This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

52277

Vol. 62, No. 194

Tuesday, October 7, 1997

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1980

RIN 0575–AC17

Community Programs Guaranteed

Loan Program

AGENCIES: Rural Housing Service and

Rural Utilities Service, USDA.

ACTION: Proposed rule.

SUMMARY: The Agencies are proposing to

issue a new Community Programs (CP)

guaranteed loan regulation (part 1980,

subpart I) to replace the current

regulation for the program. This action

is needed to streamline and update the

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.

DATES: Written comments must be

received on or before December 8, 1997.

The comment period for information

collections under the Paperwork

Reduction Act of 1995 continues

through December 8, 1997.

ADDRESSES: Submit written comments

to the Chief, Regulations and Paperwork

Management Branch, Support Services

Division, Rural Development, U.S.

Department of Agriculture, STOP 0743,

1400 Independence Ave. SW.,

Washington, D.C. 20250–0743. Also,

comments may be submitted via the

Internet by addressing them to

‘‘comments@rus.usda.gov’’ and must

contain Community Programs

Guaranteed Loans in the subject line.

All written comments will be available

for public inspection during regular

work hours at the above address.

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, D.C. 20250–3222,

telephone: (202) 720–1495.

SUPPLEMENTARY INFORMATION:

Classification

This proposed 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, and 10.760, Water and Waste

Disposal Systems for Rural

Communities.

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

FmHA Instruction 1940–J.

Civil Justice Reform

The proposed rule has been reviewed

under Executive Order 12778, 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) 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 received in

accordance with 7 CFR part 1940,

subpart G, ‘‘Environmental Program.’’

The Agencies have 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, Pub.

L. 91–190, an Environmental Impact

Statement is not required.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (UMRA), Pub. L.

104–4, 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,

the Agencies generally must prepare a

written statement, including a costbenefit 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 the

Agencies 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 Performance

Review program to eliminate

unnecessary regulations and improve

those that remain in force.

Regulatory Flexibility Act

This proposed 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.

Discussion of the Proposed Rule

This action replaces the CP

guaranteed loan program administered

under 7 CFR part 1980. Under the

proposed 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
52278 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

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 Agencies were authorized to

guarantee CP loans under Pub. L. 101–

161 enacted November 21, 1989. The

loans are made by private lenders to

public bodies and nonprofit

corporations 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 (Pub. L. 104–127)

and water and waste disposal facilities

located in cities or towns of up to

10,000 population. The previous

statutory population limit for loans for

essential community facilities had been

20,000.

Since 1990, more than 240

community programs projects, totaling

slightly more than $210 million, have

received loans which were guaranteed

through the CP program.

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; transportation studies; and

water and waste disposal facilities. The

rate and terms of the loan are negotiated

between the borrower and the lender.

The Agencies propose to replace the

regulation for the CP guaranteed loan

programs with a completely new

regulation. This 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

shorter, 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, the revisions are not

required by statute. However, the

President, as well as 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.

Recognizing the need to streamline

the regulation, the Agencies established

two task forces. One was comprised of

CP Program Chiefs, CP Loan Specialists,

and other field office personnel. The

second was comprised of lenders,

secondary market representatives, and

National Office management. They

examined changes that needed to be

made in the program to attract

additional lenders and to make the

program more user friendly and

customer oriented. Task force

recommendations have been

incorporated into this regulation.

Based on the recommendations of the

task forces, the Agencies have proposed

these revisions to make the program

more usable by lenders and borrowers.

Also, the Agencies recognize 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 proposed new CP

regulation, the material that must be

submitted to, and reviewed by, the

Agencies before approval of the

guarantee has been streamlined.

Responsibilities for credit and analysis

and application processing tasks will be

shifted from the Agencies’ National

Offices to field offices and from the

Agencies to the lender, where feasible.

Following is a discussion of some of the

most significant policy revisions

included in the proposed new

regulation.

To streamline the regulation, the

Agencies have 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

parts of forms which were not in

regulations into the Guaranteed

Community Programs Regulation (7 CFR

part 1980, subpart I). The Agencies 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 peruse 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. The threshold for requiring

audited financial statements has been

increased from $100,000 to $500,000 to

reduce the reporting burden on small

organizations. Also, we have included

recreation as well as clarified

telecommunications as eligible loan

purposes.

Under the revised regulations, 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 interest rate

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, and Sallie Mae. All of

these organizations have expressed an

interest in the CP guaranteed lending

program in the past.

Conclusion

The Agencies believe the streamlining

of the regulation for this program will

enhance the use of the program in

improving the future prosperity of rural

residents through targeted investments

that enhance rural competitiveness,

improve and diversify community

services, and enable rural residents to

have a better quality of life. The

proposed revisions are consistent with

Administration efforts to streamline

Government functions, improve

efficiency and the effectiveness of

Government activities, and be more

customer friendly. The changes

proposed will enable the Agencies to

deliver a larger program with fewer staff

resources, simultaneously meet the

objectives of the National Performance

Review regarding customer service,

reduce regulation, and streamline

Agencies operations.

The proposed changes will provide

more flexibility for both lenders and

Agencies staff. Many errors will be

reduced because the guidelines and

requirements are much clearer and

items are more easily found in a

reduced and better-organized regulation.

Lenders will be more interested in using

the program because the procedures are

simpler and more direct with

significantly fewer cross references to

other regulations. The ultimate benefits

to be realized are increased lending

activity resulting in a better-living

standard for rural communities with the

infrastructure to attract new businesses
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52279

and the creation of more jobs in rural

areas, particularly in those areas that

have experienced historical economic

distress.

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995, the Agencies

will seek Office of Management and

Budget (OMB) approval of the reporting

and recordkeeping requirements

contained in this regulation. These

reporting and recordkeeping

requirements have been previously

approved under control numbers 0575–

0024 and 0575–0137. We have made the

appropriate adjustments based upon the

programs’ 6-year history.

The loans are made by private lenders

to public bodies and nonprofit

corporations for the purpose of

improving rural living standards and for

other purposes that create employment

opportunities in rural areas. Eligibility

for this program includes community

facilities located in cities, towns, or

unincorporated areas of up to 50,000

population and water and waste

disposal facilities located in cities of up

to 10,000 population.

The information collected is used by

the Agencies to manage, plan, evaluate,

and account for Government resources.

The reports are required to ensure the

proper and judicious use of public

funds.

Estimate of Burden: Public reporting

burden for this collection of information

is estimated to average 13.97 hours per

response.

Respondents: Nonprofit corporations

and public bodies.

Estimated Number of Respondents:

125.

Estimated Number of Responses per

Respondent: 10.12.

Estimated Total Annual Burden on

Respondents: 17,677.

Copies of this information collection

can be obtained from Barbara Williams,

Information Collection Coordinator,

Regulations and Paperwork

Management Branch, Support Services

Division, Rural Development, telephone

(202) 720–9734.

Comments are invited on (a) whether

the proposed collection of information

is necessary for the proper performance

of the functions of the Agencies,

including whether the information will

have practical utility; (b) the accuracy of

the Agencies’ estimate of the burden of

the proposed collection of information,

including the validity of the

methodology and assumptions used; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of the collection of information

on those who are to respond, including

through the use of appropriate

automated, electronic, mechanical, or

other technological collection

techniques or other forms of information

technology.

All responses to this notice will be

summarized, included in the request for

OMB approval, and will become a

matter of public record. Comments

should be submitted to the Desk Officer

for Agriculture, Office of Information

and Regulatory Affairs, Office of

Management and Budget, Washington,

D.C. 20503 and to Barbara Williams,

Information Collection Coordinator,

Regulations and Paperwork

Management Branch, Support Services

Division, Rural Housing Service, U.S.

Department of Agriculture, STOP 0743,

1400 Independence Avenue SW.,

Washington, D.C. 20250–0743. A

comment to OMB is best assured of

having its full effect if OMB receives it

within 30 days of publication of this

rule.

List of Subjects in 7 CFR Part 1980

Loan programs—Agriculture, Loan

programs—Business and industry—

Rural development assistance, Loan

programs—Community facilities—Rural

development assistance, Loan

programs—Housing and community

development.

Accordingly, part 1980, chapter XVIII,

title 7 of the Code of Federal

Regulations, is proposed to be amended

as follows:

PART 1980—GENERAL

1. 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.

Subpart A—General

§ 1980.47 [Amended]

2. Section 1980.47(d) is removed.

§ 1980.60 [Amended]

3. Section 1980.60(a)(12) is amended

by removing the words ‘‘or Form FmHA

or its successor agency under Public

Law 103–354 1980–10, ‘Application for

Loan and Guarantee’ (Community

Programs),’’ in the first sentence.

Subpart I—Community Programs

Guaranteed Loans

4. Subpart I is revised to read as

follows:

Sec.

1980.801 General.

1980.802 Definitions.

1980.803 Full faith and credit.

1980.804 Conditions of Guarantee.

1980.805—1980.807 [Reserved]

1980.808 Access to lender’s records.

1980.809 Environmental requirements.

1980.810—1980.811 [Reserved]

1980.812 Inspections.

1980.813 Appeals.

1980.814—1980.816 [Reserved]

1980.817 Exception authority.

1980.818—1980.819 [Reserved]

1980.820 Eligibility.

1980.821 Priorities.

1980.822—1980.823 [Reserved]

1980.824 Eligible loan purposes.

1980.825 Ineligible loan purposes.

1980.826 [Reserved]

1980.827 Eligible Lenders.

1980.828 Transfer of lender or borrower

prior to issuance of loan note guarantee.

1980.829 Fees and charges by lender.

1980.830 Loan guarantee limitations.

1980.831—1980.832 [Reserved]

1980.833 Interest rates.

1980.834 Terms of loan repayment.

1980.835—1980.836 [Reserved]

1980.837 Insurance and fidelity bonds.

1980.838—1980.839 [Reserved]

1980.840 Equal opportunity and Fair

Housing Act requirements.

1980.841 [Reserved]

1980.842 Design and construction

requirements.

1980.843 Other Federal, State, and local

requirements.

1980.844—1980.846 [Reserved]

1980.847 Economic feasibility

requirements.

1980.848 Security.

1980.849—1980.851 [Reserved]

1980.852 Processing.

1980.853 Evaluation of application.

1980.854—1980.858 [Reserved]

1980.859 Review of requirements.

1980.860—1980.862 [Reserved]

1980.863 Conditions precedent to issuance

of the Loan Note Guarantee.

1980.864 Issuance of Lender’s Agreement,

Loan Note Guarantee, and Assignment

Guarantee Agreement.

1980.865 Lender’s sale or assignment of the

guaranteed portion of loan.

1980.866—1980.868 [Reserved]

1980.869 Loan servicing.

1980.870—1980.872 [Reserved]

1980.873 Replacement of loss, theft,

destruction, mutilation, or defacement of

Loan Note Guarantee or Assignment

Guarantee Agreement.

1980.874 [Reserved]

1980.875 Defaults by borrower.

1980.876—1980.877 [Reserved]

1980.878 Repurchase of loan.

1980.879 Transfer of lender after issuance

of Loan Note Guarantee.

1980.880 Interest rate changes after loan

closing.

1980.881 Liquidation.

1980.882 [Reserved]

1980.883 Protective advances.

1980.884 Additional loans or advances.

1980.885 Bankruptcy.

1980.886—1980.887 [Reserved]

1980.888 Transfers and assumptions.

1980.889 Mergers.

1980.890 Disposition of acquired property.

1980.891—1980.893 [Reserved]

1980.894 Determination and payment of

loss.
52280 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

1980.895 Future recovery.

1980.896 Termination of Loan Note

Guarantee.

1980.897—1980.900 [Reserved]

PART 1980—GENERAL

Subpart I—Community Programs

Guaranteed Loans

§ 1980.801 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 and water and waste

disposal 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.

§ 1980.802 Definitions.

The following general definitions are

applicable to the terms used in this

subpart:

Agency. The Rural Housing Service

and the Rural Utility Service which are

within the Rural Development mission

area of the United States Department of

Agriculture (USDA) or their successor

agencies with authority delegated by the

Secretary of Agriculture to administer

the Community Facilities and Water and

Waste Disposal programs. This also

includes the Rural Development

mission area.

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. (This is an

Agency prescribed form 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 the area of jurisdiction or

operation for the public bodies eligible

to receive assistance 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 set forth in the agreement.

(This is an Agency prescribed form

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 parts 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, such as a spouse, significant

other, parent, child, brother, sister, aunt,

uncle, grandparent, grandchild, niece,

nephew, or first cousin.

Insurance. Fire, windstorm, lightning,

hail, explosion, riot, civil commotion,

aircraft, vehicles, smoke, builder’s risk,

public 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.

Joint financing. The situation

occurring when two or more lenders (or

any combination of lenders and other

financial sources) make separate 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 setting forth the lender’s

responsibilities when the Loan Note

Guarantee is issued. (This is an Agency

prescribed form available in any Agency

office.)

Loan classification system. The

process by which loans are examined

and categorized by degree of potential

for loss in the event of default.

Loan Note Guarantee. The signed

commitment issued by the Agency

setting forth the terms and conditions of

the guarantee of an identified loan.

(This is an Agency prescribed form

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 others

directly involved in the operation and

management of the borrower.

Problem loan. A loan which is not

performing according to 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. An Agency prescribed

form used by lenders when reporting a

loss under an Agency guarantee.

(Available in any Agency office.)

Rural and rural area. Any area

defined by the latest Decennial Census

of the United States except:

(1) For water and waste disposal

facilities—any city or town with a

population in excess of 10,000

inhabitants.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52281

(2) For essential community

facilities—any city, town, or

unincorporated area with a population

in excess of 50,000 inhabitants, and any

urbanized area immediately adjacent to

a city, town, or unincorporated area that

has a population of more than 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 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.

Water or waste disposal facility. A

facility designed to provide, enlarge,

extend, or otherwise improve water,

wastewater or sanitary sewer, solid

waste disposal, or storm wastewater

services to rural residents.

§ 1980.803 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

guarantee and right to require purchase

will be directly enforceable by the

holder notwithstanding any fraud,

misrepresentation, or any

unenforceability of the Loan Note

Guarantee. 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.

§ 1980.804 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. The

provisions of this subpart in effect at the

issuance of the Loan Note Guarantee

and execution of the Lender’s

Agreement will control the Loan Note

Guarantee or Lender’s Agreement.

(a) The entire loan will be secured by

the same security with equal lien

priority for the guaranteed and nonguaranteed 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. A guarantee and

right to require purchase will be directly

enforceable by a holder notwithstanding

any fraud or misrepresentation by the

lender or any unenforceability of the

guarantee by the lender, except for fraud

or misrepresentation of which the

holder had actual knowledge at the

time. If the Agency makes a payment to

a holder, then the lender must

reimburse the Agency.

(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.

§§ 1980.805—1980.807 [Reserved]

§ 1980.808 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) 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.

§ 1980.809 Environmental requirements.

Requirements for an environmental

review or mitigation actions are

contained in part 1940, subpart G, of

this chapter. The lender must assist the

Agency to ensure that the borrower

complies with any mitigation measures

required by the Agency’s environmental

review for the purpose of avoiding or

reducing the adverse environmental

impact of construction or operations of

the facility financed with the guaranteed

loan.

§§ 1980.810—1980.811 [Reserved]

§ 1980.812 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 other parties of interest.

Agency inspections do not relieve any

parties of interest of their

responsibilities to conduct necessary

inspections.

§ 1980.813 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
52282 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

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.

§§ 1980.814—1980.816 [Reserved]

§ 1980.817 Exception authority.

The appropriate Agency

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.

§§ 980.818—1980.819 [Reserved]

§ 1980.820 Eligibility.

(a) 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 period of time. This determination

shall become a part of the Agency

casefile. The Agency should 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 debt with any Federal

agency that is in a delinquent status.

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 must have legal authority for

obtaining security and repaying the

proposed loan.

(2) The borrower shall be responsible

for operating, maintaining, 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 notfor-profit basis such as an association,

cooperative, or private corporation.

Borrowers organized under the general

profit corporation laws may be eligible

if they actually will be operated on a

not-for-profit basis under their charter.

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 non-public body essential

community facility borrower (other than

utility-type) 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) Facilities must be located in rural

areas, except:

(1) For utility-type services such as

water, sewer, 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) All facilities financed under the

provisions of this subpart shall be for

public use.

(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,

handicap, 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 facilities 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., water or waste disposal)

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.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52283

§ 1980.821 Priorities.

The Agency will publish a project

selection guide for administrative use.

This guide will include items and

conditions which must be considered in

selecting preapplications for further

development. Copies of this project

selection guide will be available in any

Agency office. When ranking eligible

preapplications for consideration for

limited funds, Agency officials must

consider the priority items met by each

preapplication and the degree to which

those priorities are met. The project

selection guide may change from time to

time but preapplication and application

will be evaluated in accordance with the

project selection guide in existence at

the time the preapplication is

submitted.

(a) The preapplication (and

supporting information submitted with

it) will be used to determine the

proposed project’s priority for available

funds.

(b) Those lenders with eligible lowerscoring preapplications which cannot be

funded within the foreseeable future

should be notified that funds are not

available and asked if they wish to have

their preapplication maintained in an

active file for future consideration.

Lenders whose preapplications are

found to be ineligible will be advised.

(c) After completing the review, the

Agency will normally select the

preapplications with the highest scores

for further processing. The Agency may

select a lower-scoring preapplication for

processing when an eligible, highscoring preapplication:

(1) Requires more than 25 percent of

the State allocation, or

(2) Exceeds the remaining State

allocation for the fiscal year, or

(3) Is incomplete in that the lender

has not met the administrative

requirements to develop the loan.

However the higher-scoring

preapplication must be notified and

given an opportunity to revise and

resubmit their proposal. A written

justification must be prepared and

placed in the project file when an

eligible higher-rating preapplication is

not selected for further processing.

(d) The Agency will notify the lender

if an application should be developed.

Applications should be developed

expeditiously following good

management practices. Applications

that are not developed in a reasonable

period of time may be removed from the

State’s active file. Lenders will be

advised when such action is taken.

(e) A cost overrun will receive

consideration for funding before others.

§§ 980.822—1980.823 [Reserved]

§ 1980.824 Eligible loan purposes.

(a) Funds may be used to construct,

enlarge, extend, or otherwise improve

water or waste disposal and other

essential community facilities providing

essential service primarily to rural

residents and rural businesses.

(1) Water or waste disposal facilities

include water, sanitary sewerage, solid

waste disposal, and storm wastewater

facilities.

(2) 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.

(3) Otherwise improve includes, but is

not limited to, the following:

(i) The purchase of major equipment

(such as solid waste collection trucks,

telecommunication equipment, and Xray 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 in paragraphs (a)(1)

and (a)(2) 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 paragraphs (a),

(b)(1), and (b)(2) 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 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 should not be started

(and obligations for such work or

materials should not be incurred) before

the Conditional Commitment for

Guarantee is issued. However, if there

are compelling reasons for proceeding

with construction before the

Conditional Commitment for Guarantee

is issued, lenders may request Agency
52284 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

approval to pay such obligations. Such

request must comply with the following:

(i) Provide conclusive evidence that

the contract was entered into without

intent to circumvent the requirements of

Agency regulations.

(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 contracts,

the borrower and lender must provide

the certification required by paragraph

(b)(5)(iii) of this section.

(iii) Provide a certification by an

engineer or architect that any

construction performed complies fully

with the plans and specifications.

(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.

§ 1980.825 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

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, Pub. L. 97–348 (available

in any Agency office),

(h) New combined sanitary and storm

water sewer facilities,

(i) Projects located in a special flood

or mudslide hazard area (as designated

by the Federal Insurance Administration

(FIA) of the Department of Housing and

Urban Development) when it is not part

of an approved floodplain area

management plan or flood insurance is

not available.

§ 1980.826 [Reserved]

§ 1980.827 Eligible lenders.

(a) 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 either an agency of the

United States or a State. 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:

(i) Bank, or

(ii) 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 and 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 agency of the

United States or a State 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) 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 shall 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.

§ 1980.828 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 there are:

(1) A letter from the former lender

stating why they do not wish to

continue to be the lender for this

project,

(2) No substantive changes in

ownership or control of the borrower,

(3) No substantive changes in the

borrower’s written plan, scope of work,

or changes in the purpose or intent of

the project,

(4) No substantive changes in the loan

agreement or Conditional Commitment

for Guarantee,

(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 by Agency staff from the

Agency’s National Office when the

original borrower is replaced with

substantially the same individuals or

officers with the same interest as

originally approved.

§ 1980.829 Fees and charges by lender.

(a) 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 which

a non-guaranteed loan borrower would

be assessed charges and fees.

(b) 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.

(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) The guaranteed loan fee will be the

applicable guarantee fee rate multiplied

by the principal loan amount multiplied

by the percent of guarantee. The onetime 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.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52285

§ 1980.830 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 allowable guarantee

will be 90 percent.

(b) The lender will retain a minimum

of 5 percent of the total guaranteed loan

amount. The retained amount must be

from the unguaranteed portion of the

loan and cannot be participated to

another lender.

§§ 1980.831–1980.832 [Reserved]

§ 1980.833 Interest rates.

(a) 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) 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) 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 on an amendment to the

Conditional Commitment for Guarantee.

(d) 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.

(e) 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.

§ 1980.834 Terms of loan repayment.

(a) 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) 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) The principal balance should be

properly amortized within the

prescribed loan maturity. Balloon

payments at the end of the loan are

prohibited.

§§ 1980.835–1980.836 [Reserved]

§ 1980.837 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.

§§ 1980.838–1980.839 [Reserved]

§ 1980.840 Equal opportunity and Fair

Housing Act requirements.

(a) The lender will comply with the

requirements of title V of the Equal

Credit Opportunity Act (Pub. L. 93–

495). See the Federal Reserve Board

Regulation, 12 CFR part 202.

(b) Certain housing-related projects

such as nursing homes, group homes, or

assisted-living facilities must comply

with the requirements of the Fair

Housing Amendment Act of 1988 (Pub.

L. 100–430). 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

(Pub. L. 101–336). The lender will

determine that the borrower has a valid

plan in effect at all times.

§ 1980.841 [Reserved]

§ 1980.842 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

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) 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

completed, will be suitable for the

borrower’s needs.

(b) 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) For all construction contracts in

excess of $10,000, the contractor must

comply with Executive Order 11246

entitled ‘‘Equal Employment

Opportunity’’ as amended by Executive

Order 11375, and as supplemented by
52286 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

applicable Department of Labor

regulations (41 CFR part 60). The

borrower and lender are responsible for

ensuring that the contractor complies

with these requirements.

(d) 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 (Pub. L. 101–336) must

comply with this Act. The lender and

borrower are responsible for

compliance.

§ 1980.843 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.

§§ 1980.844–1980.846 [Reserved]

§ 1980.847 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 recreationtype 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.

(a) The borrower may 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) The borrower’s consulting

engineer may complete the financial

feasibility analysis for utility systems.

(c) 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) 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) When the lender or Agency has

insufficient information to determine

the borrower’s repayment ability, an

independent feasibility analysis will be

required.

§ 1980.848 Security.

(a) 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) 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, rightsof-way, water rights, buildings,

machinery, equipment, accounts

receivable, contracts, cash, or other

accounts or assignments of leases or

leasehold interest.

(c) 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.

(d) For projects utilizing joint

financing with the same security to be

shared, the Agency guaranteed loan will

be secured by at least a parity (equal)

lien position.

§§ 1980.849—1980.851 [Reserved]

§ 1980.852 Processing.

(a) Preapplications. (1) The

preapplication package may be

submitted alone or simultaneously with

the application. The preapplication

package will contain:

(i) An application for Federal

assistance (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. The Agency will

advise lenders and borrowers on what

documents are necessary. Borrowers

should not expend significant amounts

of money or time developing supporting

documentation at the preapplication

stage.

(iv) Documentation of lender

eligibility in accordance with

§ 1980.828.

(2) The Agency will review each

application for Federal assistance along

with other information that is deemed

necessary to determine eligibility and

whether financing from commercial

sources at reasonable rates and terms is

available without a guarantee.

(3) If the project appears to be eligible,

has sufficient priority, is economically

feasible, and loan guarantee authority is

expected to be available, the Agency

will inform the lender and borrower, in

writing, and request a complete

application. An environmental review

will be necessary, and no major

commitment should be made by the

lender or borrower that could affect the

consideration of alternatives.

(b) Applications. Contents of

application package.

(1) Application for loan and guarantee

(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),
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52287

(7) Credit reports,

(8) Financial feasibility analysis and

report, and

(9) Any additional information

required.

§ 1980.853 3Evaluation of application.

The Agency will evaluate the

application and determine whether 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,

and adequate funds are available. If

approved, 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

requirements,

(f) Appraisal requirements,

(g) Insurance and bonding

requirements,

(h) Financial reporting requirements,

(i) Equal opportunity and

nondiscrimination requirements,

(j) Environment or mitigation

requirements,

(k) Americans with Disabilities Act

requirements,

(l) By-laws and articles of

incorporation change requirements, and

(m) Other requirements necessary to

protect the Government.

§§1980.854—1980.858 [Reserved]

§1980.859 Review of requirements.

(a) Immediately after reviewing the

Agency’s conditions and requirements

in the Conditional Commitment for

Guarantee, the lender and borrower

must complete and sign the Acceptance

of Conditions and return a copy to the

Agency. Notwithstanding the preceding

sentence, if certain conditions cannot be

met, the lender and borrower may

propose alternate conditions for Agency

consideration.

(b) If the lender indicates in the

Acceptance of Conditions that it desires

to obtain a Loan Note Guarantee and

subsequently 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.

§§ 1980.860—1980.862 [Reserved]

§ 1980.863 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 major 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 and

specifications. All costs have not

exceeded the amounts approved by the

lender and the Agency.

(3) Required insurance is in effect.

(4) Truth in lending requirements

have been met.

(5) All equal employment opportunity

and Fair Housing Plan requirements

have been met.

(6) The loan has been properly closed

and the required security instruments

have been obtained on any afteracquired property that cannot be

covered initially under State statutory

provisions.

(7) 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.

(8) 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.

(9) All other requirements of the

Conditional Commitment for Guarantee

have been met.

(10) Lien priorities are consistent with

requirements of the Conditional

Commitment for Guarantee.

(11) 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.

(12) 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.

(13) All Federal, State, and local

design and construction requirements

have been met.

(14) The lender understands and will

meet the requirements of chapter 37 of

title 31 of the United States Code.

(15) 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) The lender agrees that once the

Conditional Commitment for Guarantee

is issued and accepted by the lender and

borrower, it shall not be modified as to

the scope of the project, overall facility

concept, project purpose, use of

proceeds, or terms and conditions. Only

minor changes will be considered

unless otherwise provided for in this

subpart.

(e) 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 report 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 reservoir or pumping station) 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 report should be

requested.

(f) For loans exceeding $150,000, the

lender has certified its compliance with

Public Law 101–121 (Anti-lobbying

Act). 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
52288 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

employee of Congress, or an employee

of a Member of Congress in connection

with this 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.

(g) 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), (a)(12), and (e) of this

section specifically identifying any

modifications.

(h) 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.

§ 1980.864 Issuance of Lender’s

Agreement, Loan Note Guarantee, and

Assignment Guarantee Agreement.

(a) 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 Lender’s Agreement must

be executed for all loans 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) 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. The

original of the agreement will be

provided to the holder with conformed

copies to the lender and the Agency. If

the lender desires to assign a part of the

guaranteed loan to a holder, an Agency

prescribed Assignment Guarantee

Agreement will be executed for each

assigned portion.

(d) If requested by the lender, the

Agency will provide a Certificate of

Incumbency and signature and title of

the Agency official who executes the

Agency prescribed Loan Note

Guarantee, Lender’s Agreement, and

Assignment Guarantee Agreement.

(e) 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.

(f) The lender will prepare and deliver

a guaranteed loan closing report for each

loan to be guaranteed and guarantee fee

to the Agency which concurrently will

deliver the Loan Note Guarantee.

§ 1980.865 Lender’s sale or assignment of

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 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, such 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.

Should the lender know at the time the

loan application is prepared that it

plans to sell or assign any part of the

guaranteed portion, the lender will

provide this information with the

application.

(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 guaranteed 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 nonguaranteed portion of the loan only

through participation.

§§ 1980.866—1980.868 [Reserved]

§ 1980.869 Loan servicing.

(a) 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 their

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 will notify the

Agency of any violations of the loan

agreement with the borrower.

(b) The lender will require, at a

minimum, annual audited financial

statements which will be reviewed by

the lender and a copy forwarded to the

Agency with a summary evaluation by

the lender. The lender will service

delinquent loans in accordance with the

lender’s agreement The Agency may

waive the audit requirement for

financial statements for borrowers with

gross annual income of less than

$500,000.

(c) The lender must report the

outstanding principal and interest

balance on each guaranteed loan semiannually.

(d) The lender will inspect the

collateral as often as necessary to

properly service the loan.

§§ 1980.870–1980.872 [Reserved]

§ 1980.873 Replacement of loss, theft,

destruction, mutilation, or defacement of

Loan Note Guarantee or Assignment

Guarantee Agreement.

(a) 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 an

acceptable certificate of loss and an

indemnity bond.

(b) 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
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52289

requirements for replacement are as

follows:

(1) A certificate of loss properly

notarized which includes:

(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.

§ 1980.874 [Reserved]

§ 1980.875 Defaults by borrower.

(a) 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 must advise the Agency of the

meeting in the event an Agency

representative wishes to attend. The

lender will provide a summary of the

meeting and any decisions or actions

agreed upon.

(b) 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) 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.

§§ 1980.876–1980.877 [Reserved]

§ 1980.878 Repurchase of loan.

(a) 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

principal or interest. 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 their 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.
52290 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

1See 7 CFR part 180, subpart I, contained in the

7 CFR, parts 1950 to 1999, edition revised as of

January 1, 1997 and amended at [Federal Register

cites and dates to be inserted in final rule].

(c) 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 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.

§ 1980.879 Transfer of lender after

issuance of Loan Note Guarantee.

Subsequent to issuance of the Loan

Note Guarantee, the Agency may, under

extraordinary circumstances, approve

the transfer of an outstanding Loan Note

Guarantee from the present lender to

another eligible lender, provided the

new lender agrees to assume all original

loan requirements including liabilities,

servicing responsibilities, and acquiring

legal title to the unguaranteed portion of

the loan.

§1980.880 Interest rate changes after loan

closing.

(a) 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 these parties. After such a

permanent reduction, the Loan Note

Guarantee will only cover losses in

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) No increases in interest rates will

be permitted under the loan guarantee

except the normal fluctuations in

approved variable interest rate loans.

§1980.881 Liquidation.

Liquidation will occur when the

lender concludes that liquidation of the

guaranteed loan is necessary because of

one or more defaults or third party

actions that the borrower cannot, or will

not, cure or eliminate within a

reasonable period of time and the

Agency concurs with the lender; or the

Agency, at any time, independently

concludes that liquidation is necessary.

The lender, or the Agency (if it

liquidates) will proceed as

expeditiously as possible, including

giving any notices or taking any legal

actions required by the security

instruments.

(a) If a lender has made a loan

guaranteed by the Agency under

regulations in this subpart in effect prior

to [the effective date of the final rule] 1,

the lender has the option to liquidate

the loan under the provisions of this

subpart in effect on [the effective date of

the final rule] or under the provisions in

effect previous to that date. The lender

will notify the Agency in writing within

10 days after its decision to liquidate,

which regulatory provisions they choose

to use. The lender may not choose some

provisions in effect on one date and

other provisions in effect on another

date.

(b) 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 such

property. The lender must submit a

written request within 15 days of

acquiring title for this option to the

Agency, and the Agency must agree, in

writing, prior to the lender submitting

any request for estimated loss payment.

(c) 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. When the

Agency liquidates, reasonable

liquidation expenses will be assessed

against the proceeds derived from the

sale of the collateral. 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 all 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 breakdown on 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

$200,000, 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 $200,000 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) If actions are necessary to

immediately preserve and protect the

collateral, a partial liquidation plan may

be submitted and when approved, must
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52291

be followed by a complete liquidation

plan prepared by the lender.

(e) Disposition of collateral acquired

by the lender must be approved by the

Agency.

(1) There may be instances when the

lender acquires the collateral of a

borrower where the cost of liquidation

exceeds the potential recovery value of

the security. Whenever this occurs, the

lender, with the concurrence of the

National Office, may abandon the

collateral in lieu of liquidation.

(2) Sale of acquired collateral to the

borrower, borrower’s stockholders or

officers, or the lender or lender’s

stockholders or officers requires the

written concurrence of the Agency.

(f) The Agency will exercise the

option to liquidate only when 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 payments will be made

within the 60 days required but only

after all collateral has been properly

accounted for and liquidation expenses

are 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.

§1980.882 [Reserved]

§1980.883 Protective advances.

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, or flood insurance

premiums affecting the collateral

(including any other expenses necessary

to protect the collateral). Attorney fees

are not a protective advance.

(a) The Agency must approve, in

writing, all protective advances on loans

within their loan approval authority

which exceed a total cumulative

advance amount of $500 to the same

borrower. Protective advances must be

reasonable when associated with the

value of the collateral being preserved.

(b) When considering protective

advances, sound judgment must be

exercised in determining that the

additional funds advanced will actually

preserve collateral interests and

recovery is actually enhanced by

making the advance.

§1980.884 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.

§1980.885 Bankruptcy.

(a) An Agency Report of Loss form

will be used for calculating estimated

and final loss determinations.

(b) Lender’s are responsible to protect

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 its

collateral 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) In a Chapter 9 or Chapter 11

reorganization, obtaining 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) Only expenses of Chapter 11

reorganizations, or Chapter 11 or

Chapter 7 liquidations (unless the

liquidation is by the lender) authorized

by the court may be deducted from the

collateral proceeds.

(e) 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. On loans in

bankruptcy, any loss payment must be

approved by the Agency.

(f) The Agency must approve, in

advance and in writing, the lender’s

estimated liquidation expenses of

collateral in liquidation bankruptcy.

These expenses must be reasonable and

customary and not include in-house

expenses of the lender.

§§ 1980.886–1980.887 [Reserved]

§ 1980.888 Transfers and assumptions.

(a) The Agency will approve in

writing transfers and assumptions of

loans to transferees who will continue

the original purpose of the guaranteed

loan.

(1) When the transaction is to a

member of the borrower’s organization,

it will be at a price which will not result

in a loss to the lender.

(2) Transfers to eligible borrowers will

receive preference over transfers to

ineligible borrowers 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. The percentage of the

Agency’s guarantee will be based on the

amount assumed.

(5) The lender concurs in the plans for

disposition of funds in the transferor’s

debt service, reserve, and operation and

maintenance account.

(b) Transfers to 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.

(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

kind of loan being made.

(5) If the transferor is to receive a

payment for the equity, the total debt

must be assumed.

(c) Transfers to ineligible borrowers

are considered only when needed as a

method for servicing 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 are as

follows:

(1) All transfers to ineligible

borrowers will include a one-time

nonrefundable transfer fee. Transfer fees

will be collected, and payments applied,

in accordance with paragraph (d) of this

section.
52292 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules

(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 downpayment,

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 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. The lender will

obtain and analyze the credit history of

the transferee. In all transfers,

consideration will be given to obtaining

individual liability agreements from

members of the transferee organization.

(ii) The transferor may receive equity

payments 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 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’s National Office 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 guarantors) 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 guarantors 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 deposits in an

escrow account as security to meet the

determined equity requirements for the

project.

(3) The lender will issue a statement

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 any

holder and the transferor (including

guarantors) if they have 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.

(ii) Certification that the lien position

securing the guaranteed loan will be

maintained or improved, proper hazard

insurance will be continued in effect,

and all applicable Truth in Lending

requirements will be met.

(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.

§ 1980.889 Mergers.

(a) The Agency may approve mergers

or consolidations (referred to in this

section 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 set forth in

specific loan note agreements.

(3) All property can be legally

transferred to the resulting borrower.

(b) Distinguishing mergers from

transfers and assumptions. Mergers

occur when one corporation combines

with another corporation in such a way

that the first corporation ceases to exist

as a separate entity while the other

continues. In a consolidation, two or

more corporations combine to form a

new, consolidated corporation with the

original corporations 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.

§ 1980.890 Disposition of acquired

property.

(a) 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) 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.

(c) After acquiring the collateral the

lender must protect the collateral from

deterioration (weather, vandalism, etc.).

Hazard insurance in an amount

necessary to cover the fair market value

of the collateral must be maintained.

(d) The lender will prepare and

submit to the Agency a plan on the best

method of sale, keeping in mind any

prospective purchasers. Concurrence or

non-concurrence of the plan will be

made in writing to the lender. If an

existing liquidation plan addressed the

disposition of acquired property, no

further review is required unless

modification of the plan is needed.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Proposed Rules 52293

(e) Methods of liquidation.

(1) Direct sale by lender.

(2) Use of commercial broker.

(3) Public auction.

(f) Abandonment of the collateral. (1)

The primary purpose of collateral is to

afford a net return on the loan balance.

However, there will be times when

converting the collateral to cash would

result in a loss.

(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.

§§ 1980.891–1980.893 [Reserved]

§ 1980.894 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 party liable.

(a) If the lender takes title to collateral

any loss will be based on the collateral

value at the time the lender obtains title.

(b) The Report of Loss form 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) 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 estimate will be prepared and

submitted by the lender on the Report

of Loss form using the basic formula as

provided on the report except that

appraisal value will be used in lieu of

amount received from sale of collateral.

(2) The estimated loss payment shall

be applied 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) 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 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 set out

in this subpart 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) 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) Certain reasonable liquidation

costs will be allowed during the

liquidation process. The liquidation

costs will 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 procure the Agency’s

written concurrence prior to proceeding

with the proposed changes. No in-house

expenses of the lender will be allowed.

In-house expenses include, but are not

limited to, employees’ salaries, staff

lawyers, travel, and overhead.

(g) 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) 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 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) 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.

§ 1980.895 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 prorated between the Agency and the

lender in accordance with the

guaranteed percentage even if the Loan

Note Guarantee has been terminated.

§1980.896 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.

§§ 1980.897–1980.900 [Reserved]

Dated: September 24, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97–26363 Filed 10–6–97; 8:45 am]

BILLING CODE 3410–XV–U