[Federal Register Volume 59, Number 61 (Wednesday, March 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7545]


[[Page Unknown]]

[Federal Register: March 30, 1994]


                                                    VOL. 59, NO. 61

                                          Wednesday, March 30, 1994
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DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Part 1980

RIN 0575-AB70

 

Removal of the Prohibition Against Charging Interest on Interest 
on FmHA Guaranteed Loans

AGENCY: Farmers Home Administration, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: Farmers Home Administration (FmHA) proposes to amend its 
guaranteed farmer programs loan making and servicing regulations to 
remove the restriction against lenders charging interest on interest 
when restructuring loans. The intended effect is to eliminate barriers 
which prevent lenders from restructuring loans of delinquent guaranteed 
borrowers.

DATES: Written comments must be submitted on or before April 14, 1994.

ADDRESSES: Submit written comments, in duplicate, to the Office of the 
Chief, Regulations Analysis and Control Branch, Farmers Home 
Administration, USDA, room 6348, South Agriculture Building, 14th 
Street and Independence Avenue SW., Washington, DC 20250-0700. All 
written comments made pursuant to this notice will be available for 
public inspection during regular working hours at the above address.

FOR FURTHER INFORMATION CONTACT: Steven K. Ford, Senior Loan Officer, 
Farmer Programs Loan Making Division, Farmers Home Administration, 
USDA, South Agriculture Building, room 5424, 14th and Independence 
Avenue, SW., Washington, DC. 20250-0700, Telephone (202) 690-0451.

SUPPLEMENTARY INFORMATION:

Classification

    We are issuing this proposed rule in conformance with Executive 
Order 12866, and the Office of Management and Budget (OMB) has 
determined that it is a ``significant regulatory action.'' Based on 
information compiled by the Department, OMB has determined that this 
proposed rule: (1) Would alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or rights and obligations of 
recipients thereof; and (2) is a significant public policy issue as 
related to the direction of the guaranteed loan program.

Intergovernmental Consultation

    1. For the reasons set forth in the final rule related to notice 7 
CFR part 3015, subpart V (48 FR 29115, June 24, 1983) and FmHA 
Instruction 1940-J, ``Intergovernmental Review of Farmers Home 
Administration Programs and Activities'' (December 23, 1983), Farm 
Ownership Loans, Farm Operating Loans, and Emergency Loans are excluded 
from the scope of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials.
    2. The Soil and Water Loan Program is subject to the provisions of 
Executive Order 12372 and FmHA Instruction 1940-J.

Programs Affected

    These changes affect the following FmHA programs as listed in the 
Catalog of Federal Domestic Assistance:

10.406--Farm Operating Loans.
10.407--Farm Ownership Loans.
10.416--Soil and Water Loans.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It is the determination of FmHA 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, an Environmental Impact Statement is not required.

Civil Justice Reform

    This document has been reviewed in accordance with Executive Order 
(E.O.) 12778. It is the determination of FmHA that this action does not 
unduly burden the Federal Court System in that it meets all applicable 
standards provided in section 2 of the Executive Order.

Paperwork Reduction Act

    The information collection requirements contained in these 
regulations have been approved by the Office of Management and Budget 
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been 
assigned OMB control number 0575-0024 in accordance with the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not 
revise or impose any new information collection requirement from those 
approved by OMB.

Discussion of Proposed Rule

    It is the policy of this Department that rules relating to public 
property, loans, grants, benefits, or contracts shall be published for 
comment not withstanding the exemption of 5 U.S.C. 553 with respect to 
such rules. FmHA is publishing this proposed rule with a 15-day comment 
period. This proposed rule relieves the restriction prohibiting lenders 
from charging interest on interest when restructuring guaranteed Farmer 
Programs loans. Due to the flooding in the Midwest and the drought in 
the Southeast, several farmers have experienced substantial reduction 
in income and will be unable to make their annual payments on 
Guaranteed loans. By permitting lenders to capitalize interest when 
restructuring these loans, the loans will be more profitable and 
lenders will be less resistant to rescheduling or reamortizing these 
loans. This will allow the farmers to continue their operation and 
avoid liquidation. Therefore, the Agency has concluded that the need to 
provide immediate assistance to farmers who have suffered severe 
production and physical losses as a result of natural disasters also 
justifies the shortened comment period under 5 U.S.C. 553 (d).
    Lenders participating in the Guaranteed Loan Program have been 
reluctant to restructure the loans of delinquent guaranteed borrowers 
because of restrictive regulatory requirements. FmHA requires lenders 
to set aside the accrued interest portion of loans that are being 
restructured. Interest is only accrued on the outstanding principal.
    The restriction prohibiting lenders from charging interest on 
interest was originally included in the regulations to make the 
Guaranteed Program consistent with the Direct loan program. In the 
past, FmHA could not capitalize interest that was not more than 90 days 
past due. Due to the passage of the Food, Agriculture, Conservation and 
Trade Act of 1990 (Pub. L. 101-624), this is no longer a restriction 
for Direct loans. The restriction, therefore, is unique to the 
Guaranteed program and should be removed.
    This practice also is contrary to standard industry practice. 
Lenders normally capitalize the outstanding interest portion of the 
loan and reschedule or reamortize the payments based on the new 
principal amount. FmHA's restriction on capitalizing interest 
necessitates a unique treatment for guaranteed loans with additional 
bookkeeping efforts. It also reduces the lender's return on the 
guaranteed loans.
    FmHA proposes to remove the restriction prohibiting lenders from 
capitalizing interest on guaranteed loans when restructuring. By 
removing this restriction, lenders will no longer be required to 
maintain a separate accounting system for the accrued interest when a 
delinquent loan is restructured. This separate system is 
administratively expensive for lenders to maintain; therefore, lenders 
have been reluctant to restructure loans.
    By removing this restriction, FmHA will pay an additional amount in 
loss claims in cases where the lender has restructured the loan and 
capitalized the interest. FmHA estimates that the increase in loss 
payments should be limited to 1 percent of the current loss payment 
level.
    Lenders will also be able to use their standard notes without 
modification. Some lenders customarily charge borrowers interest on 
delinquent interest as a late payment fee. FmHA requires this clause to 
be removed by modifying the note or attaching an allonge. The proposed 
change will permit lenders to charge late payment fees that are 
customary for their non-guaranteed loans; however, it will not change 7 
CFR part 1980, subpart A, Section 1980.22 which prohibits these charges 
from being covered by the guarantee. Any other capitalization of 
interest when restructuring will be permitted, and will be covered by 
the guarantee, providing the interest and other charges do not exceed 
those charged to the lenders' non-guaranteed farm customers.
    This change will only apply to Farmer Program Guaranteed loans, 
since it is intended to respond to farmers' reduction in income and 
agricultural lenders reluctance to restructure guaranteed loans without 
capitalizing interest. Similar hardships have not been identified in 
the Housing or Business and Industry programs.
    This revision will also reduce the difference in the profitability 
of guaranteed loans compared with the lenders' non-guaranteed loans. 
Lenders will be more willing to restructure the loans of delinquent 
guaranteed borrowers instead of liquidating the security. While some 
borrowers will pay more after their loans are restructured, many more 
borrowers will be able to continue farming with restructured loans.
    The revision will apply to new loans made as well as existing 
guaranteed loans. Forms FmHA 449-34, ``Loan Note Guarantee,'' FmHA 
1980-27, ``Contract of Guarantee (Line of Credit),'' and FmHA 1980-38, 
``Agreement for Participation in Farmer Programs Guaranteed Loan 
Programs of the United States Government,'' executed for previous 
loans, contain prohibitions against charging interest on interest. 
Since removing this restriction will be to the lenders' benefit, FmHA 
proposes to permit lenders to capitalize interest when restructuring 
guaranteed loans. Thus, when FmHA concurs with the restructuring plan, 
the County Supervisor will provide the lender with an attachment to 
these forms modifying the restriction in cases of restructuring within 
statutory loan limits, and setting any new principal and guaranteed 
amounts. These forms will be amended accordingly for new guaranteed 
loans, but an attachment will be needed at restructuring to identify 
any new principal and guaranteed amounts which exceed the amounts 
listed on the guaranteed loan documents.
    The Agency also proposes to eliminate the requirement that 
principal payments be made which are at least equal to the amount of 
the depreciation of the security. It is unrealistic to expect that a 
farmer in need of restructuring could make such a principal payment. 
For example, if a loan with a $100,000 outstanding balance, and 
$400,000 of security is restructured, the borrower currently must 
reduce the principal by $40,000 (assuming the security depreciates at 
10 percent per year). This requirement has proven to be a hindrance to 
necessary loan restructuring.
    The principal reduction requirement was originally adopted along 
with the requirement that Guaranteed loans be fully secured to be 
restructured. In 1989, FmHA removed the requirement that loans be 
secured to receive restructuring. There may be situations where the 
loan will not be fully secured; however, the risk to the agency is 
minimized by other requirements for restructuring, such as 
demonstrating a feasible plan, and restricting the number of years over 
which a loan may be rescheduled/reamortized.

List of Subjects in 7 CFR Part 1980

    Agriculture, Loan programs--Agriculture, Loan Programs--Business 
and Industry--Rural development assistance, Loan programs--Housing and 
Community development.

    Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
proposed to be amended as follows:

PART 1980--GENERAL

    1. The authority citation for part 1980 continues to read as 
follows:

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 
2.23 and 2.70.

Subpart A--General

    2. Section 1980.11 is revised to read as follows:


Sec. 1980.11  Full faith and credit.

    The Loan Note Guarantee and Contract of Guarantee constitute 
obligations supported by the full faith and credit of the United States 
and are incontestable except for fraud or misrepresentation of which 
the lender or holder has actual knowledge at the time it becomes such 
lender or holder or which lender or holder participates in or condones. 
A note which provides for the payment of interest on interest shall not 
be guaranteed. Any Loan Note Guarantee, Contract of Guarantee or 
Assignment Guarantee Agreement attached to or relating to a note which 
provides for payment of interest on interest is void. Except in the 
case of Farmer Program loans, a note which provides for the 
capitalization of interest as a result of restructuring the loan and 
not exceeding statutory loan limits or as a customary late payment fee 
may be guaranteed, and any Loan Note Guarantee, Contract of Guarantee 
or Assignment Guarantee Agreement attached to or relating to such note 
is not void. The guarantee and right to require purchase will be 
directly enforceable by holder notwithstanding any fraud or 
misrepresentation by the lender or any unenforceability of the Loan 
Note Guarantee by the lender. The Loan Note Guarantee or Contract of 
Guarantee will be unenforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, negligent servicing or failure 
to obtain the required security regardless of the time at which FmHA 
acquires knowledge of the foregoing. Any losses occasioned will be 
unenforceable by the lender to the extent that loan funds are used for 
purposes other than those specifically approved by FmHA in its Form 
FmHA 1980-15. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes not only the concept of a failure to act but also not acting 
in a timely manner or acting in a manner contrary to the manner in 
which a reasonably prudent lender would act up to the time of loan 
maturity or until a final loss is paid. The Loan Note Guarantee or 
Assignment Guarantee Agreement in the hands of a holder shall not cover 
interest accruing 90 days after the holder has demanded repurchase by 
the lender, nor shall the Loan Note Guarantee or Assignment Guarantee 
Agreement in the hands of a holder cover interest accruing 90 days 
after the lender or FmHA has requested the holder to surrender the 
evidence of debt for repurchase.

    3. Section 1980.20 (a) introductory text is revised to read as 
follows:


Sec. 1980.20  Loan guarantee limits.

    (a) Lenders and applicants will propose the percentage of 
guarantee. Lenders and applicants will be advised in writing on Form 
FmHA 449-14 by FmHA of any percentage of guarantee less than proposed 
by the lender and applicant, and the reasons therefore. (See 
Sec. 1980.80 of this subpart regarding appeals.) The maximum percentage 
of guarantee (as opposed to the maximum loss covered by the guarantee) 
on a Business and Industrial loan is defined in Sec. 1980.420 of 
subpart E of this part. The maximum percentage of guarantee for DARBE 
guaranteed loans in excess of $2,000,000 will be calculated so that the 
guaranteed portion of the principal amount of the loan cannot exceed 
$2,000,000. The maximum percentage of guarantee for all other loans 
covered by this section will be 90 percent. Also, except in regards to 
D&D and DARBE guaranteed loans (see subpart E of this part) or as 
modified for Farmer Programs guaranteed loans (see subpart B of this 
part), the maximum loss covered by Form FmHA 449-34 or Form FmHA 1980-
27 can never exceed the lesser of:
* * * * *
    4. Section 1980.83 (b) is amended by adding two new entries at the 
end of the table to read as follows:


Sec. 1980.83  FmHA Forms.

* * * * *
    (b) * * *
FmHA 

------------------------------------------------------------------------
 Form No.           Title of form               Purpose and code\1\     
------------------------------------------------------------------------
1980-84...  Modification of New Contract   Used to permit capitalization
             Relating to Farmer Programs    of interest. (2)            
             Guaranteed Loan/Line of                                    
             Credit.                                                    
1980-85...  Modification of Existing       Used to permit capitalization
             Contract Relating to Farmer    of interest. (2)            
             Programs Guaranteed Loan/                                  
             Line of Credit.                                            
------------------------------------------------------------------------
\1\Code: *** (2) FmHA and lender use, ***                               

    5. Appendix A to Subpart A is revised to read as follows:

Appendix A to Subpart A

USDA-FmHA
    Form FmHA 449-34
    (Rev. 4-94)
    Type of Loan: __________

Loan Note Guarantee

    Applicable 7 C.F.R. Part 1980

    Subpart
----------------------------------------------------------------------
Borrower
----------------------------------------------------------------------
Lender
----------------------------------------------------------------------
Lender's Address
----------------------------------------------------------------------
State
----------------------------------------------------------------------
County
----------------------------------------------------------------------
Date of Note
----------------------------------------------------------------------
FmHA Loan Identification Number
----------------------------------------------------------------------
Lender's IRS ID Tax Number
----------------------------------------------------------------------
Principal Amount of Loan
----------------------------------------------------------------------
The guaranteed portion of the loan is $__________ which is__________ 
(__________%) percent of a loan principal. The principal amount of 
loan is evidenced by ____________ note(s) includes bonds as 
appropriate) described below. The guaranteed portion of each note is 
indicated below. This instrument is attached to note __________ in 
the face amount of $________ and is number ________ of ________.

------------------------------------------------------------------------
                                          Percent                       
 Lender's identifying                    of total                       
         No.              Face amount      face      Amount guaranteed  
                                          amount                        
------------------------------------------------------------------------
                       $                        %  $                    
                                                                        
------------------------------------------------------------------------
    Total              $________ 100%              $________            
------------------------------------------------------------------------

In consideration of the making of the subject loan by the above 
named Lender, the United States of America, acting through the 
Farmers Home Administration of the United States Department of 
Agriculture (herein called ``FmHA''), pursuant to the Consolidated 
Farm and Rural Development Act (7 U.S.C. 1921 et. seq.), the 
Emergency Livestock Credit Act of 1974 (7 U.S.C. note preceding 1961 
P.L. 93-357 as amended), the Emergency Agriculture, Credit 
Adjustment Act of 1978 (7 U.S.C. note preceding 1961 P.L. 93-357 as 
amended), the Emergency Agriculture, Credit Adjustment Act of 1978 
(7 U.S.C. note preceding 1921, P.L. 95-334, or Title V of the 
Housing Act of 1949 (42 U.S.C. 1471 et. seq.) does hereby agree that 
in accordance with and subject to the conditions and requirements 
herein, it will pay to:

    A. Any Holder 100 percent of any loss sustained by such Holder 
on the guaranteed portion and on interest due (including any loan 
subsidy) on such portion and any capitalized interest on such 
portion resulting from the restructuring of a Guaranteed Farmer 
Programs loan and not exceeding statutory loan limits.
    B. The Lender the lesser of 1. or 2. below:

    1. Any loss sustained by such Lender on the guaranteed portion 
including:
    a. Principal and interest indebtedness as evidenced by said 
note(s) or by assumption agreement(s), and
    b. Any loan subsidy due and owing, and
    c. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with 
FmHA's authorization, including but not limited to, advances for 
taxes, annual assessments, any ground rents, and hazard or flood 
insurance premiums affecting the collateral, or
    d. and, Capitalized interest on such portion resulting from the 
restructuring of a Guaranteed Farmer Programs loan and not exceeding 
statutory loan limits, or
    2. The guaranteed principal advanced to or assumed by the 
Borrower under said note(s) or assumption agreement(s) and any 
interest due (including any loan subsidy) thereon and any 
capitalized interest resulting from the restructuring of a 
Guaranteed Farmer Programs loan and not exceeding statutory loan 
limits.
    If FmHA conducts the liquidation of the loan, loss occasioned to 
a Lender by accruing interest (including any loan subsidy) after the 
date FmHA accepts responsibility for liquidation will not be covered 
by this Loan Note Guarantee. If Lender conducts the liquidation of 
the loan accruing interest (including any loan subsidy) shall be 
covered by this Loan Note Guarantee to date of final settlement when 
the Lender conducts the liquidation expeditiously in accordance with 
the liquidation plan approved by FmHA.

Definition of Holder

    The Holder is the person or organization other than the Lender 
who holds all or part of the guaranteed portion of the loan with no 
servicing responsibilities. Holders are prohibited from obtaining 
any part(s) of the Guaranteed portion of the loan with proceeds from 
any obligation, the interest on which is excludable from income, 
under Section 103 of the Internal Revenue Code of 1954, as amended 
(IRC). When the Lender assigns a part(s) of the guaranteed loan to 
an assignee, the assignee becomes a Holder only when Form FmHA 449-
36, ``Assignment Guarantee Agreement,'' is used.

Definition of Lender

    The Lender is the person or organization making and servicing 
the loan which is guaranteed under the provisions of the applicable 
Subpart 7 CFR of Part 1980. The Lender is also the party requesting 
a loan guarantee.

Conditions of Guarantee

1. Loan Servicing

    Lender will be responsible for servicing the entire loan, and 
Lender will remain mortgagee and/or secured party of record not 
withstanding the fact that another party may hold a portion of the 
loan. When multiple notes are used to evidence a loan, Lender will 
structure repayments as provided in the loan agreement. In the case 
of Farm Ownership, Soil and Water, or Operating Loans, the Lender 
agrees that if liquidation of the account becomes imminent, the 
Lender will consider the Borrower for an Interest Rate Buydown under 
Exhibit C of Subpart B of 7 CFR, Part 1980, and request a 
determination of the Borrower's eligibility by FmHA. The Lender may 
not initiate foreclose action on the loan until 60 days after a 
determination has been made with respect to the eligibility of the 
Borrower to participate in the Interest Rate Buydown Program.

2. Priorities

    The entire loan will be secured by the same security with equal 
lien priority for the guaranteed and unguaranteed portions of the 
loan. The unguaranteed portion of the loan will not be paid first 
nor given any preference or priority over the guaranteed portion.

3. Full Faith and Credit

    The Loan Note Guarantee constitutes an obligation supported by 
the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which Lender or any Holder 
has actual knowledge at the time it became such Lender or Holder or 
which Lender or any Holder participates in or condones. If the note 
to which this is attached or relates provides for the payment of 
interest on interest, then this Loan Note Guarantee is void. 
However, in the case of the Farmer Programs loans, the 
capitalization of interest when restructuring loans and the charging 
of customary late fees will not void this Loan Note Guarantee. In 
addition, the Loan Note Guarantee will be unenforceable by Lender to 
the extent any loss is occasioned by the violation of usury laws, 
negligent servicing, or failure to obtain the required security 
regardless of the time at which FmHA acquires knowledge of the 
foregoing. Any losses occasioned will be unenforceable to the extent 
that loan funds are used for purposes other than those specifically 
approved by FmHA in its Conditional Commitment for Guarantee. 
Negligent servicing is defined as the failure to perform those 
services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The 
term includes not only the concept of a failure to act but also not 
acting in a timely manner or acting in a manner contrary to the 
manner in which a reasonably prudent lender would act up to the time 
of loan maturity or until a final loss is paid.

4. Rights and Liabilities

    The guarantee and right to require purchase will be directly 
enforceable by Holder notwithstanding any fraud or misrepresentation 
by Lender or any unenforceability of this Loan Note Guarantee by 
Lender. Nothing contained herein will constitute any waiver by FmHA 
of any rights it possesses against the Lender. Lender will be liable 
for and will promptly pay to FmFA any payment made by FmHA to Holder 
which if such Lender had held the guaranteed portion of the loan, 
FmHA would not be required to make.

5. Payments

    Lender will receive all payments of principal, or interest, and 
any loan subsidy on account of the entire loan and will promptly 
remit to Holder(s) its pro rata share thereof determined according 
to its respective interest in the loan, less only Lender's servicing 
fee.

6. Protective Advances

    Protective advances made by Lender pursuant to the regulations 
will be guaranteed against a percentage of loss to the same extent 
as provided in this Loan Note Guarantee notwithstanding the 
guaranteed portion of the loan that is held by another.

7. Repurchase by Lender

    The Lender has the option to repurchase the unpaid guaranteed 
portion of the loan from the Holder(s) within 30 days of written 
demand by the Holder(s) when: (a) the borrower is in default not 
less than 60 days on principal or interest due on the loan or (b) 
the Lender has failed to remit to the Holder(s) its pro rate share 
of any payment made by the borrower or any loan subsidy within 30 
days of its receipt thereof. The repurchase by the Lender will be 
for an amount equal to the unpaid guaranteed portion of principal 
and accured interest (including any loan subsidy) less the Lender's 
servicing fee. The Loan Note Guarantee will not cover the note 
interest to the Holder on the guaranteed loan(s) accruing after 90 
days from the date of the demand letter to the Lender requesting the 
repurchase. Holder(s) will concurrently send a copy of demand of 
FmHA. The Lender will accept an assignment without recourse from the 
Holder(s) upon repurchase. The Lender is encouraged to repurchase 
the loan to facilitate the accounting for funds, resolve the 
problem, and to permit the borrower to cure the default, where 
reasonable. The Lender will notify the Holder(s) and FmHA of its 
decision.

8. FmHA Purchase

    If Lender does not repurchase as provided by paragraph 7 hereof, 
FmHA will purchase from Holder the unpaid principal balance of the 
guaranteed portion together with accrued interest (including any 
loan subsidy) to date of repurchase less Lender's servicing fee, 
within thirty (30) days after written demand to FmHA from Holder. 
The Loan Note Guarantee will not cover the note interest to the 
Holder on the guaranteed loan(s) accruing after 90 days from the 
date of the original demand letter of the Holder to the Lender 
requesting the repurchase. Such demand will include a copy of the 
written demand made upon the Lender. The Holder(s) or its duly 
authorized agent will also include evidence of its right to require 
payment from FmHA. Such evidence will consist of either the original 
of the Loan Note Guarantee properly endorsed to FmHA or the original 
of the Assignment Guarantee Agreement properly assigned to FmHA 
without recourse including all rights, title, and interest in the 
loan. FmHA will be subrogated to all rights of Holder(s). The 
Holder(s) will include in its demand the amount due including unpaid 
principal, unpaid interest (including any loan subsidy) to date of 
demand and interest (including any loan subsidy) subsequently 
accruing from date of demand to proposed payment date. Unless 
otherwise agreed to by FmHA, such proposed payment will not be later 
than 30 days from the date of demand.
    The FmHA will promptly notify the Lender of its receipt of the 
Holder(s)'s demand for payment. The Lender will promptly provide the 
FmHA with the information necessary for FmHA determination of the 
appropriate amount due the Holder(s). Any discrepancy between the 
amount claimed by the Holder(s) and the information submitted by the 
Lender must be resolved before payment will be approved. FmHA will 
notify both parties who must resolve the conflict before payment by 
FmHA will be approved. Such conflict will suspend the running of the 
30 day payment requirement. Upon receipt of the appropriate 
information, FmHA will review the demand and submit it to the State 
Director for verification. After reviewing the demand the State 
Director will transmit the request to the FmHA Finance Office for 
issuance of the appropriate check. Upon issuance, the Finance Office 
will notify the office servicing the borrower and State Director and 
remit the check(s) to the Holder(s).

9. Lender's Obligation

    Lender consents to the purchase by FmHA and agrees to furnish on 
request by FmHA a current statement certified by an appropriate 
authorized officer of the Lender of the unpaid principal and 
interest then owed by Borrowers on the loan and the amount including 
any loan subsidy then owed to any Holder(s). Lender agrees that any 
purchase by FmHA does not change, alter or modify any of the 
Lender's obligations to FmHA arising from said loan or guarantee nor 
does it waive any of FmHA's rights against Lender, and that FmHA 
will have the right to set-off against Lender all rights inuring to 
FmHA as the Holder of this instrument against FmHA's obligation to 
Lender under the Loan Note Guarantee.

10. Repurchase by Lender for Servicing

    If, in the opinion of the Lender, repurchase of the guaranteed 
portion of the loan is necessary to adequately service the loan, the 
Holder will sell the portion of the loan to the Lender for an amount 
equal to the unpaid principal and interest (including any loan 
subsidy) on such portion less Lender's servicing fee. The Loan Note 
Guarantee will not cover the note interest to the Holder on the 
guaranteed loans accruing after 90 days from the date of the demand 
letter of the Lender or FmHA to the Holder(s) requesting the 
Holder(s) to tender their guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for 
arbitrage purposes or other purposes to further its own financial 
gain.
    b. Any repurchase will only be made after the Lender obtains 
FmHA written approval.
    c. If the Lender does not repurchase the portion from the 
Holder(s), FmHA at its option may purchase such guaranteed portions 
for servicing purposes.

11. Custody of Unguaranteed Portion

    The Lender may retain, or sell the unguaranteed portion of the 
loan only through participation. Participation, as used in this 
instrument, means the sale of an interest in the loan wherein the 
Lender retains the note, collateral securing the note, and all 
responsibility for loan servicing and liquidation.

12. When Guarantee Terminates

    This Loan Note Guarantee will terminate automatically (a) Upon 
full payment of the guaranteed loan; or (b) upon full payment of any 
loss obligation hereunder; or (c) upon written notice from the 
Lender to FmHA that the guarantee will terminate 30 days after the 
date of notice, provided the Lender holds all of the guaranteed 
portion and the Loan Note Guarantee(s) are returned to be cancelled 
by FmHA.

13. Settlement

    The amount due under this instrument will be determined and paid 
as provided in the applicable Subpart of Part 1980 of Title 7 CFR in 
effect on the date of this instrument.

14. Loan Subsidy

    *In addition to the interest rate of the note attached hereto, 
FmHA will pay a loan subsidy of ________ percent per year. Payments 
will be made annually.

15. Interest Capitalization

    In the case of Farmer Programs loans, the Lender/Holder(s) may 
capitalize interest only when the note is restructured. When 
delinquent interest is so treated as principal, the new principal 
amount may exceed the principal amount of the loan listed herein, 
but may not exceed statutory loan limits. The new principal amount 
and new guaranteed portion will be identified at restructuring in an 
addendum to this Loan Note Guarantee. Such capitalized interest will 
be covered by this Loan Note Guarantee. References to ``principal 
and interest'' and ``principal advanced'' herein, therefore, shall 
include any capitalized interest on the guaranteed portion of the 
loan resulting from the restructuring of a Guaranteed Farmer 
Programs loan and not exceeding statutory loan limits. The 
capitalization of interest via a late payment fee also is 
permissible if customary for the lender's non-guaranteed loans. The 
late fees, however, will not be covered by the guarantee.

16. Notices

    All notices will be initiated through the FmHA ____________ for 
____________ (State) with mailing address at the day of this 
instrument:
----------------------------------------------------------------------
----------------------------------------------------------------------
*If not applicable delete paragraph prior to execution of this 
instrument.

UNITED STATES OF AMERICA
Farmers Home Administration

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
----------------------------------------------------------------------
(Date)

Assumption Agreement by __________ dated __________, 19 ______
Assumption Agreement by __________ dated __________, 19 ______

    6. Appendix C to subpart A is revised to read as follows:

Position 5

Appendix C to Subpart A

USDA-FmHA
Form Approved
OMB NO. 0575-0024
    Form FmHA 449-36
    (Rev. 4-94)

Assignment Guarantee Agreement

Type of Loan:----------------------------------------------------------
Applicable 7 CFR Part 1980 Subpart-------------------------------------
FmHA Loan Identification Number----------------------------------------
----------------------------------------------------------------------
of---------------------------------------------------------------------
(Lender) has made a loan to--------------------------------------------
in the principal amount of $__________ as evidenced by a note(s) 
dated __________. The United States of America, acting through 
Farmers Home Administration (FmHA) entered into a Loan Note 
Guarantee
(Form FmHA 449-34) with the Lender applicable to such loan to 
guarantee the loan not to exceed __________ % of the amount of the 
principal advanced and any interest (including any loan subsidy) due 
thereon and any capitalized interest, resulting from the 
restructuring of a Guaranteed Farmer Programs loan and not exceeding 
statutory loan limits, as provided therein.
----------------------------------------------------------------------
(Holder) desires to purchase from Lender __________ % of the 
guaranteed portion of such loan. Copies of Borrower's note(s) and 
the Loan Note Guarantee are attached hereto as a part hereof.

    Now, Therefore, the parties agree:
    1. The principal amount of the loan now outstanding is 
$__________. Lender hereby assigns to Holder __________ % of the 
guaranteed portion of the loan representing $__________ of such loan 
now outstanding in accordance with all of the terms and conditions 
hereinafter set forth. The Lender and FmHA certify to the Holder 
that the Lender has paid and FmHA has received the Guarantee Fee in 
exchange for the issuance of the Loan Note Guarantee.
    2. Loan Servicing. The Lender will be responsible for servicing 
the entire loan and will remain mortgagee and/or secured party of 
record. The entire loan will be secured by the same security with 
equal lien priority for the guaranteed and unguaranteed portions of 
the loan. The Lender will receive all payments on account of 
principal of, or interest (including any loan subsidy and any 
capitalized interest, resulting from the restructuring of a 
Guaranteed Farmer Programs loan and not exceeding statutory loan 
limits) on, the entire loan and shall promptly remit to the Holder 
its pro rata share thereof determined according to their respective 
interests in the loan, less only the Lender's servicing fee.
    3. Servicing Fee. Holder agrees that Lender will retain a 
servicing fee of __________ percent per annum of the unpaid balance 
of the guaranteed portion of the loan assigned hereunder.
    4. Purchase by Holder. The guaranteed portion purchased by the 
Holder will always be a portion of the loan which is guaranteed. The 
Holder will hereby succeed to all rights of the Lender under the 
Loan Note Guarantee to the extent of the assigned portion of the 
loan. The Lender, however, will remain bound by all obligations 
under the Loan Note Guarantee and the program regulations found in 
the applicable Subpart of 7 C.F.R. Part 1980 now in effect and 
future FmHA program regulations not inconsistent with the provisions 
hereof.
    5. Full Faith and Credit. The Loan Note Guarantee constitutes an 
obligation supported by the full faith and credit of the United 
States and is incontestable except for fraud or misrepresentation of 
which the Holder has actual knowledge at the time of this 
assignment, or which it participates in or condones. A note which 
provides for the payment of interest shall not be guaranteed. Any 
Assignment Guarantee Agreement attached to or relating to a note 
which provides for capitalization of interest is void. Except in the 
case of Farmer Programs loans, a note which provides for the payment 
of interest on interest as a result of restructuring the loan and 
not exceeding statutory loan limits, or as a customary late payment 
fee may be guaranteed, and any Assignment Guarantee Agreement 
attached to or related to such note is not void.
    6. Rights and Liabilities. The guarantee and right to require 
purchase will be directly enforceable by Holder not withstanding any 
fraud or misrepresentations by Lender or any unenforceability of the 
Loan Note Guarantee by Lender. Nothing contained herein shall 
constitute any waiver by FmHA of any rights it possesses against the 
Lender, and the Lender agrees that Lender will be liable and will 
promply reimburse FmHA for any payment made by FmHA to Holder which, 
if such Lender had held the guaranteed portion of the loan, FmHA 
would not be required to make. The Holder(s) upon written notice to 
the Lender may resell the unpaid balance of the guaranteed portion 
of the loan assigned hereunder. An endorsement may be added to the 
Form FmHA 449-36 to effectuate the transfer.
    7. Repurchase by the Lender (Defaults). The Lender has the 
option to repurchase the unpaid guaranteed portion of the loan from 
the Holder(s) within 30 days of written demand by the Holder(s) 
when: (a) the borrower is in default not less than 60 days on 
principal or interest due on the loan or (b) the Lender has failed 
to remit to the Holder(s) its pro rata share of any payment made by 
the borrower or any loan subsidy within 30 days of its receipt 
thereof. The repurchase by the Lender will be for an amount equal to 
the unpaid guaranteed portion of principal and accrued interest 
(including any loan subsidy), less the Lender's servicing fee. The 
loan note guarantee will not cover the note interest to the Holder 
on the guaranteed loan(s) accruing after 90 days from the date of 
the demand letter to the lender requesting the repurchase. Holder(s) 
will concurrently send a copy of demand to FmHA. The Lender will 
accept an assignment without recourse from the Holder(s) upon 
repurchase. The Lender is encouraged to repurchase the loan to 
facilitate the accounting for funds, resolve the problem, and to 
permit the borrower to cure the default, where reasonable. The 
Lender will notify the Holder(s) and FmHA of its decision.
    8. Purchase by FmHA. If Lender does not repurchase as provided 
by paragraph 7, FmHA will purchase from Holder the unpaid principal 
balance of the guaranteed portion together with accrued interest 
(including any loan subsidy) to date of repurchase, less Lender's 
servicing fee, within 30 days after written demand to FmHA from the 
Holder. The Loan Note Guarantee will not cover the note interest to 
the Holder on the guaranteed loans accruing after 90 days from the 
date of the original demand letter of the holder to the lender 
requesting the repurchase. Such demand will include a copy of the 
written demand made upon the Lender. The Holder(s) or its duly 
authorized agent will also include evidence of its right to require 
payment from FmHA. Such evidence will consist of either the original 
of the Loan Note Guarantee properly endorsed to FmHA or the original 
of the Assignment Guarantee Agreement properly assigned to FmHA 
without recourse including all rights, title, and interest in the 
loan. FmHA will be subrogated to all rights of Holder(s). The Holder 
will include in its demand the amount due including unpaid 
principal, unpaid interest (including any loan subsidy) to date of 
demand and interest (including any loan subsidy) subsequently 
accruing from date of demand to proposed payment date. Unless 
otherwise agreed to by FmHA, such proposed payment will not be later 
than 30 days from the date of demand.
    The FmHA will promptly notify the Lender of its receipt of the 
Holder(s)'s demand for payment. The Lender will promptly provide the 
FmHA with the information necessary for FmHA's determination of the 
appropriate amount due the Holder(s). Any discrepancy between the 
amount claimed by the Holder(s) and the information submitted by the 
Lender must be resolved before payment will be approved. FmHA will 
notify both parties who must resolve the conflict before payment 
will be approved. Such a conflict will suspend the running of the 30 
day payment requirement. Upon receipt of the appropriate 
information, FmHA will review the demand and submit it to the State 
Director for verification. After reviewing the demand the State 
Director will transmit the request to the FmHA Finance Office for 
issuance of the appropriate check. Upon issuance, the Finance Office 
will notify the office servicing the borrower and the State Director 
and remit the check(s) to the Holder(s).
    9. Lender's Obligations. Lender consents to the purchase by FmHA 
and agrees to furnish on request by FmHA a current statement 
certified by an appropriate authorized officer of the Lender of the 
unpaid principal and interest then owed by Borrowers on the loan and 
the amount then owed to any Holder(s). Lender agrees that any 
purchase by FmHA does not change, alter or modify any of the 
Lender's obligations to FmHA arising from said loan or guarantee nor 
does it waive any of FmHA's right against Lender, and that FmHA 
shall have the right to set-off against Lender all rights inuring to 
FmHA as the Holder of this instrument against FmHA's obligation to 
Lender under the Loan Note Guarantee.
    10. Repurchase by Lender for Servicing. If, in the opinion of 
the Lender, repurchase of the assigned portion of the loan is 
necessary to adequately service the loan, the Holder will sell the 
assigned portion of the loan to the Lender for an amount equal to 
the unpaid principal and interest (including any loan subsidy) on 
such portion less Lender's servicing fee. The loan note guarantee 
will not cover the note interest to the Holder on the guaranteed 
loans accruing after 90 days from the date of the demand letter of 
the lender or FmHA to the Holder(s) requesting the Holder(s) to 
tender their guaranteed portion(s).
    a. The Lender will not repurchase from the Holder(s) for 
arbitrage purpose or other purposes to further its own financial 
gain.
    b. Any repurchase will only be made after the Lender obtains 
FmHA written approval.
    c. If the Lender does not repurchase the portion from the 
Holder(s), FmHA at its option may purchase such guaranteed portions 
for servicing purposes.
    11. Foreclosure. The parties owning the guaranteed portions and 
unguaranteed portion of the loan will join in institute foreclosure 
action, or in lieu of foreclosure, take a deed of conveyance to such 
parties.
    12. Reassignment. Holder upon written notice to Lender and FmHA 
may reassign the unpaid guaranteed portion of the loan sold 
hereunder. Upon such notification, the assignee will succeed to all 
rights and obligations of the Holder hereunder.
    13. Interest Capitalization. In the case of Farmer Programs 
loans, the Lender may capitalize interest only when the note is 
restructured. When delinquent interest is so treated as principal, 
the new principal amount may exceed the line of credit listed 
herein, but may not exceed statutory loan limits. The new principal 
amount and new guaranteed portion will be identified at 
restructuring in an addendum to this agreement. Such capitalized 
interest will be covered by this Assignment Guarantee Agreement. 
References to principal and interest herein, therefore, shall 
include any capitalized interest on the guaranteed portion of the 
loan resulting from the restructuring of a Farmer Programs loan and 
not exceeding statutory loan limits. The capitalization of interest 
via a late payment fee also is permissible if customary for the 
lender's non-guaranteed loans. The late fees, however, will not be 
covered by the guarantee.
    14. Notices. All notices and actions will be initiated through 
the FmHA ____________ for ____________ (state) with mailing address 
at the date of this assignment: ____________
----------------------------------------------------------------------
Dated this ____________ day ____________, 19 ______.
Attest:
(Seal)
----------------------------------------------------------------------

Attest:
(Seal)
----------------------------------------------------------------------

Address:---------------------------------------------------------------

Lender:
Address:
By---------------------------------------------------------------------
Title------------------------------------------------------------------

Holder:
Address:
By---------------------------------------------------------------------
Title------------------------------------------------------------------

UNITED STATES OF AMERICA
Farmers Home Administration
By---------------------------------------------------------------------
Title------------------------------------------------------------------
    7. Appendix D to Subpart A is revised to read as follows:

Appendix D to Subpart A

USDA-FmHA
    Form FmHA 1980-27
    (Rev. 4-94)

Contract of Guarantee

(Line of Credit)

----------------------------------------------------------------------
Lender
Lender's IRS Tax No.
Lender's Address
Borrower's Name and Address
Cont/Alt 4
----------------------------------------------------------------------
Type of Loan
{time}  OL {time} {time} {time}  EL {time}  or {time}  {time}  EE
Cont/Alt 4
Case No.
State
County
Date of Line of Credit Agreement/Note
Line of Credit Ceiling $
    The guaranteed portion of this line of credit is ________  % of 
the principal balance owed at any one time on advances made within 
an approved line of credit by the above-named Lender to the above-
named Borrower.
    In consideration of making advance(s) by the Lender within the 
line of credit ceiling pursuant to the Line of Credit Agreement, the 
United States of America acting through the Farmers Home 
Administration of the United States Department of Agriculture 
(herein called ``FmHA''), pursuant to the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1921 et. seq.), the Emergency 
Livestock Credit Act of 1974 (P.L. 93-357), as amended, or the 
Emergency Agricultural Credit Adjustment Act of 1978 (P.L. 95-334) 
agrees that in accordance with and subject to the conditions and 
requirements in this agreement, it will pay to the Lender who holds 
the line of agreement(s) (and note(s), if any exist) for said 
advance(s) (or assumption agreement) covered by this contract the 
lesser of 1. or 2. below:
    1. Any loss sustained by such Lender on the guaranteed portion 
including:
    a. Principal and interest indebtedness as evidenced by said line 
of credit agreement(s) (and note(s), if any exist) or by assumption 
agreement(s), and any capitalized interest on such portion resulting 
from the restructuring of an Operating loan and not exceeding 
statutory loan limits, and
    b. Principal and interest indebtedness on secured protective 
advances for protection and preservation of collateral made with 
FmHA's authorization, including but not limited to, advances for 
delinquent taxes, annual assessments, and ground rents, and hazard 
or flood insurance premiums affecting the collateral; or
    2. The guaranteed principal advances to or assumed by the 
Borrower under said line of credit agreement(s) (and note(s), if any 
exist) or assumption agreement(s), and any interest due thereon, 
including any capitalized interest on such portion resulting from 
the restructuring of an Operating loan and not exceeding statutory 
loan limits. If an Operating Loan Line of Credit is involved, 
advances under that line of credit must be made within three years 
(five for Certified Lenders) from the date of this Contract. 
Advances made after that date will not be covered by this Contract. 
If FmHA conducts the liquidation of the line of credit, loss 
occasioned to a Lender by accruing interest after the date FmHA 
accepts responsibility for liquidation will not be covered by this 
Contract of Guarantee. If Lender conducts the liquidation of the 
line of credit, accruing interest shall be covered by this Contract 
of Guarantee to date of final settlement when the Lender conducts 
the liquidation expeditiously in accordance with the liquidation 
plan approved by FmHA.

Conditions of Guarantee

1. Line of Credit Servicing

    Lender will be responsible for servicing the entire line of 
credit, and Lender will remain mortgage and/or secured party of 
record. The Lender agrees that, if liquidation of the account 
becomes imminent, the Lender, will consider the Borrower of an 
Operating Loan Line of Credit for an Interest Rate Buydown under 
Exhibit C of Subpart B of 7 CFR, Part 1980, and request a 
determination of the Borrower's eligibility by FmHA. The Lender may 
not initiate foreclosure action on the line of credit until 60 days 
after a determination has been made with respect to the eligibility 
of the Borrower to participate in the Interest Rate Buydown Program.

2. Priorities

    The entire line of credit will be secured by the same security 
with equal lien priority for the guaranteed and unguaranteed 
portions of the line of credit. The unguaranteed portion of the line 
of credit will not be paid first nor given any preference or 
priority over the guaranteed portion.

3. Full Faith and Credit

    The Contract of Guarantee constitutes an obligation supported by 
the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which Lender has actual 
knowledge at the time it became such Lender or which Lender 
participates in or condones. If the line of credit agreement or note 
to which this Contract of Guarantee is attached provides for the 
payment of interest on interest, this Contract of Guarantee is void. 
However, in the case of Farmer Programs loans, the capitalization of 
interest when restructuring loans and through the charging of 
customary late fees will not void this Contract of Guarantee.
    In addition, the Contract of Guarantee will be unenforceable by 
the Lender to the extent any loss is occasioned by the violation of 
usury laws negligent servicing, or failure to obtain the required 
security regardless of the time at which FmHA acquires knowledge of 
the foregoing. Any losses occasioned will be enforceable to the 
extent that loan funds are used for purposes other than those 
specifically approved by FmHA in its Conditional Commitment for 
Guarantee. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The 
term includes not only the concept of a failure to act but also not 
acting in a timely manner or acting in a manner contrary to the 
manner in which a reasonably prudent lender would act up to the time 
of loan maturity or until a final loss is paid.

4. Protective Advances

    Protective advances made by Lender pursuant to the regulations 
will be guaranteed against a percentage of loss to the extent as 
provided in this Contract of Guarantee.

5. Custody of Unguaranteed Portion

    The Lender may retain or sell the unguaranteed portion of the 
line of credit only through participation. Participation, as used in 
this instrument, means the sale of an interest in the line of credit 
in which the Lender retains the line of credit agreement (and note 
if one exists) collateral securing the line of credit and all 
responsibility for servicing and liquidation of the line of credit.

6. When Guarantee Terminates

    This Contract of Guarantee will terminate automatically (a) upon 
full payment of the guaranteed line of credit occurring after the 
advance period has expired; or (b) upon full payment of any loss 
obligation under this Contract, or (c) upon written notice from the 
Lender to FmHA that the guarantee will terminate 30 days after the 
date of notice, provided the Contract is returned to FmHA to be 
cancelled.

7. Settlement

    The amount due under this instrument will be determined and paid 
as provided in the applicable Subpart of Part 1980 of Title 7 CFR in 
effect on the date of this instrument.

8. Interest Capitalization

    In the case of Operating loans, the Lender may capitalize 
interest only when the note is restructured. When delinquent 
interest is so treated as principal, the new principal amount may 
exceed the line of credit listed herein, but may not exceed 
statutory loan limits. The new principal amount and new guaranteed 
portion will be identified at restructuring in an addendum to this 
Contract of Guarantee. Such capitalized interest will be covered by 
this Contract of Guarantee. References to principal and interest 
herein, therefore, shall include any capitalized interest on the 
guaranteed portion of the loan resulting from the restructuring of 
an Operating loan and not exceeding statutory loan limits. The 
capitalization of interest via a late payment fee also is 
permissible if customary for the lender's non-guaranteed loans. The 
late fees, however, will not be covered by the guarantee.

9. Notices

    All notices and actions will be initiated through the FmHA 
County Supervisor for ____________ (County) ____________ (State) 
with mailing address at the date of this instrument:
----------------------------------------------------------------------
----------------------------------------------------------------------

UNITED STATES OF AMERICA
Farmers Home Administration

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
----------------------------------------------------------------------
(Date)

Assumption Agreement by __________ dated __________, 19 ______
Assumption Agreement by __________ dated __________, 19 ______
    8. Appendix E to subpart A is revised to read as follows:

Appendix E to Subpart A

Form Approved OMB No. 0575-0079
USDA-FmHA
    Form FmHA 1980-38
    (Rev. 4-94)

Agreement for Participation in Farmer Programs Guaranteed Loan Programs 
of the United States Government

    The purpose of this Agreement is to establish the Lender as an 
approved participant in the Farmer Programs Guaranteed Loan Programs 
of the Farmers Home Administration (FmHA), U.S. Department of 
Agriculture. This Agreement provides the terms and conditions for 
originating and servicing such loans, including lines of credit.
Participating Lender (``Lender''):-------------------------------------
Tax Identification Number:---------------------------------------------
Business Address:------------------------------------------------------
Telephone Number:------------------------------------------------------

    Complete the appropriate section indicating participation/non-
participation in the Certified Lender Program.

Participating in the Certified Lender Program (``CLP'')

Offices Affected by Agreement All {time}     As listed below {time} 
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
States Affected by Agreement
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

Not participating in the Certified Lender Program

Offices Affected by Agreement All {time}     As listed below {time} 
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
States Affected by Agreement
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

    Read this Agreement in its entirety and sign in the space on the 
last page. Your signature indicates consent with this Agreement.

    Public reporting burden for this collection of information is 
estimated to average 1 hour per response, including time for 
reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, AG Box 7630, Washington, DC 
20250; and to the Office of Management and Budget, Paperwork 
Reduction Project, (OMB No. 0575-0079), Washington, DC 20503. Please 
DO NOT RETURN this form to either of these addresses. Forward to 
FmHA only.

Part I--General Requirements

A. Duties and Responsibilities of FmHA (``Agency'')

1. Payment on Claims. FmHA agrees to make payment on its claims in 
accordance with the terms of the guarantee and Agency regulations in 
7 CFR 1980, Subparts A and B. The maximum loss payment may not 
exceed the amount determined in the guarantee, including the 
percentage of principal and any accrued interest. The guarantee is 
supported by the full faith and credit of the United States and is 
incontestable except under the circumstances of fraud or 
misrepresentation of which the Lender has actual knowledge at the 
execution of the guarantee or which the Lender participates in or 
condones. (See 7 CFR 1980.107.)
2. Personnel Available for Consultation. FmHA shall make personnel 
available for consultation on interpretations of Agency regulations 
and guidelines. The Lender may consult with Agency personnel 
regarding unusual underwriting, loan closing, and loan liquidation 
questions.

B. General Requirements for the Lender

1. Eligibility to Participate. The Lender must meet the requirements 
set forth in 7 CFR 1980.13 and be approved by FmHA to be a 
participant in the Farmer Programs Guaranteed Loan Programs.
2. Knowledge of Program Requirements. The Lender is required to 
obtain and keep itself informed of all program regulations and 
guidelines, including all amendments and revisions. The Lender must 
establish and maintain adequate and written internal policies for 
loan origination and servicing to meet these requirements. These 
policies will be subject to review upon the request by FmHA.
3. Notification. The Lender shall immediately notify FmHA in writing 
if the Lender:

     Becomes insolvent;
     Has filed for any type of bankruptcy protection, has 
been forced into involuntary bankruptcy, or has requested an 
assignment for the benefit of creditors;
     Has taken any action to cease operations, or to 
discontinue servicing or liquidating any or all of its portfolio 
guaranteed by FmHA;
     Has changed its name, location, address, tax 
identification number, or corporate structure;
     Has been debarred, suspended, or sanctioned in 
connection with its participation in any Federal guaranteed program; 
or
     Has been debarred, suspended, or sanctioned by any 
Federal or State licensing or certification authority.
4. Employee Qualifications. The Lender shall maintain a staff that 
is well trained and experienced in origination and loan servicing 
functions, as necessary, to ensure the capability of performing all 
the acts within its authority.
5. Conflict of Interest. The Lender certifies that its officers or 
directors, principal stockholders (except stockholders in a Farm 
Credit Bank or other Farm Credit System (FCS) institutions with 
direct lending authority that have normal stock/share requirements 
for participating), or other principal owners do not have, or will 
not have, a substantial financial interest in, or business dealings 
with, any guaranteed loan borrower. The Lender also certifies that 
neither any borrower nor its officers or directors, stockholders, or 
other owners have a substantial financial interest in the Lender. If 
the borrower is a member of the Board of Directors of a Farm Credit 
Bank or other FCS institution with direct lending authority, the 
Lender certifies that an FCS institution on the next highest level 
will independently process the loan request and will act as the 
Lender's agent in servicing the account.
6. Facilities. The Lender shall operate its facilities and branch 
offices in a prudent and businesslike manner.
7. Reporting Requirements. The Lender recognizes that FmHA, as 
guarantor, has a vital interest in ensuring that all acts performed 
by the Lender regarding the subject loans are performed in 
compliance with this Agreement and Agency regulations. Information 
on the status of guaranteed loans is necessary for this purpose, as 
well as to satisfy budget and accounting reporting required by the 
Department of the Treasury and the Office of Management and Budget. 
The Lender agrees to provide FmHA with all the data required under 
Agency regulations and any additional information necessary for FmHA 
to monitor the health of its guaranteed loan portfolio, and to 
satisfy external reporting requirements.
    The Lender also agrees to provide to FmHA, as requested by the 
Agency or as required by regulation, copies of audited financial 
statements, reports on internal controls, copies of compliance 
audits, and such other information that may be required for FmHA to 
properly monitor the Lender's performance.

C. Underwriting Requirements

1. Responsibility. The Lender is responsible for originating, 
servicing, and collecting all guaranteed Farmer Programs loans in 
accordance with Agency regulations.
2. Origination Process
    a. General Eligibility. The Lender shall make a preliminary 
determination whether loan applicants meet the general eligibility 
requirements of the Farmer Programs Guaranteed Loan Programs. FmHA 
will make the final determination.
    b. Delinquency of Federal Debt. The Lender shall determine 
whether the loan applicant is delinquent on any Federal debt. The 
Lender shall use credit reports and any other credit history to make 
this determination. If the loan applicant is delinquent on a federal 
debt, processing of the application may only continue in accordance 
with Agency regulations.
    c. Appraisals of Collateral. The Lender shall ensure that the 
value of any collateral property or property to be purchased is 
determined by a qualified appraiser, including a State licensed or 
certified appraiser when required by law or regulation.
    d. Change in Borrower's Condition. Before FmHA issues a loan 
guarantee, the Lender will certify that there has been no adverse 
change(s) in the borrower's condition, financial or otherwise, 
during the time period from issuance of a Conditional Commitment to 
issuance of the guarantee of the loan. This certification by the 
Lender must address all adverse changes and be supported by 
financial statements of the borrower and its guarantors which are 
not more than 90 days old at the time of certification. For use in 
this provision alone, the term ``Borrower'' includes any member, 
joint operator, partner or stockholder. (See 7 CFR 1980.117.)
    e. Limitation on Guarantee. Any note requiring the payment of 
interest on interest will only be guaranteed if such payment is the 
result of restructuring the note and the new principal amount does 
not exceed statutory loan limits. Default charges or late charges of 
any kind, and/or interest accrued on interest charges other than 
that resulting from restructuring the loan and within statutory loan 
limits, will not be covered by the guarantee.

3. Loan Closing
    a. Lender's Fee. The Lender will submit the required guarantee 
fee with the Guaranteed Loan Closing Report.
    b. Lender's Use of Funds. The Lender agrees funds for the 
particular loan or line of credit will be used only for the purposes 
authorized in 7 CFR 1980, Subparts A and B as set forth in Form FmHA 
1980-15.
    c. Loan Closing. All loans guaranteed by the Agency shall be 
closed by attorneys, escrow companies, escrow departments of lending 
institutions, or other person(s) or entities skilled and experienced 
in conducting loan closings. The Lender shall:
     Ensure that documents, including the mortgage and any 
security agreements, chattel mortgages or equivalent documents 
relating to it have been properly signed, are valid and contain 
terms enforceable by the Lender;
     Ensure that all security with appropriate lien 
priorities is obtained in accordance with Form FmHA 1980-15, and 
Agency regulations;
     Ensure that all closing documents required to be 
recorded are recorded accurately, in the appropriate offices, and in 
a timely and accurate manner;
     Ensure that security interests are perfected in 
collateral according to applicable regulatory requirements and 
procedures;
     Ensure that all required hazard insurance is obtained 
in accordance with Agency regulations;
     Collect all fees and costs due and payable by the 
borrower in the course of the loan transaction and disburse payment 
directly to the parties for services rendered; and
     Ensure that all loan proceeds are used as authorized.
    The entire loan will be secured equally with the same security 
and the same lien priority for both the guaranteed and unguaranteed 
portions of the loan, under the assurance that the unguaranteed 
portion of the loan will not be paid first nor given any preference 
or priority over the guaranteed portion of the loan.

4. Lender's Sale or Assignment of Guaranteed Loan.
    The Lender may retain all of any guaranteed loan. The Lender is 
not permitted to sell or participate any amount of the guaranteed or 
unguaranteed portion(s) of loan(s) to the applicant or borrower or 
members of their immediate families, their officers, directors, 
stockholders, other owners, or any parent, subsidiary, or affiliate. 
The Lender may market all or part of the guaranteed portion of the 
loan or after loan closing only if the loan is not in default as set 
forth in the terms of the note. A line of credit may only be 
marketed by participation. Refer to 7 CFR 1980.119 for further 
guidelines.

D. Servicing Requirements

1. Responsibilities. The Lender will service the entire loan as 
mortgagee and/or secured party of record in a reasonable and prudent 
manner, notwithstanding the fact that another (Holder) may hold a 
portion of the loan. The Lender will obtain compliance with the 
covenants and provisions in the note, security instruments, and any 
other agreements, and notify FmHA and the borrower of any 
violations. Specific responsibilities are described in 7 CFR 
1980.130.
2. Negligent Servicing. The guarantee cannot be enforced by the 
Lender to the extent a loss results from a violation of usury laws 
or negligent servicing regardless of when FmHA discovers such 
violation or negligence. Negligent servicing is defined as the 
failure to perform services which a reasonably prudent lender would 
perform in servicing its own portfolio of loans that are not 
guaranteed. The term includes both a failure to act and also not 
acting in a timely manner in include actions taken up to the time of 
loan maturity or until a final loss is paid. (See 7 CFR 1980.11.)
3. Payments. Payments from the borrower shall be processed upon 
receipt according to 7 CFR 1980.119, and may include escrow premiums 
for hazard insurance and real estate taxes. The Lender shall 
promptly disburse to any Holder(s) their pro rata share thereof 
which has been determined according to their respective interests in 
the loan, less only the Lender's servicing fee.
4. Collateral
    a. Insurance. The Lender shall ensure that adequate insurance is 
maintained in accordance with Agency regulations, including the 
maintenance of hazard insurance containing a loss payable clause in 
favor of the Lender as the mortgagee or secured party.
    b. Escrow Accounts. The Lender may establish separate escrow 
accounts. All escrow accounts must meet applicable Federal and State 
laws and regulations, and must be fully insured by the FDIC.
    c. Inspection. The Lender shall inspect the collateral as often 
as necessary to properly service the loan and ensure the collateral 
is being properly maintained.
    d. Taxes. The Lender shall ensure that taxes, assessments, or 
ground rents against or affecting collateral are paid.

5. Delinquent Accounts
    a. The Lender will notify FmHA using Form FmHA 1980-44, 
``Guaranteed Loan Borrower Default Status,'' when a borrower is 30 
days past due on a payment or if the borrower has not provided the 
required financial statements to the Lender or is otherwise in 
default. The Lender will continue to submit Form FmHA 1980-44 every 
60 days until the default is resolved, and will notify the Agency 
when the default is resolved. A meeting will be arranged by the 
Lender with the borrower and FmHA to resolve the problem. Actions 
taken by the Lender, with written concurrence of FmHA, may include 
but are not limited to, any curative actions contained in Subpart B 
or 7 CFR Part 1980 or liquidation.
    b. The loan may be reamortized, rescheduled, or written down 
only with the agreement of any Holder(s) of the guaranteed portion 
of the loan, and only with FmHA's written agreement.
    c. The Lender will negotiate in good faith to resolve any 
problem in order to allow the borrower to cure a default, where 
reasonable. The Lender agrees that if liquidation of the account 
becomes imminent, the Lender will consider the borrower for Interest 
Assistance under Exhibit D of Subpart B of 7 CFR Part 1980, and 
request a determination of the borrower's eligibility by FmHA. The 
Lender may not initiate foreclosure action on the loan until 60 days 
after eligibility of the borrower to participate in the Interest 
Assistance Program has been established.
    d. Debt Writedown. (Refer to 7 CFR Part 1980. Subpart B, 
1980.125.) The maximum amount of loss payment associated with a 
loan/line of credit agreement which has been written down will not 
exceed the percent of the guarantee multiplied by the difference 
between the outstanding principal and interest balance of the loan 
(including any capitalized interest resulting from the restructuring 
of the loan and not exceeding statutory loan limits) before the 
writedown and the outstanding balance of the loan after the 
writedown. The Lender will use Form FmHA 449-30, ``Loan Note 
Guarantee Report of Loss,'' to request an estimated loss payment to 
receive its pro rata share of any loss sustained. Interest will be 
paid to the date of the check on all debt writedown claims.
    e. The Lender must participate in any farm credit mediation 
program of any State in accordance with the rules of that system and 
7 CFR Part 1980, Subpart B, 1980.126.
    f. When the borrower has not made payment of principal or 
interest due on the loan for 60 days or more or the Lender has 
failed to give the Holder(s) its pro rata share of any payment made 
by the borrower within 30 days of receipt of the payment, the Holder 
may request the lender to repurchase the unpaid guaranteed portion 
of the guaranteed loan. If the Lender chooses not to repurchase, 
FmHA will purchase the unpaid principal balance. Upon FmHA's 
repurchase, the lender will liquidate the account or reimburse FmHA 
the amount of the repurchase within 180 days of FmHA's repurchase. 
See 7 CFR 1980.119 for further guidance on repurchasing loans from 
Holder(s).

6. Default/Liquidation
    a. Protective Advances. Protective advances must constitute a 
debt of the borrower to the Lender and be secured by the security 
instrument(s). FmHA written authorization is required on all 
protective advances in excess of $3,000 made by a CLP Lender. For 
non-CLP Lenders, the amount is $500. Refer to 7 CFR 1980.136.
    b. Additional Loan or Advances. Except as provided for in each 
Borrower's loan agreement, the Lender will not make additional 
expenditures or new loans without first obtaining the written 
approval of FmHA even though such expenditures or loans will not be 
guaranteed.
    c. Future Recovery. After a loan has been liquidated and a final 
loss has been paid by FmHA, any future funds which may be recovered 
by the Lender, will be pro-rated between FmHA and the Lender. FmHA 
will be paid the amount recovered in proportion to the percentage it 
guaranteed for the loan.
    d. Transfer and Assumption Cases. Refer to 7 CFR 1980.123. If a 
loss occurs upon the completion of a transfer and assumption for 
less than the full amount of the debt and transferor debtor 
(including Guarantors) is released from personal liability, the 
Lender, if it holds the guaranteed portion, may file an estimated 
Report of Loss on Form FmHA 449-30, ``Loan Note Guarantee Report of 
Loss,'' to recover its pro rata share of the actual loss at that 
time. In completing Form FmHA 449-30, the amount of the debt assumed 
will be entered as Net Collateral (Recovery). Approved protective 
advances and accrued interest thereon made during the arrangement of 
transfer and assumption, if not assumed by the transferee, will be 
entered in the appropriate space on Form FmHA 449-30.
    e. Bankruptcy. The Lender is responsible for protecting the 
guaranteed loan debt and all collateral securing the loan in 
bankruptcy proceedings. Loss payments on bankruptcy cases will be 
processed according to the terms described in 7 CFR 1980.144.
    f. Liquidation. If the Lender concludes that liquidation of a 
guaranteed loan account is necessary due to default or third party 
actions which the borrower cannot or will not cure or eliminate 
within a reasonable period of time, a meeting will be arranged by 
the Lender with FmHA. All liquidations must receive prior 
concurrence by the appropriate FmHA official. Refer to 7 CFR 
1980.146 for specific guidance on the procedures for liquidation.

7. Servicer
    If the lender contracts for servicing of guaranteed Farmer 
Programs loans, the lender is not relieved of responsibility for 
proper servicing of the loans.

E. Agency Reviews of Lender's Operations

    FmHA shall have the right to conduct reviews, including on-site 
reviews, of the Lender's operations and the operations of any agent 
of the Lender, for the purpose of verifying compliance with this 
Agreement and Agency regulations and guidelines. These reviews may 
include, but are not limited to: audits of case files; interviews 
with owners, managers, and staff; audits of collateral; and 
inspections of the Lender's and/or its agents underwriting, 
servicing, and liquidation guidelines. The Lender and/or its agents 
shall provide access to all pertinent information to allow the 
Agency, or any party authorized by the Agency, to conduct such 
reviews.

F. Conformance to Standards

1. Standards. The Lender shall conform to the standards outlined in 
this Agreement and Agency regulations for participation in Farmer 
Programs Guaranteed Loan Programs. CLP Lenders must maintain 
compliance with the criteria set forth in 7 CFR 1980.190. The Agency 
shall determine Lender adherence to the standards based on:

     Adequacy in meeting requirements for origination, 
servicing, and liquidation of loans and lines of credit, including 
protection of collateral;
     Satisfaction of the reporting requirements of the 
Agency;
     Success in operating in a sound and prudent 
businesslike manner;
     Portfolio performance compared to overall performance 
of the Farmer Program Guaranteed Loan Programs; and
     Results of on-site reviews of the underwriting and/or 
servicing performed by the Lender.

2. Determination of Non-Conformance. The Agency shall carefully 
consider the circumstances and available facts in determining 
whether there is a pattern of Lender non-conformance with applicable 
standards. FmHA shall determine the propriety of any decision made 
by the Lender based on the facts available at the time the specific 
action was taken. It is understood by the Agency and intended by 
this Agreement that the Lender has the authority to exercise 
reasonable judgment in performing acts within its authority. 
However, FmHA reserves the right to question any act performed or 
conclusion drawn that is inconsistent with this Agreement or Agency 
regulations.
3. Agency Action. If the Lender is determined to be in non-
conformance with any Federal law, State law, Agency regulation or 
guideline, or the terms of this Agreement, FmHA reserves the right 
to take action in accordance with its laws and regulations.
4. Lender Right of Appeal. FMHA shall provide the Lender an 
opportunity to appeal, in accordance with Agency regulations at 7 
CFR Part 1980, Subpart A, adverse actions taken by the Agency.

Part II--List of Agency Regulations and Guidelines and Designation of 
Lender Authority To Perform Certain Acts

A. List of Agency Regulations

    The following is a list of FmHA regulations which, along with 
any future amendments consistent with this Agreement, contain the 
information necessary for the Lender to be in compliance with Agency 
requirements.
    1. 7 CFR 1980 Subpart A--General
    2. 7 CFR 1980 Subpart B--Farmer Program Loans

B. Authority To Perform Certain Acts

    Lenders participating in the CLP may be granted special 
authority to certify compliance with certain statutory or regulatory 
requirements. 7 CFR 1980.190 describes authorities and 
responsibilities for CLP Lenders.

Part III--Duration and Modification

A. Duration and Termination

1. Duration of Agreement. For CLP Lenders, this Agreement is valid 
for five years unless terminated by the Lender or FmHA as described 
below or revoked according to 7 CFR 1980.190. For non-CLP Lenders, 
this Agreement will be valid indefinitely unless terminated by the 
Lender or FmHA as described below.

2. Modification of Agreement. This Agreement may be modified or 
extended only in writing and by consent of all parties.

3. Termination of FmHA. This Agreement may be terminated by FmHA in 
accordance with Agency regulations.

4. Termination by the Lender. This Agreement may be terminated by 
the Lender by providing 30 days written notice to FmHA.

5. Effect of Termination on Responsibilities and Liabilities. 
Responsibilities or liabilities that existed before the termination 
of the Agreement with regard to outstanding guarantees will continue 
to exist after termination unless the Agency expressly releases the 
Lender from such responsibilities or liabilities in writing. The 
Lender shall remain obligated to service and liquidate the 
guaranteed loans remaining in the portfolio unless and until FmHA or 
the Lender transfers the loans. These requirements concerning loan 
management by the Lender and rights of the Agency under this 
Agreement shall remain in effect whether the Agreement is terminated 
by the Lender or FmHA.

B. Entire Agreement

    This Agreement, Parts I through IV inclusive, and any 
regulations or guidelines incorporated by reference, shall 
constitute the entire Agreement. There are no other agreements, 
written or oral, regarding the terms in this Agreement which are or 
shall be binding on the parties.

Part IV--Endorsement

    The undersigned certifies that they have read and understand the 
requirements of this Agreement, and in 7 CFR Part 1980, Subparts A 
and B, and agree to the participation requirements and other 
provisions of this Agreement.

    Notice. Requests for Guarantee and any notices or actions are 
expected to be initiated through the following FmHA County Offices:
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Lender: Complete this block of Section IV.

XXI. Lender
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(Name)
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(IRS I.D. Tax No.)
By:
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(Signature)
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(Name Typed or Printed)
Title------------------------------------------------------------------
Date-------------------------------------------------------------------
Attest-----------------------------------------------------------------

This block of Section IV will be completed by FmHA.
The effective date of this Agreement is--------------------------------
The expiration date of this Agreement is-------------------------------

UNITED STATES OF AMERICA
Farmers Home Administration

By:
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(Signature)
Title------------------------------------------------------------------
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(Name Typed or Printed)
Date-------------------------------------------------------------------

Subpart B--Farmer Program Loans

    9. Section 1980.124 is amended by removing paragraph (d)(1); by 
redesignating paragraphs (d)(2) and (d)(3) as paragraphs (d)(1) and 
(d)(2), respectively; and by revising paragraphs (a)(7), (b)(6) and (e) 
to read as follows:


Sec. 1980.124  Consolidation, rescheduling, reamortizing and deferral.

    (a) * * *
    (7) The lender may capitalize the outstanding interest when 
restructuring the loan. If Forms FmHA 449-34, 449-35, 449-36, 1980-27, 
or 1980-38 previously executed for the guaranteed loan/line of credit 
prohibit the capitalization of interest, the County Supervisor will 
provide the lender with Form FmHA 1980-85. By executing this form, FmHA 
waives the restriction only for capitalization of interest resulting 
from restructuring a Farmer Programs loan and not exceeding statutory 
loan limits. The form will set out the new principal loan amount 
(treating delinquent interest as principal) and the guaranteed portion 
of the loan amount. If these forms do not prohibit the capitalization 
of interest, the new principal loan and the guaranteed portion, if 
greater than the original amounts of the forms, will be identified in 
an addendum, Form FmHA 1980-84. The appropriate modification form will 
be issued under this paragraph after the appropriate official concurs 
with the restructuring. Subsequent servicing of the guaranteed loans 
will take into account the new principal and guaranteed amounts. 
Capitalized interest authorized under this paragraph will be treated as 
part of the principal and interest indebtedness in calculating the 
maximum loss amount under Sec. 1980.20 of subpart A of this part.
* * * * *
    (b) * * *
    (6) There is no limit on the number of times a consolidation or 
rescheduling action may take place.
* * * * *
    (e) Principal limit. As a result of the capitalization of interest 
with restructuring, the rescheduled/reamortized note or line of credit 
agreement which exists after a consolidation occurs may increase the 
amount of principal which the borrower would have been required to pay 
if the rescheduling, reamortization, or consolidation had not been 
made. However, in no case will such principal amount ever exceed the 
statutory loan limits set out in this subpart.

    Dated: March 9, 1994.
Bob J. Nash,
Under Secretary for Small Community and Rural Development.
[FR Doc. 94-7545 Filed 3-29-94; 8:45 am]
BILLING CODE 3410-07-U