against the borrower or if the
borrower has an outstanding delinquent debt with any Federal agency.
Such judgment or delinquency shall cause the potential borrower to be
ineligible to receive a loan guarantee until the judgment is paid in
full or otherwise satisfied or the delinquency is cured.
(b) Legal authority and responsibility. (1) Each borrower must
have, or will obtain, the legal authority necessary to construct,
operate, and maintain the proposed facility and services. They must
also have legal authority for obtaining security and repaying the
proposed loan.
(2) The borrower shall be responsible for operating, maintaining,
and managing the facility and services, and providing for the continued
availability and use of the facility and services at reasonable rates
and terms.
(i) These responsibilities must be exercised by the borrower even
though the facility may be operated, maintained, or managed by a third
party under contract, management agreement, or written lease.
(ii) Leases may only be used when this is the only feasible way to
provide the service, is the customary practice to provide such service
in the State, and must provide for the borrower's management control of
the facility.
(iii) Contracts, management agreements, or leases must not contain
options or other provisions for transfer of ownership.
(3) The lender is responsible for reviewing any contracts,
management agreements, or leases to determine that they will not
adversely impact the borrower's repayment ability or the security value
of the guaranteed loan.
(c) Borrower. (1) A public body such as a municipality, county,
district, authority, or other political subdivision of a State located
in a rural area.
(2) An organization operated on a not-for-profit basis such as an
association, cooperative, or private corporation. For-profit
corporations operated as not-for-profit corporations are eligible
borrowers as long as they operate as a not-for-profit corporation for
the duration of their guaranteed loans. Single member corporations or
corporations owned or substantially controlled by other corporations or
associations are not eligible organizations. Before a loan is made to a
borrower other than a public body, the articles of incorporation or the
loan agreement will include a condition similar to the following:
If the corporation dissolves or ceases to perform the community
facility objectives and functions, the board of directors shall
distribute all business property and assets to one or more nonprofit
corporations or public bodies. This distribution must be approved by
75 percent of the users or members and must serve the public welfare
of the community. The assets may not be distributed to any members,
directors, stockholders, or others having financial or managerial
interest in the corporation. Nothing herein shall prohibit the
corporation from paying its debts.
(3) A private nonprofit essential community facility (other than
utilities)
[[Page 28340]]
must have significant ties with the local rural community. Such ties
are necessary to ensure to the greatest extent possible that a facility
under private control will carry out a public purpose and continue to
primarily serve rural areas. Ties may be evidenced by items such as:
(i) Association with, or controlled by, a local public body or
bodies or broadly based ownership and controlled by members of the
community.
(ii) Substantial public funding through taxes, revenue bonds, or
other local government sources, or substantial voluntary community
funding such as would be obtained through a community-wide funding
campaign.
(4) Indian tribes on Federal and State reservations and other
federally recognized Indian tribes.
(d) Facility location. Facilities must be located in rural areas,
except:
(1) For utility services such as natural gas or hydroelectric
serving both rural and non-rural areas. In such cases, Agency funds may
be used to finance only that portion serving rural areas, regardless of
facility location.
(2) Telecommunication projects. The part of the facility located in
a non-rural area must be necessary to provide the essential services to
rural areas.
(e) Facilities for public use. All facilities financed under the
provisions of this subpart shall be for public purposes.
(1) Facilities will be installed to serve any user within the
service area who desires service and can be feasibly and legally
served.
(2) In no case will boundaries for the proposed service area be
chosen in such a way that any user or area will be excluded because of
race, color, religion, sex, marital status, age, disability, or
national origin. This does not preclude:
(i) Financing or constructing projects in phases when it is not
practical to finance or construct the entire project at one time, and
(ii) Financing or constructing facilities where it is not
economically feasible to serve the entire area, provided economic
feasibility is determined on the basis of the entire system or facility
and not by considering the cost of separate extensions to, or parts
thereof. Additionally, the borrower must publicly announce a plan for
extending service to areas not initially receiving service. Also, the
borrower must provide written notice to potential users located in the
areas not to be initially served.
(3) The lender will determine that, when feasible and legally
possible, inequities within the proposed project's service area for the
same type service proposed (i.e., gas distribution system) will be
remedied by the owner on, or before, completion of the project.
Inequities are defined as unjustified variations in availability,
adequacy, or quality of service. User rate schedules for portions of
existing systems or facilities that were developed under different
financing, rates, terms, or conditions do not necessarily constitute
inequities.
Sec. Sec. 3575.21--3575.23 [Reserved]
Sec. 3575.24 Eligible loan purposes.
(a) Funds may be used to construct, enlarge, extend, or otherwise
improve other essential community facilities providing essential
service primarily to rural residents and rural businesses.
(1) Essential community facilities include, but are not limited to:
(i) Fire, rescue, and public safety,
(ii) Health services,
(iii) Community, social, or cultural services,
(iv) Transportation facilities such as streets, roads, and bridges,
(v) Telecommunication equipment,
(vi) Hydroelectric generating facilities and related connecting
systems and appurtenances only when not eligible for financing under
the authorities of the Rural Utilities Service. Funds may not be used
to finance other types of electrical generating or transmitting
facilities,
(vii) Supplemental and supporting structures for other rural
electrification or telephone systems (including facilities such as
headquarters and office buildings, storage facilities, and maintenance
shops) only when not eligible for financing under the authorities of
the Rural Utilities Service,
(viii) Natural gas distribution systems,
(ix) Industrial park sites (but only to the extent of land
acquisition and necessary site preparation) including access ways and
utility extensions to and throughout the site. Funds may not be used in
connection with industrial parks to finance on-site utility systems or
business and industrial buildings, and
(x) Recreational facilities.
(2) Otherwise improve includes, but is not limited to, the
following:
(i) The purchase of major equipment (such as telecommunication
equipment and X-ray machines) which will in themselves provide an
essential service to rural residents,
(ii) The purchase of existing facilities, when necessary, either to
improve or to prevent a loss of service, and
(iii) Payment of tap fees and other utility connection charges as
provided in utility purchase contracts.
(b) Funds also may be used:
(1) To construct or relocate public buildings, roads, bridges,
fences, or utilities and to make other public improvements necessary to
the successful operation or protection of facilities authorized by
paragraph (a) of this section.
(2) To relocate private buildings, roads, bridges, fences, or
utilities, and other private improvements necessary to the successful
operation or protection of facilities authorized in paragraph (a) of
this section.
(3) To pay the following expenses (but only when such expenses are
a necessary part of a loan to finance facilities authorized in
paragraph (a) of this section):
(i) Reasonable fees and costs such as origination fee, loan
guarantee fee, legal, engineering, architectural, fiscal advisory,
recording, environmental impact analyses, archaeological surveys,
possible salvage or other mitigation measures, planning and
establishing or acquiring rights.
(ii) Interest on loans until the facility is self-supporting, but
not for more than 2 years unless a longer period is approved by the
Agency; interest on loans secured by general obligation bonds until tax
revenues are available for payment, but not for more than 2 years
unless a longer period is approved by the Agency's National Office; and
interest on interim financing.
(iii) Costs of acquiring interest in land; rights such as water
rights, leases, permits, rights-of-way, and other evidence of land or
water control necessary for development of the facility.
(iv) Purchasing or renting equipment necessary to install,
maintain, extend, protect, operate, or utilize facilities.
(v) Initial operating expenses for a period ordinarily not
exceeding 1 year when the borrower is unable to pay such expenses.
(vi) Refinancing debts incurred by, or on behalf of, a community
when all of the following conditions exist:
(A) The debts being refinanced are less than 50 percent of the
total loan,
(B) The debts were incurred for the facility or service being
financed or any part thereof (such as interim financing, construction
expenses, etc.), and
(C) Arrangements cannot be made with the creditors to extend or
modify the terms of the debts so that a sound basis will exist for
making a loan.
(4) To pay obligations for construction incurred prior to filing a
preapplication and application with the Agency. Construction work must
not be started (and obligations for such work or materials must not be
incurred) before
[[Page 28341]]
the Conditional Commitment for Guarantee is issued. If there are
compelling reasons for proceeding with construction before the
Conditional Commitment for Guarantee is issued, lenders may request
Agency approval to pay such obligations and not jeopardize a guarantee
from the Agency. Such request must comply with the following:
(i) Provide conclusive evidence that the contract was entered into
without intent to circumvent the Agency regulations. However, the
Agency is not required or obligated to pay a loss unless a written
guarantee is issued,
(ii) Modify the outstanding contract to conform with the provisions
of this subpart. Where this is not possible, modifications will be made
to the extent practicable and, as a minimum, the contract must comply
with all State and local laws and regulations as well as statutory
requirements and executive orders related to the Agency financing. When
construction is complete and it is impracticable to modify the
contract, the borrower and lender must provide the certification
required by paragraph (b)(4)(iii) of this section,
(iii) Provide a certification by an engineer or architect that any
construction performed complies fully with the plans and
specifications, and
(iv) The borrower and the contractor must have complied with all
statutory and executive order requirements related to Agency financing
for construction already performed even though the requirements may not
have been included in the contract documents.
Sec. 3575.25 Ineligible loan purposes.
Loan funds may not be used to finance:
(a) Properties to be used for commercial rental when the borrower
has no control over tenants and services offered except for industrial-
site infrastructure development,
(b) Facilities primarily for the purpose of housing Federal or
State agencies,
(c) Community antenna television services or facilities,
(d) Telephone systems,
(e) Facilities which are not modest in size, design, and cost,
(f) Finder's and packager's fees,
(g) Projects located within the Coastal Barriers Resource System
that do not qualify for an exception as defined in section 6 of the
Coastal Barriers Resource Act, 16 U.S.C. 3501 et seq. (available in any
Agency office),
(h) New combined sanitary and storm water sewer facilities, or
(i) Projects that are located in a special flood or mudslide hazard
area as designated by the Federal Emergency Management Agency in a
community that is not participating in the National Flood Insurance
Program.
Sec. 3575.26 [Reserved]
Sec. 3575.27 Eligible lenders.
(a) Eligible lenders. Eligible lenders (as defined in this section)
may participate in the loan guarantee program. These lenders must be
subject to credit examination and supervision by an appropriate agency
of the United States or a State that supervises and regulates credit
institutions. A lender must have the capability to adequately service
loans for which a guarantee is requested. Eligible lenders are:
(1) Any Federal or State chartered bank or savings and loan
association;
(2) Any mortgage company that is a part of a bank holding company;
(3) Bank for Cooperatives, National Rural Utilities Cooperative
Finance Corporation, Farm Credit Bank of the Federal Land Bank, or
other Farm Credit System institution with direct lending authority
authorized to make loans of the type guaranteed by this subpart;
(4) An insurance company regulated by a State or National insurance
regulatory agency;
(5) State Bond Banks or State Bond Pools; and
(6) Other lenders that possess the legal powers necessary and
incidental to making and servicing guaranteed loans involving community
development-type projects. These lenders must also be subject to credit
examination and supervision by either an appropriate agency of the
United States or a State that supervises and regulates credit
institutions and provide documentation acceptable to the Agency that
they have the ability to service the loan. Lenders under this category
must be approved by the National Office prior to the issuance of the
loan guarantee.
(b) Conflict of interest. When the lender's officers, stockholders,
directors, or partners (including their immediate families) or the
borrower, its officers, stockholders, directors, or partners (including
their immediate families) own, or have management responsibilities in
each other, the lender must disclose such business or ownership
relationships. The Agency will determine if such relationships are
likely to result in a conflict of interest. This does not preclude
lender officials from being on the borrower's board of directors.
Sec. 3575.28 Transfer of lenders or borrowers (prior to issuance of
Loan Note Guarantee).
(a) Prior to issuance of the loan guarantee, the Agency may approve
the transfer of an outstanding Conditional Commitment for Guarantee
from the present lender to a new eligible lender, provided:
(1) The former lender states in writing why it does not wish to
continue to be the lender for this project;
(2) No substantive changes in ownership or control of the borrower
has occurred;
(3) No substantive changes in the borrower's written plan, scope of
work, or changes in the purpose or intent of the project has occurred;
and
(4) No substantive changes in the loan agreement or Conditional
Commitment for Guarantee are required.
(b) The substitute lender must execute a new application for loan
and guarantee (available in any Agency office).
(c) If approved, the Agency will issue a letter of amendment to the
original Conditional Commitment for Guarantee reflecting the new lender
who will acknowledge acceptance of the offer in writing.
(d) Once the Conditional Commitment for Guarantee is issued, the
Agency will not approve any substitution of borrowers, including
changes in the form of the legal entity. Exceptions to a change in the
legal entity may be requested when the original borrower is replaced
with substantially the same individuals or officers with the same
interest as originally approved.
Sec. 3575.29 Fees and charges by lender.
(a) Routine charges and fees. The lender may establish the charges
and fees for the loan, provided they do not exceed those charged other
borrowers for similar types of transactions. ``Similar types of
transactions'' mean those transactions involving the same type of loan
for which a non-guaranteed loan borrower would be assessed charges and
fees.
(b) Late payment fees. Late payment charges 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. Late payment charges may be
made only if:
(1) They are routinely made by the lender in all types of loan
transactions;
(2) Payment has not been received within the customary timeframe
allowed by the lender; or
(3) The lender agrees with the borrower, in writing, that the rate
or method of calculating the late payment charges will not be changed
to increase charges while the Loan Note Guarantee is in effect.
(c) Guarantee fees. The guaranteed loan fee will be the applicable
guarantee fee rate multiplied by the principal loan amount multiplied
by the percent of
[[Page 28342]]
guarantee. The one-time guarantee fee is paid when the Loan Note
Guarantee is issued.
(1) The fee will be paid to the Agency by the lender and is
nonreturnable. The lender may pass the fee to the borrower.
(2) The guarantee fee rates are available in any Agency office.
Sec. 3575.30 Loan guarantee limitations.
The percentage of guarantee, up to the maximum allowed by this
section, is a matter for negotiation between the lender and the Agency.
(a) The maximum guarantee is 90 percent of eligible loss.
(b) The lender will retain a minimum of 5 percent of the total loan
amount. The retained amount must be from the unguaranteed portion of
the loan and cannot be participated to another lender.
Secs. 3575.31--3575.32 [Reserved]
Sec. 3575.33 Interest rates.
(a) General. Rates will be negotiated between the lender and the
borrower.
They may be either fixed or variable rates. Interest rates will be
those rates customarily charged borrowers in similar circumstances in
the ordinary course of business and are subject to Agency review and
approval.
(b) Variable rate publication. A variable interest rate must be
tied to a base rate published periodically in a recognized national or
regional financial publication specifically agreed to by the lender and
borrower. Such an agreement must be documented in the borrower or
lender loan agreement.
(1) Interest rate caps and incremental adjustment limitations will
also be negotiated between the lender and the borrower. Notice of any
interest rate change proposed by the lender should allow a sufficient
time period for the borrower to obtain any required State or other
regulatory approval and to implement any user rate adjustments
necessary as a result of the interest rate change. The intervals
between interest rate adjustments will be specified in the loan
agreement (but not more often than quarterly).
(2) The lender must incorporate within the variable rate note, the
provision for adjustment of payments coincident with an interest rate
adjustment. This will ensure the outstanding principal balance is
properly amortized within the prescribed loan maturity and eliminate
the possibility of a balloon payment at the end of the loan.
(c) Changes. Any change in the interest rate between the date of
issuance of the Conditional Commitment for Guarantee and before the
issuance of the Loan Note Guarantee must be approved by the Agency.
Approval of such change will be shown as an amendment to the
Conditional Commitment for Guarantee.
(d) Different rates on guaranteed and unguaranteed portion of the
loan. It is permissible to have one interest rate on the guaranteed
portion of the loan and another interest rate on the unguaranteed
portion of the loan, provided the lender and borrower agree, and:
(1) The rate on the unguaranteed portion does not exceed that
currently being charged on loans for similar purposes to borrowers
under similar circumstances; and,
(2) The rate on the guaranteed portion of the loan will not exceed
the rate on the unguaranteed portion. This requirement does not apply
when the unguaranteed rate is variable and the guaranteed portion is
fixed.
(e) Multi-rates. When multi-rates are used, the lender will provide
the Agency with the overall effective interest rate for the entire
loan. Multi-rate loans may be either fixed, variable, or a combination
of fixed and variable. When a combination of fixed and variable
interest rates are used, the interest rate for the unguaranteed portion
will not be lower than the guaranteed portion of the loan.
Sec. 3575.34 Terms of loan repayment.
(a) General. Principal and interest on the loan will be due and
payable as provided in the note except, any interest accrued as the
result of the borrower's default on the guaranteed loan over and above
that which would have accrued at the note rate on the guaranteed loan
will not be guaranteed by the Agency. The lender will structure
repayments as established in the loan agreement between the lender and
borrower. Ordinarily, such installments will be scheduled for payment
as agreed upon by the lender and borrower on terms that reasonably
ensure repayment of the loan. However, the first installment to include
a repayment of principal may be scheduled for payment after the project
is operable and has begun to generate income. Such installment must be
due and payable within 3 years from the date of the note and at least
annually thereafter. Interest will be due at least annually from the
date of the note. Monthly payments will be required except for
borrowers with income limited to less frequent intervals.
(b) Term length. The maximum time allowable for final maturity for
a guaranteed CP loan will be limited to the useful life of the
facility, not to exceed 40 years.
(c) Balloon payments. The principal balance should be properly
amortized within the prescribed loan maturity. Balloon payments at the
end of the loan are prohibited.
Secs. 3575.35--3575.36 [Reserved]
Sec. 3575.37 Insurance and fidelity bonds.
The lender must provide evidence that the borrower has adequate
insurance and fidelity bond coverage by loan closing or start of
construction, whichever occurs first. Adequate coverage must be
maintained for the life of the loan and is subject to Agency review and
approval.
Secs. 3575.38--3575.39 [Reserved]
Sec. 3575.40 Equal opportunity and Fair Housing Act requirements.
(a) Equal Credit Opportunity Act. The lender will comply with the
requirements of title V of the Equal Credit Opportunity Act (15 U.S.C.
1691 et seq.). (See the Federal Reserve Board Regulation, 12 CFR part
202.)
(b) Fair Housing Act. Certain housing-related projects such as
nursing homes, group homes, or assisted-living facilities must comply
with the requirements of the Fair Housing Act (42 U.S.C. 3601 et seq.).
This includes completion of an Affirmative Fair Housing Marketing Plan
and compliance with the Housing and Urban Development accessibility
guidelines except for areas open to the public which are covered by the
Americans with Disabilities Act (42 U.S.C. 12181 et seq.). The lender
will determine that the borrower has a valid plan in effect at all
times.
Sec. 3575.41 [Reserved]
Sec. 3575.42 Design and construction requirements.
The lender will provide the Agency with a written certification at
the end of construction that all funds were utilized for authorized
purposes. The borrower and the lender will authorize designs and plans
based upon the preliminary architectural and engineering reports or
plans approved by the lender and concurred in by the Agency. The
borrower will take into consideration any lender or Agency comments
when the facility is being designed.
(a) Architectural and engineering practices. All project facilities
must be designed utilizing accepted architectural and engineering
practices and must conform to applicable Federal, State, and local
codes and requirements. The lender must ensure that the planned project
will be completed within the available funds and, once
[[Page 28343]]
completed, will be suitable for the borrower's needs.
(b) Construction monitoring. The lender will monitor the progress
of construction and undertake the reviews and inspections necessary to
ensure that construction proceeds in accordance with the approved
plans, specifications, and contract documents and that funds are used
for eligible project costs. The lender must expeditiously report any
problems in project development to the Agency.
(c) Equal employment opportunities. For all construction contracts
in excess of $10,000, the contractor must comply with Executive Order
11246 entitled ``Equal Employment Opportunity'' as amended and as
supplemented by applicable Department of Labor regulations (41 CFR part
60-1). The borrower and lender are responsible for ensuring that the
contractor complies with these requirements.
(d) Americans with Disabilities Act. Community Facilities loans
which involve the construction of, or addition to, facilities that
accommodate the public and commercial facilities as defined by the
Americans with Disabilities Act (42 U.S.C. 12181--et seq.) must comply
with that Act. The lender and borrower are responsible for compliance.
Sec. 3575.43 Other Federal, State, and local requirements.
In addition to the specific requirements of this subpart and
beginning on the date of issuance of the Loan Note Guarantee, proposals
for facilities financed in whole or in part with a loan guaranteed by
the Agency will be coordinated with all appropriate Federal, State, and
local agencies. Borrowers and lenders will be required to comply with
any Federal, State, or local laws or regulatory commission rules which
are in existence and which affect the project including, but not
limited to:
(a) Organization and authority to design, construct, develop,
operate, and maintain the proposed facilities;
(b) Borrowing money, giving security, and raising revenues for
repayment;
(c) Land use zoning;
(d) Health, safety, and sanitation standards; and
(e) Protection of the environment and consumer affairs.
Secs. 3575.44-3575.46 [Reserved]
Sec. 3575.47 Economic feasibility requirements.
All projects financed under the provisions of this section must be
based on taxes, assessments, revenues, fees, or other sources of
revenues in an amount sufficient to provide for facility operation and
maintenance, a reasonable reserve, and debt payment. Other sources of
revenue or guarantors are particularly important in considering the
feasibility of recreation-type loans. The lender is responsible for
determining the credit quality and economic feasibility of the proposed
loan and must address all elements of the credit quality in a written
financial feasibility analysis which includes adequacy of equity, cash
flow, security, history, and management capabilities. Financial
feasibility reports must take into consideration any interest rate
adjustment which may be instituted under the terms of the note. The
lender's financial credit analysis may also serve as the feasibility
analysis when sufficient evidence is included to determine economic
feasibility as well as financial viability.
(a) Financial feasibility. The borrower, lender, or other qualified
entity must prepare the financial feasibility analysis (suggested
financial feasibility guidelines are available in any Agency office) in
the following instances:
(1) Facilities primarily used for fire and rescue services;
(2) Facilities that are not dependent on facility revenues for debt
payment;
(3) Loans of less than $500,000; or
(4) Projects in which the borrower has operated similar facilities
on a financially successful basis.
(b) Utility projects. The borrower's consulting engineer may
complete the financial feasibility analysis for utility systems.
(c) Other community facilities. Financial feasibility reports for
all other facilities must be prepared by a qualified entity not having
a direct interest in the management of the facility. The lender may
prepare the feasibility study if qualified staff is available.
(d) Exceptions. The Agency loan approval official may exempt the
lender from the requirement for an independent financial feasibility
report (when requested by the borrower and the lender) provided the
approval official determines that the financial feasibility analysis
prepared by the borrower fairly represents the financial feasibility of
the facility and the financial feasibility analysis contains an
accurate projection of the usage, revenues, and expenses of the
facility.
(e) Insufficient information. When the lender or Agency has
insufficient information to determine the borrower's repayment ability,
an independent feasibility analysis is required.
Sec. 3575.48 Security.
(a) Lender responsibility. The lender is responsible for obtaining
and maintaining proper and adequate security to protect the interest of
the lender, the holder, and the Government.
(b) Type of security. Security must be of such a nature that
repayment of the loan is reasonably ensured when considered with the
integrity and ability of project management, soundness of the project,
and the borrower's prospective earnings. The security may include, but
is not limited to, the following: General obligation bonds, revenue
bonds, pledge of taxes or assessments, assignment of facility revenue,
land, easements, rights-of-way, water rights, buildings, machinery,
equipment, accounts receivable, contracts, cash, or other accounts or
assignments of leases or leasehold interest.
(c) Separate security. All security must secure the entire loan.
The lender will not take separate security to secure only the
unguaranteed portion of the loan. The lender will not require
compensating balances or certificates of deposit as a means of
eliminating the lender's exposure on the unguaranteed portion of the
loan.
Secs. 3575.49--3575.51 [Reserved]
Sec. 3575.52 Processing.
(a) Preapplications. (1) The preapplication package must be
submitted either alone or the necessary information may be submitted
simultaneously with the application. The preapplication package will
contain:
(i) An Application for Federal Assistance on a form provided by the
Agency (available in any Agency office);
(ii) State intergovernmental or other type review comments and
recommendations for the borrower's project (clearinghouse comments, if
applicable);
(iii) Supporting documentation necessary to make an eligibility
determination such as financial statements, audits, copies of
organizational documents, existing debt instruments, etc.; and
(iv) Documentation of lender eligibility in accordance with
Sec. 3575.27.
(2) If the Agency determines that the project may meet requirements
and is likely to be funded, the lender must submit a complete
application if it has not previously submitted one. The Agency must do
an environmental review before further processing will be completed.
(b) Applications. Contents of application package:
[[Page 28344]]
(1) Application for Loan and Guarantee on a form prescribed by the
Agency (available in any Agency office);
(2) Proposed loan agreement;
(3) Request for Environmental Information (available in any Agency
office);
(4) Preliminary architectural or engineering report;
(5) Cost estimates;
(6) Appraisal reports (as appropriate);
(7) Credit reports;
(8) Financial feasibility analysis and report; and
(9) Any additional information required.
Sec. 3575.53 Evaluation of application.
If the Agency determines that the borrower is eligible, the
proposed loan is for an eligible purpose, there is reasonable assurance
of repayment ability, sufficient collateral and equity exists, the
proposed loan complies with all applicable statutes and regulations,
the environmental review is complete and considered in determining
compliance, and adequate funds are available, the Agency will provide
the lender and the borrower with the Conditional Commitment for
Guarantee, listing all conditions for the guarantee. Applicable
requirements will include the following:
(a) Approved use of guaranteed loan funds (source and use of
funds);
(b) Rates and terms of the loan;
(c) Scheduling of payments;
(d) Number of customers;
(e) Security and lien priority;
(f) Appraisals;
(g) Insurance and bonding;
(h) Financial reporting;
(i) Equal opportunity and nondiscrimination;
(j) Environment or mitigation;
(k) Americans with Disabilities Act;
(l) By-laws and articles of incorporation changes; and
(m) Other requirements necessary to protect the Government.
Sec. Sec. 3575.54-3575.58 [Reserved]
Sec. 3575.59 Review of requirements.
(a) Lender and borrower. The lender and borrower must complete and
sign the Acceptance of Conditions and return a copy to the Agency as
soon as possible. Notwithstanding the preceding sentence, if certain
conditions cannot be met, the lender and borrower may propose alternate
conditions for Agency consideration.
(b) Cancellation. If the lender decides at any time after receiving
a Conditional Commitment for Guarantee that it no longer wants a
guarantee, the lender must immediately advise the Agency of the
cancellation.
(c) Modifications. The lender agrees that once the Conditional
Commitment for Guarantee is issued and accepted by the lender and
borrower, it will not be modified as to the scope of the project,
overall facility concept, project purpose, use of proceeds, or other
terms and conditions.
Sec. Sec. 3575.60-3575.62 [Reserved]
Sec. 3575.63 Conditions precedent to issuance of the Loan Note
Guarantee.
The Loan Note Guarantee will not be issued until:
(a) The lender certifies that:
(1) No changes have been made in the lender's loan conditions and
requirements since the issuance of the Conditional Commitment for
Guarantee except those approved in the interim by the Agency in
writing.
(2) All planned property acquisition has been completed and all
development has been substantially completed in accordance with plans,
specifications, and applicable building codes. No costs have exceeded
the amounts approved by the lender and the Agency.
(3) Required insurance is in effect.
(4) All equal opportunity and Fair Housing Plan requirements have
been met.
(5) The loan has been properly closed and the required security
instruments have been obtained on any after-acquired property that
cannot be covered initially under State statutory provisions.
(6) The borrower has marketable title to the collateral then owned
by the borrower, subject to the instrument securing the loan to be
guaranteed and subject to any other exceptions approved, in writing, by
the Agency.
(7) When required, the entire amount of the loan for working
capital has been disbursed except in cases where the Agency has
approved disbursement over an extended time.
(8) All other requirements of the Conditional Commitment for
Guarantee have been met.
(9) Lien priorities are consistent with requirements of the
Conditional Commitment for Guarantee.
(10) The loan proceeds have been disbursed for purposes and in
amounts consistent with the Conditional Commitment for Guarantee and as
specified on the application for the guaranteed loan. A copy of a
detailed statement by the lender detailing the use of loan funds will
be attached to support this certification.
(11) There has been no substantive adverse change in the borrower's
financial condition nor any other adverse change in the borrower during
the period of time from the Agency's issuance of the Conditional
Commitment for Guarantee to issuance of the Loan Note Guarantee. The
lender's certification must address all adverse changes of the borrower
and the guarantors. For purposes of this paragraph, the term borrower
includes any parent, affiliate, or subsidiary of the borrower.
(12) All Federal, State, and local design and construction
requirements have been met.
(13) The lender understands and will meet the requirements of the
Debt Collection Act (chapter 37 of title 31 of the United States Code).
(14) The lender would not make the loan without an Agency
guarantee.
(b) The lender has executed and delivered the Lender's Agreement
and closing report for the guaranteed loan along with the appropriate
guarantee fee.
(c) The lender has advised the Agency of plans to sell or assign
any part of the loan as provided in the Lender's Agreement.
(d) Where applicable, the lender must certify that the borrower has
obtained:
(1) A legal opinion relative to the title to rights-of-way and
easements. Lenders are responsible for ensuring that borrowers have
obtained valid, continuous, and adequate rights-of-way and easements
needed for the construction, operation, and maintenance of a facility.
(2) A title opinion or title insurance showing ownership of the
land and all mortgages or other lien defects, restrictions, or
encumbrances, if any. It is the responsibility of the lender to ensure
that the borrower has obtained and recorded such releases, consents, or
subordinations to such property rights from holders of outstanding
liens or other instruments as may be necessary for the construction,
operation, and maintenance of the facility and to provide the required
security. For example, when a site is for major structures for utility-
type facilities (such as a gas distribution system) and the lender and
borrower are able to obtain only a right-of-way or easement on such a
site rather than a fee simple title, such a title opinion must be
requested.
(e) For loans exceeding $150,000, the lender has certified its
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds
have been, or will be, paid to any person for influencing or attempting
to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this
[[Page 28345]]
commitment providing for the United States to guarantee a loan, the
lender shall completely disclose such lobbying activities in accordance
with 31 U.S.C. 1352.
(f) If the Loan Note Guarantee cannot be issued before the
Conditional Commitment expires, the lender must submit a written
request for an extension of the expiration date. The lender must
document and certify to paragraph (a)(1) and (a)(11) of this section
specifically identifying any modifications.
(g) Coincident with, or immediately after, loan closing, the lender
will contact the Agency and provide those documents and certifications
required in this section. For loans to public bodies, lenders may
require an opinion from recognized bond counsel regarding the adequacy
of the preparation and issuance of the debt instruments. Only when the
Agency is satisfied that all conditions for the guarantee have been met
will the Loan Note Guarantee be executed.
Sec. 3575.64 Issuance of Lender's Agreement, Loan Note Guarantee, and
Assignment Guarantee Agreement.
(a) Lender's Agreement. If the Agency finds that all requirements
have been met, the lender and the Agency will execute the Lender's
Agreement. The original will be retained by the Agency and a signed
duplicate original will be retained by the lender. A separate Lender's
Agreement must be executed for each loan to be guaranteed by the
Agency.
(b) Loan Note Guarantee. (1) Upon receipt of the executed Lender's
Agreement and after all requirements have been met, the Agency will
execute the Loan Note Guarantee. All originals of the Loan Note
Guarantee will be provided to the lender and attached to the note.
(2) If the lender has selected the multi-note system, a Loan Note
Guarantee will be prepared and attached to each note the borrower
issues. All the notes will be listed on the Loan Note Guarantee. Not
more than ten notes will be issued for the guaranteed portion (unless
the Agency and borrower agree otherwise) and one note issued for the
unguaranteed portion.
(c) Assignment of Guarantee. In the event the lender assigns the
guaranteed portion of the loan to a holder, the lender, holder, and
Agency will execute an Agency prescribed Assignment Guarantee
Agreement.
(d) Failure to meet conditions. If the Agency determines that it
cannot execute the Loan Note Guarantee because all requirements have
not been met, the lender will have a reasonable period within which to
satisfy the objections. If the lender satisfies the objections within
the time allowed, the guarantee will be issued.
(e) Loan closing report. The lender will prepare and deliver a
guaranteed loan closing report for each loan to be guaranteed and a
guarantee fee to the Agency in return for the Loan Note Guarantee.
Sec. 3575.65 Lender's sale or assignment of the guaranteed portion of
loan.
The lender may retain all of the guaranteed loan. The lender must
not sell or participate any amount of the guaranteed or non-guaranteed
portion of the loan to the borrower or to members of the borrower's
immediate families, the borrower's officers, directors, stockholders,
other owners, or a subsidiary or affiliate. Disposition of the
guaranteed portion of a loan may not be made prior to full
disbursement, completion of construction, and acquisition of real
estate and equipment without the prior written approval of the Agency.
If the lender desires to market all or part of the guaranteed portion
of the loan at, or subsequent to, loan closing, the loan must not be in
default.
(a) Assignment. Any sale or assignment by the lender of the
guaranteed portion of the loan must be accomplished in accordance with
the conditions in the Lender's Agreement.
(b) Participation. The lender may obtain participation in the loan
under its normal operating procedures.
(c) Minimum retention. The lender is required to hold in its own
portfolio or retain a minimum of 5 percent of the total loan amount.
This amount must be of the non-guaranteed portion of the loan and
cannot be participated to another. The lender may sell the remaining
amount of the non-guaranteed portion of the loan only through
participation.
Sec. Sec. 3575.66--3575.68 [Reserved]
Sec. 3575.69 Loan servicing.
(a) Lender responsibilities. The lender is responsible for
servicing the entire loan in accordance with the lender's loan
agreement. The unguaranteed portion of the loan will not be paid first
nor given any preference or priority over the guaranteed portion of the
loan. The lender is responsible for taking all servicing actions that a
prudent lender would perform in servicing a portfolio of loans that are
not guaranteed. This responsibility includes, but is not limited to,
the collection of payments; obtaining compliance with the covenants and
provisions in the note, loan agreement, security instrument, or any
supplemental agreements; obtaining and analyzing financial statements;
verifying the payment of taxes and insurance premiums; and maintaining
liens on collateral. The lender must notify the Agency of any violation
of the loan agreement with the borrower within 30 days of such
violation.
(b) Financial reports. The lender must obtain the financial
statements required by the Loan Agreement. The lender must submit the
borrower's annual financial statements to the Agency within 120 days of
the end of the borrower's fiscal year. The lender must analyze the
financial statements and provide the Agency with a written summary of
the lender's analysis and conclusions, including trends, strengths,
weaknesses, extraordinary transactions, and other indications of the
financial condition of the borrower. Additionally, when applicable, the
lender will require an audit in accordance with Office of Management
and Budget (OMB) circulars (available in any Agency office).
(c) Delinquent loans. The lender will service delinquent loans in
accordance with the Lender's Agreement and reasonable and prudent
lending standards.
(d) Loan balances. The lender must report to the Agency the
outstanding principal and interest balance on each guaranteed loan
semiannually.
(e) Collateral inspections. The lender will inspect the collateral
as often as necessary to properly service the loan.
Sec. Sec. 3575.70--3575.72 [Reserved]
Sec. 3575.73 Replacement of loss, theft, destruction, mutilation, or
defacement of Loan Note Guarantee or Assignment Guarantee Agreement.
(a) Replacement of Loan Note Guarantee. The Agency may issue a
replacement Loan Note Guarantee or Assignment Guarantee Agreement which
may have been lost, stolen, destroyed, mutilated, or defaced to the
lender or holder upon receipt of a certificate of loss and an indemnity
bond in accordance with this section.
(b) Lender responsibilities. When a Loan Note Guarantee or
Assignment Guarantee Agreement is lost, stolen, destroyed, mutilated,
or defaced while in the custody of the lender or holder, the lender
will coordinate the activities of the party who seeks the replacement
documents and will submit the required documents to the Agency for
processing. The requirements for replacement are as follows:
(1) A certificate of loss properly notarized which includes:
[[Page 28346]]
(i) Legal name and present address of either the lender or the
holder who is requesting the replacement forms;
(ii) Legal name and address of the lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the Loan Note Guarantee or Assignment
Guarantee Agreement, including the name of the borrower, Agency case
number, date of the Loan Note Guarantee, Assignment Guarantee
Agreement, face amount of the evidence of debt purchased, date of
evidence of debt, present balance of the loan, percentages of guarantee
and, if Assignment Guarantee Agreement, the original named holder and
the percentage of the guaranteed portion of the loan assigned to that
holder. Any existing parts of the document to be replaced must be
attached to the certificate;
(v) A full statement of circumstances of the loss, theft, or
destruction of the Loan Note Guarantee or Assignment Guarantee
Agreement; and
(vi) The holder shall present evidence demonstrating current
ownership of the Loan Note Guarantee and Note or Assignment Guarantee
Agreement. If the present holder is not the same as the original
holder, a copy of the endorsement of each successive holder in the
chain of transfer from the initial holder to present holder must be
included. If copies of the endorsement cannot be obtained, best
available records of transfer must be presented to the Agency (e.g.,
order confirmation, canceled checks, etc.).
(2) An indemnity bond acceptable to the Agency shall accompany the
request for replacement except when the holder is the United States, a
Federal Reserve Bank, a Federal Government corporation, a State or
Territory, or the District of Columbia.
(3) All indemnity bonds must be issued and payable to the United
States of America. The bond shall be in an amount not less than the
unpaid principal and interest. The bond shall hold the Government
harmless against any claim or demand which might arise or against any
damage, loss, costs, or expenses which might be sustained or incurred
by reasons of the loss or replacement of the instruments.
Sec. 3575.74 [Reserved]
Sec. 3575.75 Defaults by borrower.
(a) Lender notification to Agency. The lender must notify the
Agency when a borrower is 30 days past due on a payment, has not met
its responsibilities of providing the required financial statements, or
is otherwise in default. The lender will continue to keep the Agency
informed on a bimonthly basis until such time as the loan is no longer
in default. If a monetary default exceeds 60 days, the lender will
arrange a meeting with the borrower to resolve the default. The lender
will provide a summary of the meeting and any decisions or actions
agreed upon.
(b) Servicing options. In considering servicing options, the
prospects for providing a permanent cure without adversely affecting
the risks to the Agency and the lender must be the paramount objective.
Temporary curative actions (such as payment deferments or collateral
subordination) must strengthen the loan and be in the best financial
interest of the lender and the Agency. Some of these actions may
require concurrence of the holder.
(c) Multi-note. If the loan was closed with the multi-note option,
the lender may need to possess all notes to take some servicing
actions. In those situations when the Agency is holder of some of the
notes, the Agency may endorse the notes back to the lender, provided a
proper receipt is received from the lender which defines the reason for
the transfer. Under no circumstances will the Agency endorse the
original Loan Note Guarantee to the lender.
Sec. Sec. 3575.76--3575.77 [Reserved]
Sec. 3575.78 Repurchase of loan.
(a) Repurchase by lender. The lender has the option to repurchase
the loan from a holder within 30 days of written demand from the holder
when the borrower is in default not less than 60 days on payment. The
repurchase will be for an amount equal to the unpaid guaranteed portion
of principal and accrued interest less the lender's servicing fee. The
guarantee does not cover the note interest to the holder on the
guaranteed loan accruing after 90 days from the date of the demand
letter to the lender. The holder will concurrently send a copy of the
demand to the Agency. The lender will accept an assignment without
recourse from the holder upon repurchase. The lender is encouraged to
repurchase the loan to facilitate the accounting of funds, resolve the
problem, and permit the borrower to cure the default, where reasonable.
The lender will notify the holder and the Agency of its decision within
30 days of receipt of demand from the holder.
(b) Agency repurchase. (1) If the lender does not repurchase as
provided in paragraph (a) of this section, the Agency will purchase
from the holder the unpaid principal balance of the guaranteed portion
together with accrued interest to date of repurchase (less the lender's
servicing fee) within 30 days after written demand to the Agency. The
guarantee will not cover the note interest to the holder on the
guaranteed loan accruing after 90 days from the date of the original
demand letter. The lender shall not charge the Agency any servicing
fees nor are any such fees collectible from the Agency.
(2) The holder's demand to the Agency must include a copy of the
written demand made upon the lender. The holder or duly authorized
agent must also include evidence of the right to require payment from
the Agency. Such evidence will consist of either the original of the
Loan Note Guarantee properly endorsed to the Agency or the original of
the Assignment Guarantee Agreement properly assigned to the Agency
without recourse including all rights, title, and interest in the loan.
The Agency will be subrogated to all rights of the holder. The holder
must include in the demand the amount due including unpaid principal,
unpaid interest to date of demand, and interest subsequently accruing
from the date of demand to the proposed payment date. Unless otherwise
agreed to by the Agency, such proposed payment will not be later than
30 days from the date of demand.
(3) The lender must promptly provide the Agency with the
information necessary for the Agency's determination of the appropriate
amount due the holder upon the Agency's notification to the lender of
the holder's demand for payment. This information must be certified by
an authorized officer of the lender. Any discrepancy between the amount
claimed by the holder and the information submitted by the lender must
be resolved before payment will be approved. The Agency will notify
both parties and such conflict will suspend the running of the 30-day
payment requirement.
(4) Any purchase by the Agency does not change, alter, or modify
any of the lender's obligations to the Agency arising from the loan or
guarantee nor does it waive any of the Agency's rights against the
lender. The Agency may set off against the lender all rights inuring to
the Agency as the holder of the instrument against the Agency's
obligation to the lender under the Loan Note Guarantee.
(c) Repurchase for servicing. When the lender determines that
repurchase of the guaranteed portion of the loan is necessary to
service the loan, the holder must sell the guaranteed portion to the
lender for the unpaid principal and
[[Page 28347]]
interest balance (less the lender's servicing fee). The guarantee does
not cover interest accruing after 90 days from the date the lender's or
Agency's letter requesting the holder to tender its guaranteed portion.
The lender must not repurchase from the holder for arbitrage purposes
to further its own financial gain. Any repurchase must be made only
after the lender obtains the Agency written approval. If the lender
does not repurchase the portion from the holder, the Agency may, at its
option, purchase such guaranteed portion for servicing purposes.
Sec. 3575.79 [Reserved]
Sec. 3575.80 Interest rate changes after loan closing.
(a) General. Subject to the restrictions below, the borrower,
lender, and holder (if any) may collectively effect a permanent
reduction in the interest rate on the guaranteed loan at any time
during the life of the loan on written agreement by all of the
applicable parties. After such a permanent reduction, the Loan Note
Guarantee will only cover losses of interest at the reduced interest
rate. The Agency must be notified by the lender, in writing, within 10
calendar days of the change. When the Agency is a holder, it will
concur only when it is demonstrated that the change is more viable than
liquidation and that the Government's financial interests are not
adversely affected. Factors which will be considered in making such
determination are the Government's cost of borrowing money and the
project's enhancement of rural development. The monetary recovery must
be greater than the liquidation recovery, and a financial feasibility
analysis must show the project's continued viability.
(1) Fixed rates cannot be changed to variable rates to reduce the
interest rate to the borrower unless the variable rate has a ceiling
which is less than the original fixed rate.
(2) Variable rates can be changed to a lower fixed rate. 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 which adequately document the accrued interest
claimed.
(3) The lender is responsible for the legal documentation of
interest rate changes. However, the lender may not issue a new note.
(b) Increases. No increases in interest rates will be permitted
under the loan guarantee except the normal fluctuations in approved
variable interest rate loans.
Sec. 3575.81 Liquidation.
Liquidation will occur when the lender concludes that liquidation
of the guaranteed loan is necessary because of default or third party
actions that the borrower cannot, or will not, cure or eliminate within
a reasonable period of time and the Agency concurs with the lender; or
the Agency, at any time, independently concludes that liquidation is
necessary. The lender will proceed as expeditiously as possible,
including giving any notices or taking any legal actions required by
the security instruments.
(a) General. If a lender has made a loan guaranteed by the Agency
under previous regulations, the lender has the option to liquidate the
loan under the provisions of this subpart or under the provisions of
previous regulations. The lender will notify the Agency in writing
within 10 days after its decision to liquidate, which regulatory
provisions it chooses to use. The lender may not choose some provisions
of one regulation and other provisions of the other regulation.
(b) Acquiring property titles. If a lender acquires title to
property, the Agency may elect to permit the lender the option of
calculating the final loss settlement using the net proceeds received
at the time of the ultimate disposition of the property. The lender
must submit to the Agency a written request to use this option within
15 days of acquiring title and the Agency must agree, in writing, prior
to the lender submitting any request for estimated loss payment.
(c) Liquidation plan. The lender will (within 30 days after a
decision to liquidate) submit to the Agency, in writing, a proposed,
detailed liquidation plan. Upon approval by the Agency of the
liquidation plan, the lender will commence liquidation. The lender's
liquidation plan must include, but is not limited to, the following:
(1) Such proof as the Agency requires to establish the lender's
ownership of the guaranteed loan notes and related security
instruments, a copy of the payment ledger or other documentation which
reflects the outstanding loan balance and accrued interest to date, and
the method of computing the interest;
(2) A complete list of collateral;
(3) The recommended liquidation methods for making the maximum
collection possible on the indebtedness and the justification for such
methods, including the recommended action for acquiring and disposing
of all collateral;
(4) Necessary steps for preservation of the collateral;
(5) Copies of the borrower's latest available financial statements;
(6) An itemized list of estimated liquidation expenses expected to
be incurred and justification for each expense;
(7) A schedule to periodically report to the Agency on the progress
of the liquidation;
(8) Estimated protective advance amounts with justification;
(9) Proposed protective bid amounts on collateral to be sold at
auction and a discussion of how the amounts were determined;
(10) If a voluntary conveyance is considered, the proposed amount
to be credited to the guaranteed debt;
(11) Legal opinions, as needed; and
(12) If the outstanding balance of principal and interest is less
than $250,000, the lender will obtain an estimate of fair market and
potential liquidation value of the collateral. If the outstanding
balance of principal and interest is $250,000 or more, the lender will
obtain an independent appraisal report on all collateral securing the
loan which will reflect the fair market value and potential liquidation
value. The independent appraiser's fee will be shared equally by the
Agency and the lender.
(d) Partial liquidation plan. If actions are necessary to
immediately preserve and protect the collateral, a partial liquidation
plan may be submitted and, when approved, must be followed by a
complete liquidation plan prepared by the lender.
(e) Disposition of collateral. Disposition of collateral acquired
by the lender must be approved, in writing, by the Agency when:
(1) The lender's cost to acquire the collateral of a borrower
exceeds the potential recovery value of the security and the lender
proposes abandoning the collateral in lieu of liquidation; or
(2) The acquired collateral is to be sold to the borrower,
borrower's stockholders or officers, or the lender or lender's
stockholders or officers.
(f) Agency liquidation. The Agency will liquidate at its option
only when it is a holder and there is reason to believe the lender is
not likely to initiate liquidation efforts that will result in maximum
recovery. When the Agency liquidates, reasonable liquidation expenses
will be assessed against the proceeds derived from the sale of the
collateral.
(g) Final loss payment. Final loss payments will be made only after
all collateral has been properly accounted for and liquidation expenses
are
[[Page 28348]]
determined to be reasonable and within approved limits. Any estimated
loss payments made to the lender will be credited against the final
loss on the guaranteed loan. The amount of an estimated loss payment
must be credited as a deduction from the principal balance of the loan.
Sec. 3575.82 [Reserved]
Sec. 3575.83 Protective advances.
Protective advances can only be added to the loan account for
purposes of requirements to preserve the value of the security.
Protective advances constitute an indebtedness of the borrower to the
lender and must be secured by collateral to the same extent as
principal and interest. Protective advances include, but are not
limited to, advances made for taxes, annual assessments, ground rent,
hazard and flood insurance premiums affecting the collateral (including
any other expenses necessary to protect the collateral). Attorney fees
are not a protective advance.
(a) Agency approval. The Agency must approve, in writing, all
protective advances on loans within its loan approval authority which
exceed a total cumulative advance amount of $5,000 to the same
borrower. Protective advances must be reasonable when associated with
the value of the collateral being preserved.
(b) Preserving collateral. When considering protective advances,
sound judgment must be exercised in determining that the additional
funds advanced will actually preserve collateral and recovery is
actually enhanced by making the advance.
Sec. 3575.84 Additional loans or advances.
The lender will not make additional expenditures or new loans to
the borrower without first obtaining the written approval of the Agency
even though such expenditures or loans will not be guaranteed.
Sec. 3575.85 Bankruptcy.
(a) Calculating losses. Report of Loss form (available in any
Agency office) will be used for calculating estimated and final loss
determinations.
(b) Lender responsibility. The lender is responsible for protecting
the guaranteed loan debt and all the collateral securing it in
bankruptcy proceedings. These responsibilities include, but are not
limited to, the following:
(1) Filing a proof of claim, where necessary, and all necessary
papers and pleadings;
(2) Attending and, where necessary, participating in meetings of
the creditors and all court proceedings;
(3) Immediately seeking adequate protection of the collateral if it
is subject to being used by the trustee in bankruptcy or the debtor in
possession;
(4) Where appropriate, seeking involuntary conversion of a pending
chapter 11 case to a liquidation proceeding or seeking dismissal of the
proceedings; and
(5) Keeping the Agency adequately and regularly informed, in
writing, of all aspects of the proceedings.
(c) Appraisals. In a chapter 9 or chapter 11 reorganization, the
lender must obtain an independent appraisal of the collateral if the
Agency believes an independent appraisal is necessary. The Agency and
the lender will share the appraisal fee equally.
(d) Liquidation expenses. Only expenses authorized by the court of
chapter 11 reorganizations, or chapters 11 or 7 liquidation (unless the
liquidation is by the lender), may be deducted from the collateral
proceeds.
(e) Repurchase from the holder. The Agency or the lender, with the
approval of the Agency, may initiate the repurchase of the unpaid
guaranteed portion of the loan from the holder. If the lender is the
holder, an estimated loss payment may be filed at the initiation of a
chapter 7 proceeding or after a chapter 11 proceeding becomes a
liquidation proceeding. Any loss payment on loans in bankruptcy must be
approved by the Agency.
(f) Chapter 11 bankruptcy. If a borrower has filed for protection
under chapter 11 of the United States Code for a reorganization (but
not chapter 13) and all or a portion of the debt has been discharged,
the lender may request an estimated loss payment of the guaranteed
portion of the accrued interest and principal discharged by the court.
If the court approves revisions to the chapter 11 reorganization plan,
subsequent estimated loss payments may be requested in accordance with
the court approved changes. Once the reorganization plan has been
satisfactorily completed, the lender is responsible for submitting the
documentation necessary for the Agency to review and adjust the
estimated loss claim to reflect any actual discharge of principal and
interest and to reimburse the lender for any court ordered interest-
rate reduction under the terms of the reorganization plan.
(g) Agency approval of estimated liquidation expenses. The Agency
must approve, in advance and in writing, the lender's estimated
liquidation expenses of collateral in a liquidation if the liquidation
is performed by the lender. These expenses must be reasonable and
customary and not include in-house expenses of the lender.
(h) Reconciliation. In the event that the estimated loss payment
exceeds the actual loss, the lender will reimburse the Agency the
amount in excess of the actual loss plus interest at the note rate from
the date of the estimated loss payment.
Sec. Sec. 3575.86--3575.87 [Reserved]
Sec. 3575.88 Transfers and assumptions.
(a) General. For all transfers and assumptions, the lender must
concur in the plans for disposition of funds in the transferor's debt
service, reserve, and operation and maintenance account. The Agency
will approve, in writing, transfers and assumptions of loans to
transferees who will continue the original purpose of the guaranteed
loan subject to the following applicable provisions:
(1) When the transaction is to a member of the borrower's
organization, it will be at an amount which will not result in a loss
to the lender.
(2) Transfers to eligible borrowers will receive preference if
recovery to the lender from the sale price is not less than it would be
if the transfer was to an ineligible borrower.
(3) The present borrower is unable or unwilling to accomplish the
objectives of the guaranteed loan, and the transfer will be to the
lender's and Agency's advantage.
(4) The transferee will assume an amount at least equal to either
the present market value or the debt, whichever is less.
(b) Transfers to an eligible borrower. (1) The total indebtedness
may be transferred to an eligible borrower on the same terms.
(2) The total indebtedness may be transferred to another eligible
borrower on different terms not to exceed those terms for which an
initial guaranteed loan can be made.
(3) Less than the total indebtedness may be transferred to another
eligible borrower on the same or different terms and the pro rata share
of any eligible loss paid to the lender.
(4) A guaranteed loan for which the transferee is eligible may be
made in connection with a transfer subject to the policies and
procedures governing the type of loan being made.
(5) If the transferor is to receive a payment for the equity, the
total debt must be assumed.
(c) Ineligible borrower. Transfers to ineligible borrowers are
considered only when needed as a method for servicing
[[Page 28349]]
problem cases when an eligible transferee is not available. Transfers
should not be considered as a means by which members can obtain equity
or as a method of providing a source of easy credit for purchasers.
Transfers must meet the following requirements:
(1) All transfers to ineligible borrowers will include a one-time
nonrefundable transfer fee to the Agency of no more than one percent.
Transfer fees will be collected, and payments applied, in accordance
with paragraph (d) of this section.
(2) For all loans covered by this subpart, the Agency may approve a
transfer of indebtedness to, and assumption of, a loan by a transferee
who does not meet the eligibility requirements for the kind of loan
being assumed when the ineligible borrower will:
(i) Make a significant down payment, and
(ii) Agree to pay the remaining balance within not more than 15
years. Installments will be at least equal to the amount amortized over
a period not greater than the remaining life of the debt being
transferred, and the balance will be due the fifteenth year.
(3) Interest rates to ineligible transferees will be the rate
specified in the note of the transferor or the rates customarily
charged borrowers in similar circumstances in the ordinary course of
business and are subject to Agency review and approval. The rates may
be either fixed or variable.
(i) Transferees must have the ability to repay as determined by the
lender the debt according to the Assumption Agreement and must have the
legal authority to enter into the contract. The transferee will submit
a current balance sheet to the lender. The lender will obtain and
analyze the credit history of the transferee.
(ii) The transferor may receive equity payments only when the full
amount of the debt is assumed. However, equity payments will not be
made on more favorable terms than those on which the balance of the
debt will be paid.
(d) Transfer fees. Transfer fees are a one-time nonrefundable cost
to be collected by the lender at the time of application or proposal.
(1) The transfer fees will be a standard fee plus the cost of the
appraisal.
(2) The lender will collect and submit the fee to the Agency.
(3) The Agency may waive the transfer fee if it determines that
such waiver is in the best interest of the Agency.
(e) Processing transfers and assumptions. (1) In any transfer and
assumption case, the transferor (including any guarantor) may be
released from liability by the lender only with prior Agency written
concurrence and only when the value of the collateral being transferred
is at least equal to the amount of the loan, or part of the loan, being
assumed. If the transfer is for less than the entire debt:
(i) The Agency must determine that the transferor and any guarantor
have no reasonable debt-paying ability considering their assets and
income at the time of transfer, and
(ii) The lender must certify that the transferor has cooperated in
good faith, used due diligence to maintain the collateral against loss,
and has otherwise fulfilled all of the regulations of this subpart to
the best of the borrower's ability.
(2) The lender will make, in all cases, a complete credit analysis
to determine viability of the project (subject to the Agency review and
approval) including any requirement for deposit in an escrow account as
security to meet the determined equity requirements for the project.
(3) The lender will confirm that the transaction can be properly
transferred and the conveyance instruments will be filed, registered,
or recorded as appropriate and legally permissible.
(4) The assumption will be made on the lender's form of Assumption
Agreement and will contain the Agency case number of the transferor and
transferee.
(5) Loan terms cannot be changed by the Assumption Agreement unless
previously approved in writing by the Agency with the concurrence of
holder and the transferor (including guarantor if it has not been
released from personal liability). Any new loan terms cannot exceed
those authorized in this subpart. The lender's request will be
supported by:
(i) An explanation of the reasons for the proposed change in the
loan terms, and
(ii) Certification that the lien position securing the guaranteed
loan will be maintained or improved, and proper hazard insurance will
be continued in effect.
(6) In the case of a transfer and assumption, it is the lender's
responsibility to see that all such transfers and assumptions will be
noted on all originals of the Loan Note Guarantee. The lender will
provide the Agency a copy of the Transfer and Assumption Agreement.
(7) If a loss should occur upon a complete transfer of assets and
assumption for less than the full amount of the debt and the
transferor-debtor (including personal guarantor) is released from
personal liability (as provided in paragraph (e) of this section), the
lender (if holding the guaranteed portion) may file an estimated Report
of Loss to recover their pro rata share of the actual loss at that
time. Approved protective advances and accrued interest made during the
arrangement of a transfer and assumption, if not assumed by the
transferee, will be entered on the estimated Report of Loss.
Sec. 3575.89 Mergers.
(a) General. The Agency may approve mergers or consolidations
(herein referred to as ``mergers'') when the resulting organization
will be eligible for an Agency guaranteed loan and assumes all the
liabilities and acquires all the assets of the merged borrower. Mergers
may be approved when:
(1) The merger is in the best interest of the Government and the
merging borrower;
(2) The resulting borrower can meet all required conditions as
contained in specific loan note agreements; and
(3) All property can be legally transferred to the resulting
borrower.
(b) Distinguishing mergers from transfers and assumptions. Mergers
occur when one entity combines with another entity in such a way that
the first entity ceases to exist as a separate entity while the other
continues. In a consolidation, two or more entities combine to form a
new, consolidated entity with the original entity ceasing to exist.
Such transactions must be distinguished from transfers and assumptions
in which a transferor will not necessarily go out of existence, and the
transferee will not always take all the transferor's assets nor assume
all the transferor's liabilities.
Sec. 3575.90 Disposition of acquired property.
(a) General. When the lender acquires title to the collateral and
the final loss claim is not paid until final disposition, the lender
must proceed as quickly as possible to develop a plan to fully protect
the collateral, and the lender must dispose of the collateral without
delay.
(b) Re-title collateral. Any collateral accepted by the lender must
not be titled in the Agency's name in whole or in part. The Agency's
position is that of a guarantor relating to losses, not a lender.
(c) Collateral preservation. After acquiring the collateral, the
lender must protect the collateral from deterioration (weather,
vandalism, etc.). Hazard insurance in an amount necessary to
[[Page 28350]]
cover the fair market value of the collateral must be maintained.
(d) Collateral sale. (1) The lender will prepare and submit to the
Agency a plan on the best method of sale, keeping in mind any
prospective purchasers. The Agency must approve the plan in writing. If
an existing approved liquidation plan addresses the disposition of
acquired property, no further review is required unless modification of
the plan is needed.
(2) Anytime there is a case when the conversion of collateral to
cash can reasonably be expected to result in a negative net recovery
amount, abandonment of the collateral should be considered. The Agency
must approve abandonment in writing.
Secs. 3575.91-3575.93 [Reserved]
Sec. 3575.94 Determination and payment of loss.
In all liquidation cases, final settlement will be made with the
lender after the collateral is liquidated. The Agency will have the
right to recover losses paid under the guarantee from any liable party.
(a) General. If the lender takes title to collateral, any loss will
be based on the collateral value at the time the lender obtains title.
(b) Loss calculations. The Report of Loss form (available in any
Agency office) will be used for calculations of all estimated and final
loss determinations. Estimated loss payments may only be approved after
the lender has submitted a liquidation plan approved by the Agency.
(c) Estimated loss payments. When the lender is conducting the
liquidation and owns any of the guaranteed portion of the loan, it may
request an estimated loss payment by submitting an estimate of loss
that will occur in connection with liquidation of the loan. An
estimated loss payment may be approved after the Agency has approved
the liquidation plan.
(1) The lender will prepare and submit a Report of Loss using the
appraised value in lieu of amount received from sale of collateral.
(2) The estimated loss payment shall be calculated as of the date
of such payment. The total amount of the loss payment remitted by the
Agency will be applied by the lender on the guaranteed portion of the
loan debt. Such application does not release the borrower from
liability. At the time of final loss settlement, the lender may notify
the borrower that the loss payment has been so applied.
(3) After liquidation has been completed, a final Report of Loss
will be submitted by the lender to the Agency.
(d) Final report of loss. In all cases, a final Report of Loss must
be submitted to the Agency. Before Agency approval of any final loss
report, the lender must account for all funds obtained, disposition of
the collateral, all costs incurred, and any other information necessary
for the successful completion of liquidation. Upon receipt of the final
accounting and Report of Loss, the Agency may conduct an may audit and
will determine the final loss. The lender will make its records
available to, and otherwise assist, the Agency in making any audit it
requires of the Report of Loss. The documentation accompanying the
Report of Loss must support the loss claimed.
(1) The lender must document and show that all of the collateral
has been accounted for and properly liquidated and that liquidation
proceeds have been properly accounted for and applied correctly on the
loan. The Agency must be satisfied that the lender has accomplished
this in the manner contained herein and that the lender has maximized
the collections in conducting the liquidation.
(2) The lender must show a breakdown on any protective advance
amount as to the payee, purpose of the expenditure, date paid, evidence
that the amount expended was proper, and that the amount was actually
paid.
(3) The lender must show a breakdown of liquidation expenses as to
the payee, purpose of the expenditure, date paid, evidence that the
amount expended was proper, and that the amount was actually paid.
(4) Accrued interest should be supported by attachments showing how
the amount was accrued by the lender. A copy of the promissory note and
ledger will be attached. If the interest rate was a variable rate, the
lender must include documentation of changes in the selected base rate
and when the changes in the loan rate became effective.
(e) Liquidation income. Any net rental or other income that has
been received by the lender from the collateral will be applied on the
guaranteed loan debt.
(f) Liquidation costs. Certain reasonable liquidation costs will be
allowed during the liquidation process. The liquidation costs must be
submitted as a part of the liquidation plan. Such costs will be
deducted from gross proceeds received from the disposition of
collateral unless the costs have been previously determined by the
lender (with Agency concurrence) to be protective advances. If changed
circumstances after submission of the liquidation plan require a
revision of liquidation costs, the lender will obtain the Agency's
written concurrence prior to proceeding with the proposed changes. No
in-house expenses of the lender will be allowed.
(g) Protective advance losses. In those instances where the lender
made authorized protective advances, the lender may claim recovery for
the guaranteed portion of any loss of monies advanced as well as
interest resulting from such protective advances. These claims shall be
included in the final Report of Loss.
(h) Final loss approval. After the final Report of Loss has been
tentatively approved:
(1) If the actual loss is greater than any estimated loss payment,
such loss will be paid by the Agency;
(2) If the actual loss is less than any estimated loss payment, the
lender will reimburse the Agency;
(3) If the Agency conducted the liquidation, it will provide an
accounting to the lender and will pay the lender in accordance with the
Loan Note Guarantee.
(i) Loss limits. The amount payable by the Agency to the lender
cannot exceed the limits contained in the Loan Note Guarantee. If the
Agency conducts the liquidation, loss occasioned by accruing interest
will be covered by the guarantee only to the date the Agency accepts
this responsibility. When the liquidation is conducted by the lender,
loss occasioned by accruing interest will be covered to the extent of
the guarantee to the date of final settlement provided the lender
proceeds expeditiously with the liquidation plan approved by the
Agency.
Sec. 3575.95 Future recovery.
After a loan has been liquidated and a final loss has been paid by
the Agency, any future funds which may be recovered by the lender will
be pro-rated between the Agency and the lender in accordance with the
guaranteed percentage even if the Loan Note Guarantee has been
terminated.
Sec. 3575.96 Termination of Loan Note Guarantee.
The Loan Note Guarantee under this subpart will terminate
automatically:
(a) Upon full payment of the guaranteed loan; or
(b) Upon full payment of any loss obligation or negotiated loss
settlement except for future recovery provisions; or
(c) Upon written request from the lender to the Agency, provided
that the lender holds all of the guaranteed portion and the original
Loan Note Guarantee is returned to the Agency.
[[Page 28351]]
Secs. 3575.97--3575.99 [Reserved]
Sec. 3575.100 OMB control number.
The report and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget
and have been assigned OMB control number 0575-0137.
Subpart B--[Reserved]
Dated: May 17, 1999.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 99-13117 Filed 5-25-99; 8:45 am]
BILLING CODE 3410-XV-U
