[Federal Register Volume 70, Number 196 (Wednesday, October 12, 2005)]
[Rules and Regulations]
[Pages 59224-59229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20357]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1902


Disbursement of Funds

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Agencies are revising their disbursement of funds 
regulations. This action is necessary since existing regulations do not 
accurately reflect the current disbursement methodologies employed by 
the Agencies. The intended effect is to simplify and update the 
regulations; to eliminate reference to the obsolete Loan Disbursement 
System; clarify Federal Deposit Insurance Corporation (FDIC) and 
National Credit Union Administration (NCUA) insurance coverage; and 
eliminate reference to the now defunct Federal Savings and Loan 
Insurance Corporation (FSLIC). These amended regulations are to ensure 
the Agencies' field offices have current guidance on the disbursement 
methods available and supervised bank accounts.

EFFECTIVE DATE: October 12, 2005.

FOR FURTHER INFORMATION CONTACT: Ronald Gianella, Staff Accountant, 
Office of the Deputy Chief Financial Officer, Policy and Internal 
Review Division, U.S. Department of Agriculture, STOP 33, P.O. Box 
200011, St. Louis, Missouri 63120, telephone: (314) 457-4298.

SUPPLEMENTARY INFORMATION:

Classification

    This action is not subject to the provisions of Executive Order 
12866 since it involves only internal Agency management. This action is 
not published for prior notice and comment under the Administrative 
Procedure Act since it involves only internal Agency management and 
publication for comment is unnecessary and contrary to the public 
interest.

Programs Affected

    The Catalog of Federal Domestic Assistance programs impacted by 
this action are as follows:

10.353--National Rural Development Partnership
10.405--Farm Labor Housing Loans and Grants
10.410--Very Low to Moderate Income Housing Loans
10.411--Rural Housing Site Loans and Self-Help Housing Land Development 
Loans
10.415--Rural Rental Housing Loans
10.417--Very Low-Income Housing Repair Loans and Grants
10.420--Rural Self-Help Housing Technical Assistance
10.421--Indian Tribes and Tribal Corporation Loans
10.427--Rural Rental Assistance Payments
10.433--Rural Housing Preservation Grants
10.438--Section 538 Rural Rental Housing Guaranteed Loans
10.441--Technical and Supervisory Assistance Grants
10.442--Housing Application Packaging Grants
10.444--Direct Housing Natural Disaster Loans and Grants
10.445--Direct Housing Natural Disaster
10.446--Rural Community Development Initiative
10.760--Water and Waste Disposal Systems for Rural Communities
10.761--Technical Assistance and Training Grants
10.762--Solid Waste Management Grants
10.763--Emergency Community Water Assistance Grants
10.766--Community Facilities Loans and Grants
10.767--Intermediary Relending Program
10.768--Business and Industry Loans
10.769--Rural Business Enterprise Grants
10.770--Water and Waste Disposal Loans and Grants (Section 306C)
10.771--Rural Cooperative Development Grants
10.772--Empowerment Zones Program
10.773--Rural Business Opportunity Grants
10.775--Renewable Energy Systems and Energy Efficiency Improvements 
Program
10.854--Rural Economic Development Loans and Grants

Intergovernmental Consultation

    Programs with Catalog of Federal Domestic Assistance numbers 
10.353, 10.405, 10.411, 10.415, 10.420, 10.421, 10.427, 10.433, 10.760, 
10.763, 10.766, 10.767, 10.768, 10.769, 10.770, 10.771, 10.773, and 
10.854 are subject to the provisions of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.
    Programs with Catalog of Federal Domestic Assistance numbers 
10.410, 10.417, 10.438, 10.441, 10.442, 10.444, 10.445, 10.446, 10.761, 
10.762, 10.772, 10.775 are excluded from the scope of Executive Order 
12372.

Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule: (1) Unless 
otherwise specifically provided, 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 except as specifically 
prescribed in the rule; and (3) administrative proceedings of the 
National Appeals Division (7 CFR part 11) must be exhausted before 
litigation against the Department is instituted.

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) under the 
provisions of 44 U.S.C. Chapter 35 and were assigned OMB control number 
0575-0184 in accordance with the Paperwork Reduction Act of 1995. No 
person is required to respond to a collection of information unless it 
displays a valid OMB control number. This rule does not impose any new

[[Page 59225]]

information collection requirements from those approved by OMB.

GPEA Statement

    The Agencies are committed to compliance with GPEA, which requires 
Government agencies, in general, to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes 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 cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million or more in any 1 year. When such a statement is needed for a 
rule, Section 205 of the UMRA generally requires the agencies to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, more 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. Thus, the rule is not subject to the requirements of Sections 
202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
Subpart G, ``Environmental Program.'' The Agencies have determined that 
this final action does not constitute a major Federal action 
significantly affecting the quality of human environment, and in 
accordance with the National Environmental Policy Act of 1969, 42 
U.S.C. 4321 et seq., an Environmental Impact Statement is not required.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. In addition, 
this rule does not impose substantial direct compliance costs on State 
and local governments. Therefore, consultation with the States is not 
required.

Discussion of Final Rule

    7 CFR 1902, subpart A, is being revised to eliminate procedures 
servicing officials should follow in ordering loan and grant 
disbursements. These procedures are in 7 CFR 2018, subpart D. 7 CFR 
1902, subpart A, is being revised to clarify FDIC and NCUA insurance 
coverage and eliminate reference to the now defunct FSLIC. The 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 
abolished the insolvent FSLIC. The FDIC insures deposits in banks and 
savings associations and insures each person's share in all joint 
accounts at an institution up to $100,000. The NCUA insures deposits in 
Federal credit unions and insures each person's share in all joint 
accounts at an institution up to $100,000.
    The Farm Service Agency (FSA) disbursement policies are established 
in internal agency handbooks. While disbursements under some FSA 
programs were processed according to 7 CFR 1902, subpart A, prior to 
the USDA Reorganization Act, FSA no longer utilizes this subpart.

List of Subjects in 7 CFR Part 1902

    Accounting, banks, banking, grant programs--housing and community 
development, loan programs--agriculture, loan programs--housing and 
community development.

0
For reasons set forth in the preamble, Chapter XVIII, title 7, Code of 
Federal Regulations is amended as follows:

PART 1902--SUPERVISED BANK ACCOUNTS

0
1. The authority citation for part 1902 is revised to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 6991, et seq.; 
42 U.S.C. 1480; Reorganization Plan No. 2 of 1953 (5 U.S.C. App.).

Subpart A--Supervised Bank Accounts of Loan, Grant, and Other Funds

0
2. The title of subpart A is revised to read as set forth above.
0
3. Section 1902.1 is revised to read as follows:


Sec.  1902.1  General.

    This subpart prescribes the policies and procedures in establishing 
and using supervised bank accounts, and in placing Multi-Family Housing 
(MFH) reserve accounts in supervised bank accounts. 7 CFR part 2018, 
subpart D, provides the procedures Servicing Officials should follow in 
ordering loan and grant disbursements.
    (a) Borrowers referred to in this subpart include both loan and 
grant recipients. They are referred to as ``depositors'' in the deposit 
agreements hereinafter described. References herein and in deposit 
agreements to ``other lenders'' include lenders and grantors other than 
Rural Development.
    (b) Banks and savings associations referred to in this subpart are 
those in which deposits are insured by the FDIC.
    (c) Credit unions referred to in this subpart are those in which 
deposits are insured by the NCUA.
    (d) Financial institutions as referred to in this subpart include 
banks, savings associations, and credit unions which are covered by the 
proper insurance coverage cited in paragraphs (b) and (c) of this 
section.
    (e) Supervised bank accounts referred to in this subpart are bank, 
savings association, or credit union accounts established through 
deposit agreements entered into between the borrower, the United States 
of America acting through Rural Development, and the Financial 
Institution on Form RD 402-1, ``Deposit Agreement''.
    (f) Form RD 402-1 provides for the deposit of funds in a supervised 
bank account to ensure the performance of the borrower's obligation to 
Rural Development in connection with a loan and/or grant.
    (g) ``Interest-Bearing Deposit Agreement'' (Exhibit B of this 
subpart), provides for the deposit of loan or grant funds that are not 
required for immediate disbursement in specified interest-bearing 
deposits, and it is executed in conjunction with Form RD 402-1.
    (h) Servicing officials referred to in this instruction include 
county supervisors, district directors, local supervisors, area 
supervisors, and National Office grant program managers.
    (i) Automated systems referred to in this instruction refers to the 
loan accounting systems; e.g., Program Loan Accounting System, 
Automated Multi-Housing Accounting System, and Dedicated Loan 
Origination System, from which loan and grant disbursements are 
ordered.
    (j) This subpart includes the National Office directly servicing a 
grant recipient or recipient of cooperative agreement funds.

0
4. Section 1902.2 is revised to read as follows:


Sec.  1902.2  Policies concerning disbursement of funds.

    (a) Generally, loan and grant disbursements may be requested on an 
as needed basis, thereby reducing the need for supervised bank 
accounts. For

[[Page 59226]]

all construction loans and those loans using multiple advances, only 
the actual amount to be disbursed at loan closing will be requested 
through the automated systems. Subsequent disbursements will be ordered 
as needed. However, supervised bank accounts may be used in certain 
circumstances. For example:
    (1) When a construction loan is made and the construction is 
substantially completed, but a small amount is being withheld pending 
completion of landscaping or some similar item. In this case, funds not 
disbursed may be placed in a supervised bank account for future 
disbursement as appropriate.
    (2) When a large number of checks will be issued in the 
construction of a dwelling or other development. In such cases, loan 
and grant disbursements will be requested in accordance with 7 CFR part 
2018, subpart D as necessary, deposited in a supervised bank account, 
and disbursed as necessary to suppliers, sub-contractors, etc.
    (3) Association loan and grant funds made on a multiple advance 
basis may be deposited in a supervised bank account when required by 
State statutes or when determined necessary by the loan approval 
official.
    (4) Supervised bank accounts may be used when needed as defined in 
paragraph (a)(5) of this section to ensure the correct expenditures of 
all or a part of loan and grant funds, borrower contributions, and 
borrower income. Such accounts will be limited in amount and duration 
to the extent feasible through the prudent disbursement of funds and 
the prompt termination of the interests of Rural Development and other 
lenders when the accounts are no longer required.
    (5) When it is determined by the Servicing Official that special 
supervision is needed in the management of the borrower's finances, 
funds may be deposited in a supervised bank account. This supervisory 
technique will be used for a temporary period to help the borrower 
learn to properly manage his/her finances. Such a period will not 
exceed 1 year unless extended by the Servicing Official.
    (b) Program instructions provide information as to the type of note 
to be utilized and the method of handling advances and the interest 
accrued.
    (c) The debt instruments executed at the time of loan closing 
constitute an obligation on the part of the Government to disburse all 
funds at one time or in multiple advances, provided the funds are for 
purposes authorized by the Government at the time of loan closing. This 
obligatory commitment takes priority over any intervening liens or 
advances by other creditors, regardless of the provisions of the State 
laws involved.

0
5. Section 1902.3, is amended by revising paragraphs (a), (b) 
introductory text, and (c) to read as follows:


Sec.  1902.3  Procedures to follow in fund disbursement.

    (a) The Servicing Official will determine during loan approval the 
amount(s) of loan or grant disbursement(s)--full or partial--and will 
process the request to the appropriate automated system in accordance 
with 7 CFR part 2018, subpart D.
    (b) When Treasury check(s) are delivered to the Servicing Official, 
the Servicing Official will make sure that the name of the borrower and 
the amount(s) of check(s) coincide with the request on file. The 
Servicing Official should be sure that the check is properly endorsed 
to ensure payment to the intended recipient. Examples of such 
restrictive endorsements are:
* * * * *
    (c) When necessary, and only under the circumstances listed in 
Sec.  1902.2, the Servicing Official will establish, or cause to be 
established, a supervised bank account. Funds deposited in a supervised 
bank account are to be recorded and accounted for on Form RD 402-2, 
``Statement of Deposits and Withdrawals''.

0
6. Section 1902.4 is amended by revising paragraphs (a)(3), (a)(5), and 
(b)(1) to read as follows:


Sec.  1902.4  Establishing MFH reserve accounts in a supervised bank 
account.

    (a) * * *
    (3) Interest bearing. The reserve account funds are encouraged to 
be maintained in an interest-bearing account. The ``Interest-Bearing 
Deposit Agreement'' set out in Exhibit B of this subpart is not 
required to be used for reserve accounts.
* * * * *
    (5) Financial institutions. The reserve account must be maintained 
in authorized financial institutions set out in subpart C of part 1930 
of this chapter; e.g., banks, savings associations, credit unions, 
brokerage firms, mutual funds. Generally, any financial institution may 
be used provided invested or deposited funds are insured to protect 
against theft and dishonesty. The reserve account funds need not be 
Federally insured, but must be otherwise covered by non-Federal 
insurance against theft and dishonesty.
* * * * *
    (b) * * *
    (1) Deposits. Generally, Rural Development will not require the 
review or approval of deposits or the use of Form RD 402-1 or 402-2.
* * * * *
    7. Section 1902.6, is amended by revising paragraphs (a), (b)(3), 
(c), (d), (e), and (f) to read as follows:


Sec.  1902.6  Establishing supervised bank accounts.

    (a) Each borrower will be given an opportunity to choose the 
financial institution in which the supervised bank account will be 
established, provided the financial institution is a member of the FDIC 
or NCUA, as applicable.
    (b) * * *
    (3) An agreement is reached with the financial institution 
regarding the place where the counter-signature will be on the checks.
    (c) When possible, Servicing Officials will make arrangements with 
financial institutions to waive service charges in connection with 
supervised bank accounts. However, there is no objection to the payment 
by the borrower of a reasonable charge for such service.
    (d) For each borrower, if the amount of any loan and grant funds, 
plus any borrower contributions and funds from other sources to be 
deposited in the supervised bank account will exceed $100,000, the 
financial institution will be required to pledge collateral for the 
excess over $100,000 before the deposit is made (see Sec.  1902.7 of 
this subpart). If the supervised bank account is a joint account, any 
amount over the FDIC- or NCUA-insured limit must be collateralized.
    (e) Only one supervised bank account will be established for any 
borrower regardless of the amount or source of funds, except for Rural 
Rental Housing loans where separate accounts will be established for 
each project.
    (f) When a supervised bank account is established, an original and 
two copies of the applicable Deposit Agreement and the Interest-Bearing 
Deposit Agreement (Exhibit B of this subpart), when applicable, will be 
executed by the borrower, the financial institution, and a Servicing 
Office employee. The original will be retained in the borrower's case 
file, one executed copy will be delivered to the financial institution 
and one executed copy to the borrower. An extra copy of the Interest-
Bearing Deposit Agreement, when applicable, will be prepared and 
attached to the certificate, passbook, or other evidence of deposit 
representing the interest-bearing deposit.
* * * * *

0
8. Section 1902.7, is amended by revising paragraphs (a), (b) 
introductory

[[Page 59227]]

text, (b)(1), (b)(2), (c), (d), (e), and (f) to read as follows:


Sec.  1902.7  Pledging collateral for deposit of funds in supervised 
bank accounts.

    (a) Funds in excess of $100,000 per financial institution, 
deposited for borrowers in supervised bank accounts, must be secured by 
pledging acceptable collateral with the Federal Reserve Bank (FRB) in 
an amount not less than the excess. If the supervised bank account is a 
joint account, any amount over the FDIC- or NCUA-insured limit must be 
collateralized.
    (b) As soon as it is determined that the loan will be approved and 
the applicant has selected or tentatively selected a financial 
institution for the supervised bank account, the Servicing Official 
will contact the financial institution to determine:
    (1) That the financial institution selected is insured by the FDIC 
(banks and savings associations) or NCUA (credit unions).
    (2) Whether the financial institution is willing to pledge 
collateral with the FRB under 31 CFR part 202 (Treasury Circular 176) 
to the extent necessary to secure the amount of funds being deposited 
in excess of the FDIC or NCUA insurance limit.
* * * * *
    (c) If the financial institution agrees to pledge collateral, the 
Servicing Official should complete RD Form Letter 1902-A-2, 
``Designated Financial Institution--Collateral Pledge'', in an original 
and two copies: The original for the National Office, Policy and 
Analysis Division; the first copy for the State Office; and the second 
copy for the Servicing Official. The Rural Development Form Letter 
1902-A-2 should be forwarded to the National Office, Policy and 
Analysis Division, at least 30 days before the date of loan closing.
    (d) The National Office, Policy and Analysis Division, will arrange 
for the financial institution under its designation as a depository and 
financial agent of the U.S. Government to pledge the requested 
collateral.
    (e) If, two days before loan closing, the local Rural Development 
office which requested the collateral has not received notification 
from the National Office, Policy and Analysis Division, that collateral 
has been pledged, contact should be made with the financial institution 
to ascertain whether they have pledged collateral with their local FRB 
under 31 CFR part 202 (Treasury Circular 176). If the financial 
institution has pledged collateral, the local Rural Development office 
should contact the National Office, Policy and Analysis Division, who 
will follow-up with the local FRB concerning the collateral.
    (f) When the amount of deposit in the supervised bank account has 
been reduced to a point where the financial institution desires part or 
all of the collateral released, it should contact the National Office, 
Policy and Analysis Division. The local Rural Development office will 
be contacted for release authorization. The authorization release will 
be made through the local FRB, with notification to the financial 
institution. The local Rural Development office may also request 
release through the National Office, Policy and Analysis Division.

0
9. Section 1902.8, is added to read as follows:


Sec.  1902.8  Authority to establish and administer supervised bank 
accounts.

    Servicing Officials are authorized to establish supervised bank 
accounts, deposit loan checks and other funds, countersign checks, 
close accounts, and execute all forms in connection with supervised 
bank account transactions and redelegate this authority to a person 
under their supervision who is considered capable of exercising such 
authority. State Directors will make written demand upon the bank for 
withdrawals outlined in Sec.  1902.16.

0
10. Section 1902.9, is amended by revising paragraphs (a)(1), (a)(2), 
(a)(3), (a)(5), (b) introductory text, and (b)(2) to read as follows:


Sec.  1902.9  Deposits.

    (a) * * *
    (1) Checks made payable solely to the Federal Government or any 
Agency thereof, and a joint check when the Treasurer of the United 
States is a joint payee, may not be deposited in a supervised bank 
account.
    (2) Rural Development personnel will accept funds for deposit in a 
borrower's supervised bank account ONLY in the form of: A check or 
money order endorsed by the borrower ``For Deposit Only;'' a check 
drawn to the order of the financial institution in which the funds are 
to be deposited; a loan check drawn on the U.S. Treasury; or a Rural 
Development electronic funds transfer disbursement.
    (i) A joint check that is payable to the borrower and Rural 
Development will be endorsed by the Servicing Official as provided in 7 
CFR part 1951, subpart B, Exhibit B, section 4.
    (ii) Ordinarily, when deposits are made from funds which are 
received as the result of consent or subordination agreements or 
assignments of income, the check should be drawn to the order of the 
financial institution in which the supervised bank account is 
established or jointly to the order of the borrower and Rural 
Development. All such checks should be delivered or mailed to the 
Servicing Office.
    (3) If direct or insured loan funds or borrower contributions are 
to be deposited in a supervised bank account, such funds will be 
deposited on the date of loan closing after it has been determined that 
the loan can be closed. However, if it is impossible to deposit the 
funds on the day the loan is closed due to reasons such as distance 
from the financial institution or banking hours, the funds will be 
deposited on the first banking day following the date of loan closing.
* * * * *
    (5) When funds from any source in the form of cash, check, or money 
order are deposited by Rural Development personnel in a supervised bank 
account, a deposit slip will be prepared in an original and two copies 
with distribution as follows: Original to the financial institution, 
one copy to the borrower, and one copy for the borrower's case folder. 
The name of the borrower, the sources of funds, ``Subject to Rural 
Development Countersignature'' and, if applicable, the account number, 
will be entered on each deposit slip.
* * * * *
    (b) Deposits by borrowers. Funds in the form of cash, check, or 
money order may be deposited in the supervised bank account by the 
borrower if authorized by Rural Development, provided the financial 
institution has agreed that when a deposit is made to the account by 
other than Rural Development personnel, the financial institution will 
promptly deliver or mail a copy of the deposit slip to the Rural 
Development Servicing Office.
* * * * *
    (2) Funds other than loan or grant funds may be deposited by the 
borrower in those exceptional instances where an agreement is reached 
between the Servicing Official and the borrower, whereby the borrower 
will make deposits of income from any source directly into the 
supervised bank account. In such instances the borrower will be 
instructed to prepare the deposit slip in the manner described in Sec.  
1902.9 (a)(5) of this subpart.

0
11. Section 1902.10, is amended by revising paragraph (a), revising 
paragraphs (d)(2) through (d)(5), and removing paragraph (d)(6) to read 
as follows:

[[Page 59228]]

Sec.  1902.10  Withdrawals.

    (a) The Servicing Official will not countersign checks on the 
supervised bank account for the use of funds unless the funds deposited 
by the borrower from other sources were cash deposits, checks which the 
Servicing Official knows to be good, or deposited checks which have 
cleared.
* * * * *
    (d) * * *
    (2) Ordinarily, a check will be countersigned before it is 
delivered to the payee. However, in justifiable circumstances, such as 
when excessive travel on the part of the borrower or Servicing Official 
would be involved, or purchase would be prevented, and the borrower can 
be relied upon to select goods and services in accordance with the 
plans, a check may be delivered to the payee by the borrower before 
being countersigned.
    (i) When a check is to be delivered to the payee before being 
countersigned, the Servicing Official must make it clear to the 
borrower and to the payee, if possible, that the check will be 
countersigned only if the quantity and quality of items purchased are 
in accordance with approved plans.
    (ii) Checks delivered to the payee before counter-signature will 
bear the following legend in addition to the legend for 
countersignature: Valid only upon countersignature of Rural 
Development.''
    (iii) The check must be presented by the payee or a representative 
to the Rural Development Servicing Office for the required 
countersignature.
    (iv) Such check must be accompanied by a bill of sale, invoice, or 
receipt signed by the borrower identifying the nature and cost of goods 
or services purchased, or similar information must be indicated on the 
check.
    (3) For real estate loans or grants, whether the check is delivered 
to the payee before or after countersignature, the number and date of 
the check will be inserted on all bills of sale, invoices, receipts, 
and itemized statements for materials, equipment, and services.
    (4) Bills of sale, invoices, receipts, or itemized statements may 
be returned to the borrower with the canceled check for the payment of 
the bill.
    (5) Checks to be drawn on a supervised bank account will bear the 
legend:


<bullet> ``Countersigned,'' not as co-maker or endorser.
-----------------------------------------------------------------------

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(Title)
Rural Development

0
12. Section 1902.11 is revised to read as follows:


Sec.  1902.11  Servicing Office records.

    A record of funds deposited in a supervised bank account will be 
maintained on Form RD 402-2 in accordance with the Forms Manual Insert. 
The record of funds provided for operating purposes by another creditor 
or grantor will be on a separate Form RD 402-2 so that they can be 
clearly identified.

0
13. Section 1902.14 is revised to read as follows:


Sec.  1902.14  Reconciliation of accounts.

    (a) A checking account statement will be obtained periodically in 
accordance with established practices in the area. If the checking 
statement does not include sufficient information to reconcile the 
account (the name of the payee or the check number and the amount of 
each check; i.e., a negotiable demand draft drawn on a financial 
institution), the original cancelled check or either a copy or other 
reasonable facsimile of the cancelled check must be provided to the 
Servicing Office with the statement. Checking account statements will 
be reconciled promptly with Servicing Office records. The person making 
the reconciliation will initial the record and indicate the date of the 
action.
    (b) All checking account statements and, if necessary, original 
cancelled checks or either a copy or other reasonable facsimile of the 
cancelled checks will be forwarded immediately to the borrower when 
bank statements and Servicing Office records are in agreement. If a 
transmittal is used, Form RD 140-4, ``Transmittal of Documents'', is 
prescribed for that purpose.
    (c) If the financial institution did not return the original 
cancelled check(s) to the Agency with the statements, and Rural 
Development has a need for the original cancelled check(s), the 
financial institution, upon request by the Agency, will furnish to the 
Agency the requested original cancelled check(s) or a certified copy or 
other reasonable certified facsimile of the cancelled check(s) and will 
provide this service to Rural Development with no fees being assessed 
the Agency or the Depositor's account for the service.

0
14. Section 1902.15 is amended by revising paragraph (b), removing 
paragraph (c), redesignating paragraph (d) as paragraph (c) and 
revising newly designated paragraphs (c)(1)(i) introductory text, 
(c)(2) introductory text, (c)(2)(iii), and (c)(4) to read as follows:


Sec.  1902.15  Closing accounts.

* * * * *
    (b) For all loan accounts, after completion of authorized loan 
funds expenditures, and after promptly refunding any remaining 
unexpended loan funds on the borrower's loan account with Rural 
Development or another lender, as appropriate.
    (c) * * *
    (1) * * *
    (i) Ordinarily, upon notice of the death of a borrower, the 
Servicing Official will request the State Director to make demand upon 
the bank for the balance on deposit and apply all the balance after 
payment of any bank charges to the borrower's Rural Development 
indebtedness. When the State Director approves continuation with a 
survivor, the supervised bank account of a deceased borrower may be 
continued with a remaining joint debtor who is liable for the loan and 
agrees to use the unexpended funds as planned, provided:
* * * * *
    (2) Borrowers in default. Whenever it is impossible or impractical 
to obtain a signed check from a borrower whose supervised bank account 
is to be closed, the Servicing Official will request the State Director 
to make demand upon the financial institution for the balance on 
deposit in the borrower's supervised bank account for application as 
appropriate:
* * * * *
    (iii) For the return of Rural Development grant funds in accordance 
with 7 CFR part 1951, subpart B or
* * * * *
    (4) Paid up borrowers. A paid-up borrower is one who has a balance 
remaining in the supervised bank account and has repaid the entire 
indebtedness to Rural Development and has properly expended all funds 
advanced by other lenders. In such cases the Servicing Official will:
    (i) Notify the borrower in writing that the interests in the 
account of Rural Development have been terminated, and
    (ii) Inform the borrower of the balance remaining in the supervised 
bank account.

0
15. Section 1902.50 is revised to read as follows:


Sec.  1902.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the OMB and have been assigned OMB 
Control Number 0575-0158.

0
16. Exhibit B of this subpart is amended by revising the prefix for the

[[Page 59229]]

date from ``19'' to be ``20'' every place it is mentioned.

    Dated: September 16, 2005.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 05-20357 Filed 10-11-05; 8:45 am]
BILLING CODE 3410-XV-P