[Federal Register Volume 59, Number 114 (Wednesday, June 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13743]
[[Page Unknown]]
[Federal Register: June 15, 1994]
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DEPARTMENT OF AGRICULTURE
Farmers Home Administration
7 CFR Parts 1942, 1948, 1951, and 1980
RIN 0575-AB77
Loans and Grants to Rural Associations and Public Bodies
AGENCY: Farmers Home Administration, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its
regulations to increase the loan size threshold for requiring interim
financing, clarify instructions governing the preparation of Community
Program notes and bonds, modify the procedures for monitoring
graduation of existing borrowers to other credit, clarify procedures
for servicing loans to borrowers whose loans were sold in the 1987
Community Program Asset Sale, implement use of an applicant's Internal
Revenue Service (IRS) Taxpayer Identification Number (TIN), and provide
consistency in docket preparation through the use of a checklist. This
action is necessary to reduce the burden on the public, comply with the
OMB Circular A-129 and simplify procedures for the agency's field
staff.
The intended effect of this change is to bring the agency in
compliance with OMB Circular A-129, and to clarify and simplify the
agency regulations to provide better service to the public.
In the Food, Agriculture, Conservation and Trade Act of 1990,
Congress transferred certain community and business programs
administered by FmHA to the newly created Rural Development
Administration (RDA). Until further notice, RDA programs continue to be
administered under FmHA programs regulations.
DATES: Comments must be submitted on or before August 15, 1994.
ADDRESSES: Submit written comments in duplicate to the Office of the
Chief, Regulations Analysis and Control Branch, Farmers Home
Administration, U.S. Department of Agriculture, room 6348, South
Agriculture Building, 14th Street and Independence Avenue SW.,
Washington, DC 20250-0700. All written comments made pursuant to this
notice will be available for public inspection during regular working
hours at the above address.
FOR FURTHER INFORMATION CONTACT: Bill Barrett, Senior Loan Specialist,
Community Facilities Division, Rural Development Administration, U.S.
Department of Agriculture, room 6310, South Agriculture Building, 14th
Street and Independence Avenue SW., Washington DC 20250-0700, telephone
(202) 720-1498.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The reporting and recordkeeping requirements contained in these
regulations have been submitted to the Office of Management and Budget
for review under section 350(h) of the Paperwork Reduction Act of 1980.
The public reporting burden for this collection of information is
estimated to vary from 10 minutes to 15 hours per response, with an
average of 2.47 hours per response including time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate
or any other aspect of this collection of information, including
suggestions for reducing this burden, to Department of Agriculture,
Clearance Officer, OIRM, room 404-W, Attention: Desk Officer for
Farmers Home Administration, Washington, DC, 20503.
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866, and we have determined that it is not a ``significant
regulatory action.'' Based on information compiled by the Department,
we have determined that this proposed rule: (1) Would have an effect on
the economy of less than $100 million; (2) would not adversely affect
in a material way the economy, a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local, or tribal governments or communities; (3) would not create a
serious inconsistency or otherwise interfere with an action taken or
planned by another agency; (4) would not alter the budgetary impact of
entitlements, grants, user fees, or loan programs or rights and
obligations of recipients thereof; and (5) would not raise novel legal
or policy issues arising out of legal mandates, the President's
priorities, or principles set forth in Executive Order 12866.
Intergovernmental Review
The programs/activities are listed in the Catalog of Federal
Domestic Assistance under numbers 10.764, Resource Conservation and
Development Loans; 10.760, Water and Waste Disposal Systems for Rural
Communities; 10.770, Water and Waste Disposal Loans and Grants (Section
306C); 10.766, Community Facilities Loans; and 10.434, Nonprofit
National Corporation Loan and Grant Program. The Section 601--Energy
Impacted Area Development Assistance Program is not in the Catalog of
Federal Domestic Assistance because it is not funded. All programs
listed are subject to the provisions of Executive Order 12372 which
requires intergovernmental consultation with State and local officials.
FmHA conducts intergovernmental consultation in the manner delineated
in FmHA Instructions 1901-H and 1940-J.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR Part 1940,
Subpart G, ``Environmental Program.'' FmHA has determined this action
does not constitute a major Federal action significantly affecting the
quality of human environment, and in accordance with the National
Environmental Policy Act of 1969, Public Law 91-190, an Environmental
Impact Statement is not required.
Compliance with Executive Order 12778
The regulation has been reviewed in light of Executive Order 12778
and meets the applicable standards provided in sections 2(a) and
2(b)(2) of that Order. Provisions within this part which are
inconsistent with state law are controlling. All administrative
remedies pursuant to 7 CFR Part 1900 Subpart B must be exhausted prior
to filing suit.
The Agency regulations require the use of interim construction
financing for all Community Program loans of $50,000 or more to
encourage the participation of local lenders and to reduce the need for
multiple draws of FmHA loan funds. Interim financing is not cost
effective for very small loans and for those projects that have a short
construction period due to the duplication of much of the financing
costs for the two issues. The Agency proposes to raise the loan size
threshold from $50,000 to $100,000 to reduce the burden on smaller
issues, and give the State Director additional authority to waive the
interim financing requirement for larger issues, projects with a
construction period of 6 months or less, and under other circumstances
when the cost is considered prohibitive.
1. The proposed changes will assist FmHA field employees,
attorneys, and bond counsel in preparing promissory notes and bonds for
Community Programs loans. The section of the regulations used by bond
counsels and others in drafting debt instruments for Community Programs
loans has been found to be incomplete, vague, or poorly organized.
2. FmHA proposes to amend its regulations to incorporate and
require the use of Guide 28, ``Community Programs Lender Contact
Worksheet,'' of subpart A of part 1942, and exhibit D, ``Community
Programs Thorough Review Worksheet,'' of subpart F of part 1951 to
strengthen the documentation on which loanmaking and graduation review
decisions are made. FmHA regulations require that applicants who may be
able to finance projects through commercial sources be referred to
those sources. In addition, when it appears that a borrower can
refinance its loan(s) (graduate), the borrower will be required to seek
other financing. Exhibit D will provide a systematic method to evaluate
each thorough review conducted during the graduation review process
regarding the borrower's ability to refinance its loan(s). This action
is needed to encourage stronger documentation on which decisions are
made by FmHA during loanmaking and graduation reviews.
The proposed changes will provide a system for collecting and
evaluating lending, applicant, and borrower data, and a basis for
referring applicants and borrowers to other lending sources. The new
Guides 28 and 29 of subpart A of part 1942 and Exhibit D of subpart F
of part 1951 are available in any FmHA Office but are not published in
the Federal Register.
The Office of Inspector General (OIG) Review of FmHA Graduation of
Community Programs Loans to Commercial Lenders, dated June 22, 1989,
found, in part, that State and District Office surveys of lender
refinancing criteria were not always adequate. (Guide 28 will be used
to record the lending criteria of commercial lenders and serve as a
basis for applicant referrals to other sources of credit, as well as
resource material for requesting a borrower to refinance.) The OIG
report also found that inadequate or poorly documented graduation
reviews were performed and recommended that a guide be developed to
serve as a basis for making decisions.
3. OMB Circular A-129 requires Federal agencies to obtain the IRS
TIN from all applicants to assist in debt collection. The Agency
proposes to amend its regulations to require the use of the applicant's
TIN as part of its case number.
4. In accordance with the loan sale agreements for the 1987
Community Programs Asset Sale, applicants whose loans were sold are
required to obtain consent from the purchaser of the loans whenever
additional financing is requested. The Agency proposes to incorporate
the purchaser's requirements into its regulations to assist applicants
and FmHA field offices in the orderly processing of such requests for
consent. The proposed Guide 29 of subpart A of part 1942 will provide
detailed and complete instructions to loan applicants and FmHA field
offices to ensure the orderly processing of requests for consent.
5. Community Programs regulations currently include the use of
Forms FmHA 1942-39, FmHA 1942-40, and Guide 15 of subpart A of part
1942 to assist in orderly project development, which have been found to
be ineffective. FmHA proposes to replace Forms FmHA 1942-39, FmHA 1942-
40, and Guide 15 with a comprehensive loan processing checklist. A
general lack of consistency in docket preparation has been observed.
The checklist will provide additional guidance to field offices and
loan/grant applicants in orderly docket preparation and improve the
consistency and quality of Community Programs loans. The revised Guide
15 of subpart A of part 1942 is not published in the Federal Register,
but is available in any State and District Office.
List of Subjects
7 CFR Part 1942
Business and industry, Community facilities, Fire prevention, Loan
programs--housing and community development, Loan programs--natural
resources, Reporting and recordkeeping requirements, Rural areas, Soil
conservation, Waste treatment and disposal, Water supply.
7 CFR Part 1948
Coal, Community facilities, Loan programs--housing and community
development, Reporting and recordkeeping requirements, Rural areas.
7 CFR Part 1951
Accounting, Agriculture, Community facilities, Credit, Housing,
Loan programs--housing and community development, Low and moderate
income housing, Reporting and recordkeeping requirements, Rural areas.
7 CFR Part 1980
Administrative practice and procedure, Business and industry,
Community facilities, Credit, Loan programs--agriculture, loan
programs--business, Loan programs--housing and community development,
Low and moderate income housing, Reporting and recordkeeping
requirements, Rural areas.
Therefore, Chapter XVIII, Title 7, Code of Federal Regulations is
proposed to be amended as follows:
PART 1942--ASSOCIATIONS
1. The authority citation for part 1942 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005; 7 CFR
2.23 and 2.70.
Subpart A--Community Facility Loans
2. Section 1942.2 is amended by revising paragraphs (a)(2)(i) and
(c)(3) to read as follows:
Sec. 1942.2 Processing applications.
(a) * * *
(2) * * *
(i) State Directors should maintain files containing criteria from
commercial lenders to be used in determining the preapplications which
should be referred to those lenders. In order to provide a basis for
such referrals, State and District Directors should maintain liaison
with representatives of banks, bond dealers, financial consultants, and
other lender representatives who are interested in financing Water and
Waste and Community Facility projects. State Directors will contact
lenders having potential statewide or multidistrict interest in
Community Programs lending. District Directors will contact lenders
having a potential interest in Community Programs lending primarily
within their District. Guide 28 (available in any State and District
Office), or other locally developed worksheet containing similar
information, will be used to document the contacts with commercial
lenders. The State and District Directors will keep each other informed
of lender criteria by forwarding copies of completed Guide 28 and/or
worksheets to each other.
* * * * *
(c) * * *
(3) When an applicant is notified to proceed with an application,
the District Director should arrange for a conference with the
applicant to provide copies of appropriate appendices and forms;
furnish guidance necessary for orderly application processing; and to
initiate a processing checklist for establishing a time schedule for
completing items. Guide 15 (available in any State or District Office)
will be used by the State Director to develop a processing checklist
that includes all applicable items in the guide and any other items
that may be unique to the individual State. The checklist will be
updated during the application conference based upon decisions reached
with the applicant. The District Director will give the applicant a
copy and explain the updating process. The original will be retained in
the District Office official file and will be updated as the
application is processed and the project develops to completion. A copy
will be sent to the State Program Chief who is responsible for keeping
the copy current. The District Director will arrange for additional
conferences with the applicant as needs arise. The applicant's copy of
the processing checklist should be updated during these meetings.
* * * * *
3. Section 1942.5 is amended by adding paragraph (d)(8) to read as
follows:
Sec. 1942.5 Application review and approval.
* * * * *
(d) * * *
(8) The case number will be the applicant's or transferee's
Internal Revenue Service TIN, preceded by State and county code
numbers. Only one case number will be assigned to each applicant
regardless of the number of loans or grants or number of separate
facilities, unless an exception is authorized by the National Office.
When an applicant has not received a TIN, the State Office will assign
a temporary identification number. See the Forms Manual Insert for Form
FmHA 1940-1 for specific instructions. Any temporary number assigned
must be replaced with the TIN prior to loan or grant closing unless
prior approval of the National Office is received.
4. Section 1942.17 is amended by adding paragraph (m)(8) and by
amending the introductory text in paragraph (n)(3) by revising
``$50,000 to ``$100,000'' in the first sentence, by adding the words
``(available in any State or District Office)'' between the words
``Guide 1a'' and the comma in the second sentence, and by adding a new
sentence after the first sentence, to read as follows:
Sec. 1942.17 Community facilities.
* * * * *
(m) * * *
(8) Applicants indebted to the Community Programs Loan Trust 1987-A
(Trust). Applicants indebted to the Trust must obtain consent from the
Trust prior to incurring additional debt. Guide 29 (available in any
State or District Office) outlines the information normally required by
the Trust.
* * * * *
(n) * * *
(3)
(3) * * * However, the State Director may authorize exceptions when
the cost of issuance of both temporary and permanent debt instruments
is considered prohibitive, or the planned construction period does not
exceed 6 months. * * *
* * * * *
5. Section 1942.19 is revised to read as follows:
Sec. 1942.19 Information pertaining to preparation of notes or bonds
and bond transcript documents for public body applicants.
(a) General. This section includes information for use by public
body applicants in the preparation and issuances of evidence of debt
(bonds, notes, or debt instruments, herein referred to as bonds) and
other necessary loan documents.
(b) Policies related to use of bond counsel. The applicant is
responsible for preparation of bonds and bond transcript documents. The
applicant will obtain the services and opinion of recognized bond
counsel experienced in municipal financing with respect to the validity
of a bond issue, except as provided in paragraphs (b)(1) through (3) of
this section. Bond counsel services may be obtained either directly or
through the applicant's local counsel.
(1) Issues of $50,000 or less. With prior approval of the FmHA
State Director, the applicant may elect not to use bond counsel. Such
issues will be closed in accordance with the following:
(i) The applicant must recognize and accept the fact that
application processing may require additional legal and administrative
time;
(ii) It must be established that not using bond counsel will
produce significant savings in total legal costs;
(iii) The local attorney most be able and experienced in handling
this type of legal work;
(iv) The applicant must understand that it will likely have to
obtain an opinion from bond counsel at its expenses if FmHA requires
refinancing of its loan pursuant to statutory refinancing requirements;
(v) Bonds will be prepared in accordance with this regulation and
conform as closely as possible to the preferred methods of preparation
stated in paragraph (e) of this section; and
(vi) Specific closing instructions must be issued by OGC.
(2) Issues of over $50,000 to $250,000. The applicant may elect to
use bond counsel only to issue a final opinion, and not to prepare the
bond transcript and other documents, when the applicant, FmHA, and bond
counsel agree in advance on the method of preparing the bond transcript
documents. In such circumstances, the applicant will be responsible for
preparation of the bond transcript.
(3) Issues of over $250,000 to $500,000. The applicant may elect
not to use bond counsel in a straight note and mortgage situation if
competitive bidding is not required for the sale unless a complicated
financial situation exists. If there is a known backlog in the OGC
Regional Office, FmHA will advise the applicant and suggest that using
bond counsel may be more expeditious. If bond counsel is not used, the
applicant must comply with paragraphs (b)(1)(iii) through (vi) of this
section.
(c) Bond transcript documents. Any questions relating to FmHA
requirements should be discussed with FmHA representatives. Bond
counsel or local counsel, as appropriate, must furnish at least two
complete sets of the following to the applicant, who will furnish one
complete set to FmHA:
(1) Copies of all organization documents;
(2) Copies of general incumbency certificate;
(3) Certified copies of minutes or excerpts from all meetings of
the governing body at which action was taken in connection with
authorizing and issuing the bonds;
(4) Certified copies of documents evidencing that the applicant has
complied fully with all statutory requirements incident to calling and
holding a bond election, if one is necessary.
(5) Certified copies of resolutions, ordinances, or other documents
such as bond authorizing resolutions or ordinance and any resolution
establishing rates and regulating use of the facility, if such
documents are not included in the minutes furnished;
(6) Copies of the official Notice of Sale and the affidavit of
publication of the Notice of Sale when State statute requires a public
sale;
(7) Specimen bond, with any attached coupons;
(8) Attorney's no-litigation certificate;
(9) Certified copies of resolutions or other documents pertaining
to the bond award;
(10) Any additional or supporting documents required by bond
counsel;
(11) For loans involving multiple advances of FmHA loan funds, a
preliminary approving opinion of bond counsel, or local counsel if no
bond counsel is involved, if a final unqualified opinion cannot be
obtained until all funds are advanced. The preliminary opinion for the
entire issue shall be delivered at or before the time of the first
advance of funds. It will state that the applicant has the legal
authority to issue the bonds, construct, operate and maintain the
facility, and repay the loan, subject only to changes during the
advance of funds, such as litigation resulting from the failure to
advance loan funds, and receipt of closing certificates; and
(12) Preliminary approving opinion, if any, and final unqualified
approving opinion of bond counsel, or local counsel if no bond counsel
is involved, including an opinion as to whether interest on bonds will
be exempt from Federal and State income taxes. With approval of the
Administrator, a final opinion may be qualified to the extent that
litigation is pending relating to Indian claims that may affect title
to land or validity of the obligation. It is permissible for such
options to contain:
(i) Language referring to the last sentence of section 306(a)(1) or
to section 309A(h) of the Consolidated Farm and Rural Development Act
(7 U.S.C. 1926(a)(1) or 1929a(h)); or
(ii) Language providing that, if the bonds are acquired by the
Federal Government and sold on an insured basis from the Agriculture
Credit Insurance Fund or the Rural Development Insurance Fund, interest
on such bonds will be included in gross income for the purpose of
Federal income tax statutes.
(d) Interim construction financing from commercial sources for
loans of $100,000 or more. When funds can be borrowed from commercial
sources on an interim basis at reasonable interest rates, such interim
financing will be obtained so as to preclude the necessity for multiple
advances of FmHA funds. The State Director may authorize exceptions
when:
(1) The cost of issuance of both temporary and permanent debt
instruments is considered prohibitive; or
(2) The planned construction period does not exceed 6 months.
(e) Permanent instruments for FmHA loans. FmHA loans will be
evidenced by an instrument determined legally permissible and in
accordance with the following order of preference:
(1) First preference--Form FmHA 440-22. Refer to paragraph (e)(2)
of this section for methods of various frequency payment calculations.
(2) Second preference--single instruments with amortized
installments. A single instrument providing for amortized installments
which follows Form FmHA 440-22 as closely as possible. The full amount
of the loan must show on the face of the instrument, and there must be
provisions for entering the date and amount of each advance on the
reverse or an attachment. When principal payments are deferred, the
instrument will show that ``interest only'' is due on interest-only
installment dates, rather than specific dollar amounts. The payment
period including the ``interest only'' installment cannot exceed 40
years, the useful life of the facility, or State statute of
limitations, whichever occurs first. The amortized installment,
computed as follows, will be shown as due on installment dates
thereafter.
(i) Monthly payments. Multiply by twelve the number of years
between the due date of the last interest-only installment and the
final installment to determine the number of monthly payments. When
there are no interest-only installments, multiply by twelve the number
of years over which the loan is amortized. Then multiply the loan
amount by the amortization factor and round to the next higher dollar:
Example of Computation of Monthly Payment:
Date of Loan Closing
7-5-1986
Loan Amount
$100,000.00
Interest Rate
5%
Amortization Period
40 years
Interest Only
7-5-1987 and 7-5-1988
Installments
First Regular Installment
7-5-1989
Final Installment
7-5-2026
Computation: 2026-1988 38 x 12 = 456 monthly payments
$100,000.00 x .00491 = $491.00 monthly payment due
(ii) Semiannual payments. Multiply by two the number of years
between the due date of the last interest-only installment and the due
date of the final installment to determine the correct number of
semiannual periods. When there are no interest only installments,
multiply by two the number of years over which the loan is amortized.
Then multiply the loan amount by the applicable amortization factor:
Example:
Date of Loan Closing
7-5-1986
Loan Amount
$100,000.00
Interest Rate
5%
Amortization Period
40 years
Interest Only Installments
7-5-1987 and 7-5-1988
First Regular Installment
7-5-1989
Final Installment
7-5-2026
Computation: 2026-1988=38 x 2 = 76 semiannual periods
$100,000.00 x .02952 = $2,950.00 semiannual payment due
(iii) Annual payments. Subtract the due date of the last interest-
only installment from the due date of the final installment to
determine the number of annual payments. When there are no interest-
only installments, the number of annual payments will equal the number
of years over which the loan is amortized. Then multiply the loan
amount by the applicable amortization factor and round to the next
higher dollar:
Example:
Date of Loan Closing
7-5-1986
Loan Amount
$100,000.00
Interest Rate
5%
Amortization Period
40 years
Interest Only Installments
7-5-1987 and 7-5-1988
First Regular Installment
7-5-1989
Final Installment
7-5-2026
Computation: 2026-1988=38 annual payments
$100,000.00 x .05929 = $5,929.00 annual payment due
(3) Third preference-single instrument with installments of
principal plus interest. If a single instrument with amortized
installments is not legally permissible, use a single instrument
providing for installments of principal plus interest accrued on the
principal balance. For bonds with semiannual interest and annual
principal, the interest is calculated by multiplying the principal
balance times the interest rate and dividing this figure by two.
Principal installments are to be scheduled so that total combined
interest and principal payments closely approximate amortized payments.
(i) The repayment terms concerning interest-only installments
described in paragraph (e)(2) of this section apply.
(ii) The instrument shall contain in substance provisions
indicating:
(A) Principal maturities and due dates;
(B) Regular payments shall be applied first to interest due through
the next principal and interest installment due date and then to
principal due in chronological order stipulated in the bond; and
(C) Payments on delinquent accounts will be applied in the
following sequence:
(1) Billed delinquent interest;
(2) Past due interest installments;
(3) Past due principal installments;
(4) Interest installment due; and
(5) Principal installment due.
(4) Fourth preference--serial bonds with installments of principal
plus interest. If instruments described under the first, second, and
third preferences are not legally premissible, use serial bonds with a
bond or bonds delivered in the amount of each advance. Bonds will be
numbered consecutively and delivered in chronological order. Such bonds
will conform to the minimum requirements of paragraph (h) of this
section. Provisions for application of payments will be the same as
those set forth in paragraph (e)(3)(ii) (B) and (C) of this section.
(5) Coupon bonds. Coupon bonds will not be used unless required by
State statute. Such bonds will conform to the minimum requirements of
paragraph (h) of this section. Provisions for application of payments
will be the same as those set forth in paragraph (e)(3)(ii) (B) and (C)
of this section.
(i) To compute the value of each coupon when the bond denomination
is consistent:
(A) Multiply the amount of the loan or advance by the interest rate
and divide the product by 365 days to determine the daily accrual
factor;
(B) Multiply the daily accrual factor by the number of days from
the date of advance or last installment date to the next installment
date; and
(C) Divide the interest computed in paragraph (e)(5)(i)(B) of this
section by the number of bonds securing the advance to determine the
individual coupon amount.
(ii) To compute the value of each coupon when the bond denomination
varies:
(A) Multiply the denomination of the bond by the interest rate and
divide the product by 365 days; and
(B) Multiply the daily accrual factor by the number of days from
the date of advance or last installment date to the next installment
due date; to determine the individual coupon amount.
(f) Multiple advances of FmHA funds using permanent instruments.
Where interim financing from commercial sources is not used, FmHA loan
proceeds will be disbursed on an ``as needed by borrower'' basis in
amounts not to exceed the amount needed during the 30-day periods.
(g) Multiple advances of FmHA funds using temporary debt
instruments. When none of the instruments described in paragraph (e) of
this section are legally permissible or practical, a bond anticipation
note or similar temporary debt instrument may be used. The debt
instrument will provide for multiple advances of FmHA loan funds and
will be for the full amount of the FmHA loan. The instrument will be
prepared by bond counsel, or local counsel if bond counsel is not
involved, and approved by the State Director and OGC. At the same time
FmHA delivers the last advance, the borrower will deliver the permanent
bond instrument and the canceled temporary instrument will be returned
to the borrower. The approved debt instrument will show at least the
following:
(1) The date from which each advance will bear interest;
(2) The interest rate as determined by Sec. 1942.17(f)(1) of this
subpart;
(3) A payment schedule providing for interest on outstanding
principal at least annually; and
(4) A maturity date which shall be no earlier than the anticipated
issuance date of the permanent instrument(s) and no longer than the 40-
year statutory limit.
(h) Minimum bond specifications. The provisions of this paragraph
are minimum specifications only and must be followed to the extent
legally permissible.
(1) Type and denominations. Bond resolutions or ordinances will
provide that the instrument(s) be either a bond representing the total
amount of the indebtedness or serial bonds in denominations customarily
accepted in municipal financing (ordinarily in multiples of not less
than $1,000). Single bonds may provide for repayment of principal plus
interest or amortized installments. Amortized installments are
preferred by FmHA.
(2) Bond registration. Bonds will contain provisions permitting
registration for both principal and interest. Bonds purchased by FmHA
will be registered in the name of ``United States of America, Farmers
Home Administration,'' and will remain so registered at all times while
the bonds are held or insured by the Government. The FmHA address for
registration purposes will be that of the Finance Office.
(3) Size and quality. Size of bonds and coupons should conform to
standard practice. Paper must be of sufficient quality to prevent
deterioration through ordinary handling over the life of the loan.
(4) Date of bond. Bonds will normally be dated as of the day of
delivery. However, the borrower may use another date if approved by
FmHA. Bonds may or may not be delivered at the same time funds are
delivered; however, loan closing is the date of delivery of the bonds
or the date of delivery of the first fond when utilizing serial bonds,
regardless of the date of delivery of the funds. The date of delivery
will be stated in the bond if different from the date of the bond. In
all cases, interest will accrue from the date of delivery of the funds.
(5) Payment date. Loan payments will be scheduled to coincide with
income availability and be in accordance with State law.
(i) If income is available monthly, monthly payments will be
required unless precluded by State law. If income is available
quarterly or otherwise more frequently than annually, payments must be
scheduled on such basis. However, if State law only permits principal
plus interest (P&I) type bonds, annual or semiannual payments will be
used.
(ii) The payment schedule will be enumerated in the evidence of
debt, or if that is not feasible, in a supplemental agreement.
(iii) Unless infeasible, the first payment will be scheduled one
full month, or other period as appropriate, from the date of loan
closing or any deferment period. Due dates falling on the 29th, 30th,
or 31st day of the month will be avoided. When principal payments are
deferred, interest-only payments will be scheduled at least annually.
(6) Extra payments. Extra payments are derived from the sale of
basic chattel or real estate security, refund of unused loan funds,
cash proceeds of property insurance as provided in Sec. 1806.5(b) of
this chapter (paragraph V.B. of FmHA Instruction 426.1), and similar
actions which reduce the value of basic security. At the option of the
borrower, regularly facility revenue may also be used as extra payments
when regular payments are current. Unless otherwise established in the
note or bond, extra payments will be applied as follows:
(i) For loans with amortized debt instruments, extra payments will
be applied first to interest accrued through the date of receipt of the
payment and second to principal last to become due.
(ii) For loans with debt instruments with P&I installments, the
extra payment will be applied to the final unpaid principal
installment.
(iii) For borrowers with more than one loan, the extra payment will
be applied to the account secured by the lowest priority of lien on the
property from which the extra payment was obtained. Any balance will be
applied to other FmHA loans secured by the property from which the
extra payment was obtained.
(iv) For assessment bonds, see paragraph (h)(13) of this section.
(7) Place of payment. Payments on bonds purchased by FmHA are to be
submitted to the FmHA District Office. The District Office will process
payments in accordance with part 1951, subpart B, of this chapter.
(8) Redemptions. Bonds will normally contain customary redemption
provisions. However, no premium will be charged for early redemption on
any bonds held by the Government.
(9) Additional revenue bonds. Parity bonds may be issued to
complete the project. Otherwise, parity bonds may not be issued unless
acceptable documentation is provided establishing that net revenues for
the fiscal year following the year in which such bonds are to be issued
will be at least 120 percent of the average annual debt service
requirements on all bonds outstanding, including the newly-issued
bonds. For purposes of this section, net revenues are, unless otherwise
defined by State statute, gross revenues less essential operation and
maintenance expenses. This limitation may be waived or modified by the
written consent of bondholders representing 75 percent of the then-
outstanding principal indebtedness. Junior and subordinate bonds may be
issued in accordance with the loan agreement.
(10) Scheduling of FmHA payments when joint financing is involved.
When FmHA participates with another lender in joint financing of the
project, the FmHA principal and interest payments should approximate
amortized installments.
(11) Precautions. The following types of provisions in debt
instruments should be avoided:
(i) Provisions for the holder to manually post each payment to the
instrument;
(ii) Provisions for returning the permanent or temporary debt
instrument to the borrower in order that it, rather than FmHA, may post
the date and amount of each advance or repayment on the instrument; or
(iii) Provisions that amend covenants contained in Forms FmHA 1942-
47 or FmHA 1942-9.
(12) Defeasance provisions in loan or bond resolutions. When a bond
issue is defeased, a new issue is sold which supersedes the contractual
provisions of the prior issue, including the refinancing requirement
and any lien on revenues. Since defeasance in effect precludes FmHA
from requiring graduation before the final maturity date, it represents
a violation of the statutory refinancing requirement; therefore, it is
disallowed. No loan shall include a provision of defeasance.
(13) Assessment bonds. When security includes special assessment to
be collected over the life of the loan, the instrument should address
the method of applying any payments made before they are due. It may be
desirable for such payments to be distributed over remaining payments
due, rather than to be applied in accordance with normal procedures
governing extra payments, so that the account does not become
delinquent.
(14) Multiple debt instruments. The following will be adhered to
when preparing debt instruments:
(i) When more than one loan type is used in financing a project,
each type of loan will be evidenced by a separate debt instrument or
series of debt instruments;
(ii) Loans obligated in different fiscal years and those obligated
with different terms in the same fiscal year will be evidenced by
separate debt instruments;
(iii) Loans obligated in for the same loan type in the same fiscal
year with the same terms may be combined in the same debt instrument;
(iv) Loans obligated in the same fiscal year with different
interest rates that can be closed at the same interest rate may be
combined in the same debt instrument.
(i) Bidding by FmHA. Bonds offered for public sale shall be offered
in accordance with State law and in such a manner to encourage public
bidding. FmHA will not submit a bid at the advertised sale unless
required by state law nor will reference to FmHA's rates and terms be
included. If no acceptable bid is received, FmHA will negotiate the
purchase of the bonds.
Subpart C--Fire and Rescue Loans
6. Section 1942.111 is amended by revising paragraph (b) to read as
follows:
Sec. 1942.111 Applicant eligibility.
* * * * *
(b) Credit elsewhere determination. District Directors should
maintain files with criteria from commercial lenders to be used in
determining the preapplications which should be referred to those
lenders. If credit elsewhere is indicated, the District Director should
inform the applicant and recommend that they apply to commercial
sources for financing. In order to provide a basis for such referrals,
District Directors should maintain liaison with representatives of
banks, bond dealers, financial consultants, and other lender
representatives who are interested in receiving applicant referrals.
State Directors will contact lenders having a potential statewide or
multidistrict interest in Community Programs lending. District
Directors will contact lenders having a potential interest in Community
Programs lending primarily within their District. Guide 28 (available
in any State or District Office) or locally developed worksheet
containing similar information will be used to document the contacts
with commercial lenders. The State Director and District Director will
keep each other informed of lender criteria by forwarding copies of
completed Guide 28 and/or worksheets to each other.
* * * * *
Subpart I--Resource Conservation and Development (RCD) Loans and
Watershed (WS) Loans and Watershed Advances
7. Section 1942.419 is amended by revising the introductory text of
paragraph (a) to read as follows:
Sec. 1942.419 Approval, closing, and cancellation.
(a) Approval and closing actions will be taken in accordance with
the applicable provisions of FmHA regulations including part 1901,
subpart A, of this chapter and Secs. 1942.5, 1942.6, 1942.7, 1942.8,
and 1942.12, of subpart A of this part, and the following:
* * * * *
PART 1948--RURAL DEVELOPMENT
8. The authority citation for part 1948 is revised to read as
follows:
Authority: 7 U.S.C. 1989; 7 CFR 2.23 and 2.70.
Subpart B--Section 601 Energy Impacted Area Development Assistance
Program
9. Section 1948.92 is amended by removing paragraphs (d) through
(g) and revising paragraph (c) to read as follows:
Sec. 1948.92 Grant approval and fund obligation.
* * * * *
(c) Grants must be approved and obligated in accordance with
Sec. 1942.5(d) of this chapter.
Sec. 1948.94 [Amended]
10. Section 1948.94 (b) is amended in the second sentence by
revising the reference ``FmHA Instruction 402.1 (available in any FmHA
Office)'' to part 1902, subpart A, of this chapter''.
PART 1951--SERVICING AND COLLECTIONS
11. The authority citation for part 1951 is revised to read as
follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1480; 7 CFR 2.23 and 2.70.
Subpart E--Servicing of Community and Insured Business Programs
Loans and Grants
12. Subsection 1951.230 (c)(3) is amended by revising the last
sentence to read as follows:
Sec. 1951.230 Transfer of security and assumption of loans.
* * * * *
(c) * * *
(3) * * * If applicable, 1942.19 (h)(14) of this chapter will
govern the preparation of any new debt instruments required.
* * * * *
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
13. Section 1951.261 is amended by revising the fourth and fifth
sentences of the introductory text of paragraph (c), and by adding two
new sentences at the end of paragraph (e)(5) to read as follows:
Sec. 1951.261 Graduation of FmHA borrowers to other sources of credit.
* * * * *
(c) * * * (The servicing official, in lieu of writing a narrative
for all programs, may use Exhibit A for Farmer Program loans, Exhibit B
for Rural Housing loans, and Guide 28 (available in any State or
District Office) for Community Programs loans.) For Community Programs,
the servicing official will request the assistance of the State
Director pursuant to Sec. 1942.2(a)(2)(i) of this chapter. * * *
* * * * *
(e) * * *
(5) * * * Exhibit D ``Community Programs Thorough Review
Worksheet'' (available in any State or District Office) will be
completed for each Community Programs borrower for whom a thorough
review is conducted. The original will be placed in the borrower's file
and a copy will be forwarded to the State Director for each borrower
recommended for graduation.
* * * * *
PART 1980--GENERAL
14. The authority citation for part 1980 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; Pub. L.
100-387, 102 Stat 924; Pub. L. 101-82, 103 Stat 564 (7 U.S.C. 1421
Note); 7 CFR 2.23 and 2.70.
Subpart A--General
15. Section 1890.,12 is revised to read as follows:
Sec. 1980.12 Case and identification (ID) numbers.
(a) Case number. The case number will be the proposed borrower's or
transferee's Social Security or Internal Revenue Service (IRS) Taxpayer
Identification Number (TIN), whichever is appropriate, preceded by
State and County code numbers. The County Supervisor will provide the
lender with these numbers, except for Business and Industry and
Community Programs cases where the State Director or District Director,
respectively, will provide them. Only one case number will be assigned
to each borrower regardless of the number of loans or grants or number
of separate facilities, unless an exception is authorized by the
National Office.
(1) If such party is an individual, his or her Social Security
number will be used. If such party is husband and wife, the Social
Security number of either one, as designated by the spouses, will be
used.
(2) If such party is a legal entity, its TIN will be used.
(b) Temporary ID numbers. When a proposed borrower has not received
a TIN, the State Office will assign a temporary ID number. See the
Forms Manual Insert for Form FmHA 1940-3, ``Request for Obligation of
Funds,'' for specific instructions. Any temporary ID number assigned
must be replaced with the TIN prior to issuing the Loan Note Guarantee
unless prior approval of the National Office is received.
(c) ID number of lender and holder. The lender's and holder's IRS
TIN will be used as its ID number in correspondence and FmHA forms
relating to the guarantee.
Subpart I--Community Programs Guaranteed Loans
16. Section 1980.856 is amended by adding paragraph (i) to read as
follows:
Sec. 1980.856 Conditions precedent to issuance of the Loan Note
Guarantee (Form FmHA 449-34).
* * * * *
(i) Proposed borrowers indebted to the Community Program Loan Trust
1987-A (Trust). Proposed borrowers indebted to the Trust must obtain
consent from the Trust prior to incurring additional debt. Guide 29
(available in any State or District Office) outlines the information
normally required by the Trust.
Dated: December 9, 1993.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-13743 Filed 6-14-94; 8:45 am]
BILLING CODE 3410-07-M
