[Federal Register Volume 60, Number 198 (Friday, October 13, 1995)]
[Rules and Regulations]
[Pages 53253-53265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24179]



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[[Page 53254]]


DEPARTMENT OF AGRICULTURE
Rural Housing and Community Development Service
Rural Business and Cooperative Development Service
Rural Utilities Service
Consolidated Farm Service Agency

7 CFR Part 1980

RIN 0575-AB70


Removal of the Prohibition Against Capitalizing Accrued Interest 
When Restructuring CFSA Guaranteed Loans

AGENCIES: Rural Housing and Community Development Service, Rural 
Business and Cooperative Development Service, Rural Utilities Service, 
and Consolidated Farm Service Agency, USDA.

ACTION: Final rule.

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

SUMMARY: The issuing agencies amend their guaranteed farm credit 
programs loan making and servicing regulations to remove the 
restriction against lenders capitalizing accrued interest when 
restructuring loans. The intended effect is to reduce barriers which 
inhibit lenders from restructuring loans of delinquent guaranteed 
borrowers.

EFFECTIVE DATE: October 13, 1995.

FOR FURTHER INFORMATION CONTACT: Phillip Elder, Senior Loan Officer, 
Farm Credit Programs Loan Servicing and Property Management Division, 
Guaranteed Loans Branch, Consolidated Farm Service Agency (CFSA), USDA, 
South Agriculture Building, Room 5446, 14th and Independence Avenue 
SW., Washington, DC 20250-0774, Telephone (202) 690-4012.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and therefore has not been reviewed 
by the Office of Management and Budget (OMB).

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, 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 and has met the 
provisions of Executive Order 12372 and FmHA Instruction 1940-J.

Programs Affected

    These changes affect the following CFSA 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 the 
issuing agencies that this action does not constitute a major Federal 
action significantly affecting the quality of the human environment, 
and in accordance with the National Environmental Policy Act of 1969, 
Pub. L. 91-190, an Environmental Impact Statement is not required.

Civil Justice Reform

    This final rule has been reviewed in accordance with Executive 
Order (E.O.) 12778, Civil Justice Reform. In accordance with this rule: 
(1) All state and local laws and regulations that are in conflict with 
this rule will be preempted; (2) no retroactive effect will be given to 
this rule; and (3) administrative proceedings in accordance with the 
regulations of the agency at 7 CFR, part 1900, subpart B, or those 
regulations published by the Department of Agriculture to implement the 
provisions of the National Appeals Division as mandated by the 
Department of Agriculture Reorganization Act of 1994, must be exhausted 
before bringing suit in court challenging action taken under this rule 
unless those regulations specifically allow bringing suit at an earlier 
time.

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 and 0575-0079 in accordance with 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3507). This final rule 
does not revise or impose any new information collection requirement 
from those approved by OMB.

Discussion of Final Rule

    This final rule relieves the restriction prohibiting lenders from 
charging interest on interest when restructuring guaranteed Farm Credit 
Programs loans (formerly Farmer Program loans). It also eliminates the 
requirement that principal payments be made which are at least equal to 
the amount of the depreciation of the security. This policy was 
proposed in 59 FR 14769-79 published on March 30, 1994. This proposed 
rule provided a 15 day comment period ending April 14, 1994. These 
policy changes affect the Farmers Home Administration (FmHA) Farmer 
Programs loans now administered as Farm Credit Programs by the 
Consolidated Farm Service Agency (CFSA). This reorganization was 
authorized by Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994 (Public Law 103-354, 108 stat. 
3178, October 13, 1994). Other guaranteed loan programs formerly 
administered by FmHA will only be affected by conforming administrative 
revisions made to subpart A of part 1980. These programs include: Water 
and Waste disposal facility loans administered by the Rural Utilities 
Service (RUS), Community Programs loans administered by the Rural 
Housing and Community Development Service (RHCDS), and Business and 
Industrial loans and Nonprofit National Corporations loans now 
administered by the Rural Business and Cooperative Development Service 
(RBCDS). CFSA, RUS, RHCDS, and RBCDS are jointly issuing this final 
rule since substantial administrative revisions have been made to 
regulations affecting their programs in an effort to reduce agency 
regulations. The agency received eight comment letters prior to the 
deadline for public comment to the proposed rule. Comments were 
received from lenders that participate in the program, a Rural Economic 
and Community Development (RECD) (formerly FmHA) State Director, the 
USDA Office of the Inspector General and others.
    The majority of the comments were in support of the proposed 
changes. The commenters agreed that removal of the prohibition of 
charging interest on interest would result in more farmers being 
allowed the opportunity to continue farming after their loans become 
delinquent.
    One commenter agreed that the proposed changes would result in 
lenders being less reluctant to restructure debts. The same commenter, 
however, raised concerns about the increased costs of the changes to 
the government and the farmer. This effect was noted by the Agency in 
the proposed rule. It was determined that the increased costs would be 
offset by the benefit of enhancing the likelihood of the farmer's 
success. This goes directly to the goals of CFSA's guaranteed loan 
program. The same commenter raised a concern about the proposal 
increasing profits to the lender. 

[[Page 53255]]
The Agency determined a regulation change that increases private 
industry profit should not be avoided for that reason. The increase in 
profits possible from the change would be negligible and not cause for 
concern.
    Another commenter suggested that late payment charges and interest 
accrued on these charges be covered by the guarantee. The commenter 
indicates that allowing these charges to be capitalized into a 
restructured loan, but not allowing them to be covered by the guarantee 
will result in a continued administrative burden to the lender. If 
allowed to be capitalized, these charges, and the interest that accrues 
on them, will have to be maintained separately from the rest of the 
restructured loan. The Agency has not adopted this commenter's 
recommendations. If the guaranteed percentage of late payment fees were 
paid by the Government, it would reduce the lender's motivation to act 
expediently in resolving a delinquent account and result in 
significantly higher losses to the Government.
    Another commenter similarly indicated that loss claim preparation 
will be more difficult as the late payment charges will have to be 
separated from the other debt. This commenter recommended that only 
debt covered by the guarantee be allowed to be restructured. In 
response to the above comments, Sec. 1980.11 and the applicable forms 
have been revised to prohibit the capitalization of late payment fees. 
A provision has also been added to Sec. 1980.124 to allow only interest 
that has accrued at the note rate to be capitalized. This will reduce 
confusion and administrative costs.
    This commenter also pointed out that current agency regulations 
require loss payments as a result of a guaranteed loan writedown be 
applied to principal first then interest, to avoid charging interest on 
interest after the writedown. Removal of the prohibition against 
charging interest on interest would cause this reference to be 
unnecessary. The final rule has revised subpart B of part 1980 by 
removing Sec. 1980.125 (a)(10).
    The same commenter also pointed out that the proposed rule 
indicated the County Supervisor would approve restructuring actions, as 
long as the amount did not exceed statutory loan limitations. The 
commenter suggested that the determination of the CFSA approval 
official should be based on the authorities outlined in exhibit C of 
subpart A of part 1901 (available in any CFSA office) and the combined 
unpaid principal and interest to be restructured. To avoid the 
possibility of County Supervisors exceeding their approval authority, 
the Agency has adopted the commenter's recommendations.
    As part of this final rule, the agencies are also removing some 
administrative provisions from the Federal Register and are changing 
references from ``FmHA'' to ``the agency,'' ``the Agency,'' ``The 
Agency,'' ``the government,'' ``Government,'' or ``The Government.'' 
Also references to ``Farmer Programs'' are revised to ``Farm Credit 
Programs'' to reflect agency reorganization. Other minor wording 
changes are being made.

List of Subjects in 7 CFR Part 1980

    Administrative practice and procedure, Agriculture, Business and 
industry, Community facilities, Credit, Loan programs--Agriculture, 
Loan programs--Business and industry, Loan programs--Housing and 
community development, Low and moderate income housing, Reporting and 
recordkeeping requirements, Rural areas.
    Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:

PART 1980--GENERAL

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

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; 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. 
Generally, 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. In the case of Farm Credit 
Programs loans, however, a Loan Note Guarantee, Contract of Guarantee 
or Assignment Guarantee Agreement attached to a note that provides for 
the capitalization of interest 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 the Agency 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 
the Agency in its Form FmHA 1980-15 (available in any Agency office). 
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 the 
Agency has requested the holder to surrender the evidence of debt for 
repurchase.


Sec. 1980.12  [Removed and Reserved]

    3. Section 1980.12 is removed and reserved.
    4. Section 1980.13 is amended by removing the phrase ``on Form FmHA 
or its successor agency under Public Law 103-354 1980-25, `Farmer 
Programs Application,' '' from paragraph (b)(2); by removing the second 
sentence of paragraph (b)(4); by revising the words ``and/or'' to read 
``and'' in the fifth sentence of the introductory text of paragraph 
(b); by revising ``FmHA'' to read ``the Agency'' in the second sentence 
of the introductory text of paragraph (a), paragraphs (a)(2), (b)(2), 
the second sentence of paragraph (b)(4), and paragraph (c); by revising 
``FmHA'' to read ``The Agency'' in the sixth and seventh sentences of 
the introductory text of paragraph (a) and the first sentence of 
paragraph (b)(4); by revising ``FmHA'' to read ``Agency'' in paragraph 
(b)(5); and by revising the words ``Farmer Programs loans'' to read 
``Farm Credit Programs loans'' in the fourth sentence of the 
introductory text of paragraph (b) and in paragraph (b)(4)(ii).
    5. Section 1980.20 is amended by revising the word ``FmHA'' to read 
``the Agency's'' in paragraph (a)(1); by revising ``FmHA'' to read 
``The Agency'' 

[[Page 53256]]
in the introductory text of paragraph (b); and by revising the 
introductory text of paragraph (a) to read as follows:


Sec. 1980.20  Loan guarantee limits.

    (a) Lenders and applicants will propose the percentage of 
guarantee. The Agency will set the percentage of guarantee. 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. 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 ninety percent. Also, except in regards to D&D and 
DARBE guaranteed loans (see subpart E of this part) or as modified for 
Farm Credit Programs guaranteed loans (see subpart B of this part), the 
maximum loss covered by Form FmHA 449-34 or Form FmHA 1980-27 (both 
available in any Agency office) can never exceed the lesser of:
* * * * *


Sec. 1980.83  [Removed and Reserved]

    6. Section 1980.83 (b) is removed and reserved.
    7. Section 1980.84 is amended by removing and reserving paragraph 
(a) and by revising the section heading and introductory text of 
paragraph (b) to read as follows:


Sec. 1980.84  Replacement of guaranteed loan or line of credit 
documents.

    (a) [Reserved]
    (b) Requirements. When a Loan Note Guarantee, Contract of 
Guarantee, or Assignment Guarantee Agreement is lost, stolen, 
destroyed, mutilated, or defaced while in the custody of the lender or 
holder, the lender will coordinate the activities of the party who 
seeks the replacement documents and will submit the required documents 
to the Agency for processing. The requirements for replacement are as 
follows:
* * * * *
    8. Section 1980.100 is revised to read as follows:


Sec. 1980.100  OMB control number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0024. Public reporting burden for this 
collection of information is estimated to vary from 15 minutes to 28 
hours per response, with an average of 2.08 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 
20250; and to the Office of Management and Budget, Paperwork Reduction 
Project (OMB #0575-0024), Washington, D.C. 20503.
    9. Appendix A to subpart A is revised to read as follows:

Appendix A--Loan Note Guarantee

USDA
Form FmHA 449-34
(Rev. 10-95)
Type of Loan-----------------------------------------------------------
Applicable 7 C.F.R. part 1980
subpart----------------------------------------------------------------
State------------------------------------------------------------------
County-----------------------------------------------------------------
Date of Note-----------------------------------------------------------
Borrower---------------------------------------------------------------
Government Loan Identification Number----------------------------------
Lender-----------------------------------------------------------------
Lender's IRS ID Tax Number---------------------------------------------
Lender's Address-------------------------------------------------------
Principal Amount of Loan-----------------------------------------------

The guaranteed portion of the loan is $______ which is ______ 
(______ %)

percent of 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                
                                                 of total      Amount   
    Lender's identifying No.      Face amount      face      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 
Consolidated Farm Service Agency, Rural Business and Cooperative 
Development Service, Rural Utilities Service, or Rural Housing and 
Community Development Service (herein called ``Government''), 
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 Pub. L. 93-357 as amended), the Emergency 
Agricultural Credit Adjustment Act of 1978 (7 U.S.C. note preceding 
1921, Pub. 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 Farm Credit 
Program loans but 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 
Government'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 Farm Credit Programs Loans 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 Farm Credit Programs loans and not exceeding statutory 
loan limits.
    If Government conducts the liquidation of the loan, loss 
occasioned to a Lender by accruing interest (including any loan 
subsidy) after the date Government 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 Government.

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 of 7 C.F.R. 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 

[[Page 53257]]
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 C.F.R., part 1980, and request a 
determination of the Borrower's eligibility by Government. The 
Lender may not initiate foreclosure 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 Farm Credit Programs loans, the 
capitalization of interest when restructuring loans 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 
Government 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 
Government 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 
Government of any rights it possesses against the Lender. Lender 
will be liable for and will promptly pay to Government any payment 
made by Government to Holder which if such Lender had held the 
guaranteed portion of the loan, Government 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 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 
Government. 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 Government of 
its decision.

8. Government Purchase

    If Lender does not repurchase as provided by paragraph 7 hereof, 
Government 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 Government 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 Government. Such evidence will consist of either the 
original of the Loan Note Guarantee properly endorsed to Government 
or the original of the Assignment Guarantee Agreement properly 
assigned to Government without recourse including all rights, title, 
and interest in the loan. Government 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 Government, such 
proposed payment will not be later than 30 days from the date of 
demand.
    The Government will promptly notify the Lender of its receipt of 
the Holder(s)'s demand for payment. The Lender will promptly provide 
the Government with the information necessary for Government 
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. Government will notify both parties who must 
resolve the conflict before payment by Government will be approved. 
Such conflict will suspend the running of the 30 day payment 
requirement. Upon receipt of the appropriate information. Government 
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 Government 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 Obligations

    Lender consents to the purchase by Government and agrees to 
furnish on request by Government 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 Government does not change, alter or modify any 
of the Lender's obligations to Government arising from said loan or 
guarantee nor does it waive any of Government's rights against 
Lender, and that Government will have the right to set-off against 
Lender all rights inuring to Government as the Holder of this 
instrument against Government'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 Government 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 
Government written approval.

[[Page 53258]]

    c. If the Lender does not repurchase the portion from the 
Holder(s), Government 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 Government 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 Government.

13. Settlement

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

14. Loan Subsidy

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

15. Interest Capitalization

    In the case of Farm Credit 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 Farm Credit 
Programs loans and not exceeding statutory loan limits.

Position 5

16. Notices

    All notices will be initiated through the
Government-------------------------------------------------------------
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
----------------------------------------------------------------------
(insert applicable agency)
By---------------------------------------------------------------------
Title------------------------------------------------------------------
(Date)-----------------------------------------------------------------
Assumption Agreement by------------------------------------------------
dated ________, 19____
Assumption Agreement by------------------------------------------------
dated ________, 19____

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

Appendix C--Assignment Guarantee Agreement

Position 5

USDA
Form FmHA 449-36
(Rev. 10-95)
Type of Loan-----------------------------------------------------------
Government Loan Identification
Number-----------------------------------------------------------------
Applicable 7 CFR part 1980 subpart-------------------------------------
________ 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 the Consolidated Farm 
Service Agency, Rural Business and Cooperative Development Service, 
Rural Utilities Service, or Rural Housing and Community Development 
Service (herein called ``Government'') 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 Farm Credit Programs loan and not 
exceeding statutory loan limits, as provided therein.

______________ of ______________
(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 Government certify to the Holder that the 
Lender has paid and Government 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 Farm Credit Programs loans 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 CFR part 1980 now in effect and future 
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. Any Assignment 
Guarantee Agreement attached to or relating to a note which provides 
for capitalization of interest is void. Except in the case of Farm 
Credit Program 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, 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 Government of any rights its possesses 
against the Lender, and the Lender agrees that Lender will be liable 
and will promptly reimburse Government for any payment made by 
Government to Holder which, if such Lender had held the guaranteed 
portion of the loan, Government 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 Government. The Lender 
will accept an assignment without recourse from the Holder(s) upon 
repurchase. The Lender in encouraged to repurchase the loan to 

[[Page 53259]]

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 Government of its decision.
    8. Purchase by Government. If Lender does not repurchase as 
provided by paragraph 7, Government 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 
Government 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 Government. Such evidence will 
consist of each the original of the Loan Note Guarantee properly 
endorsed to Government or the original of the Assignment Guarantee 
Agreement properly assigned to Government without recourse including 
all rights, title, and interest in the loan. Government 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 
Government, such proposed payment will not be later than 30 days 
from the date of demand.
    The Government will promptly notify the Lender of its receipt of 
the Holder(s)'s demand for payment. The Lender will promptly provide 
the Government with the information necessary for Government'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. Government 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. Government 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 Government Finance Office of 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 
Government and agrees to furnish on request by Government a current 
statement certified by an appropriate authorized officer of the 
Lender of the unpaid principal and interest then owned by Borrowers 
on the loan and the amount then owed to any Holder(s). Lender agrees 
that any purchase by Government does not change, alter or modify any 
of the Lender's obligations to Government arising from said loan or 
guarantee nor does it waive any of Government's right against 
Lender, and that Government shall have the right to set-off against 
Lender all rights inuring to Government as the Holder of this 
instrument against Government'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 Government 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 
Government written approval.
    c. If the Lender does not repurchase the portion from the 
Holder(s), Government 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 to 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 
Government 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 Farm Credit 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, buy 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 Farm Credit Programs 
loans and not exceeding statutory loan limits.
    14. Notices. All notices and actions will be initiated through 
the Government ________ for ________ (state) with mailing address at 
the date of this assignment: ________
----------------------------------------------------------------------
Dated this ______ day ______, 19____.

LENDER:
ADDRESS:
ATTEST:
________(SEAL)
By---------------------------------------------------------------------
Title------------------------------------------------------------------
HOLDER:
ADDRESS:
ATTEST:
________(SEAL)
By---------------------------------------------------------------------
Title------------------------------------------------------------------
UNITED STATES OF AMERICA
----------------------------------------------------------------------
(insert applicable agency)
ADDRESS----------------------------------------------------------------
----------------------------------------------------------------------
By---------------------------------------------------------------------
Title------------------------------------------------------------------

    11. Appendix D to subpart A is revised to read as follows:

Appendix D--Contract of Guarantee (Line of Credit)

USDA-CFSA
Form FmHA 1980-27
(Rev. 10-95)
Type of Loan-----------------------------------------------------------
    {time}  OL
Case No.---------------------------------------------------------------
State------------------------------------------------------------------
County-----------------------------------------------------------------
Lender-----------------------------------------------------------------
Lender's Address-------------------------------------------------------
Borrower's Name and Address--------------------------------------------
Lender's IRS Tax No.---------------------------------------------------
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 Consolidated Farm 
Service Agency (herein called ``Government''), pursuant to the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.), 
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 
Government's authorization, including but not limited to, advances 
for delinquent taxes, annual assessments, any 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 

[[Page 53260]]
Operating Loan Line of Credit is involved, advances under the 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 
be covered by this Contract. If Government conducts the liquidation 
of the line of credit, loss occasioned to a Lender by accruing 
interest after the date Government 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 
Government.

Conditions of Guarantee

1. Line of Credit Servicing

    Lender will be responsible for serving the entire line of 
credit, and Lender will remain mortgagee 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 C.F.R., part 1980, and request a 
determination of the Borrower's eligibility by Government. 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 Farm Credit Programs loans, the 
capitalization of interest when restructuring loans will not void 
this Contract of Guarantee.

Position 2

    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 Government 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 Government 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 Government that the guarantee will terminate 30 days after 
the date of notice, provided the Contract is returned to Government 
to be cancelled.

7. Settlement

    The amount due under this instrument will be determined and paid 
as provided in the applicable subpart of 7 C.F.R. part 1980 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.

9. Notices

    All notices and actions will be initiated through the County 
Supervisor for ______ (County) ________ (State) with mailing address 
at the date of this instrument:
----------------------------------------------------------------------
----------------------------------------------------------------------
UNITED STATES OF AMERICA
CONSOLIDATED FARM SERVICE AGENCY
By---------------------------------------------------------------------
----------------------------------------------------------------------
Title------------------------------------------------------------------
(Date)-----------------------------------------------------------------
Assumption Agreement by------------------------------------------------
dated ________, 19____
Assumption Agreement by------------------------------------------------
dated ________, 19____

    12. Appendix E to subpart A is revised to read as follows:

Appendix E--Agreement for Participation in Farm Credit Programs 
Guaranteed Loan Programs of the United States Government

USDA-CFSA
Form FmHA 1980-38
(Rev. 6-95)
    The purpose of this Agreement is to establish the Lender as an 
approved participant in the Farm Credit Programs Guaranteed Loan 
Programs of the Consolidated Farm Service Agency (CFSA), U.S. 
Department of Agriculture (herein called ``Government''). 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.

Position 2

Part I--General Requirements

A. Duties and Responsibilities of the Government

    1. Payment on Claims. Government agrees to make payment on its 
claims in accordance 

[[Page 53261]]
with the terms of the guarantee and Agency regulations in 7 C.F.R. 
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 
C.F.R. 1980.107.)
    2. Personnel Available for Consultation. The Government 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 C.F.R. 1980.13 and be approved by 
Government to be a participant in the Farm Credit 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 Government.
    3. Notification. The Lender shall immediately notify Government 
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 Government;
     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 
with independently process the loan request and will act as the 
Lender's agent with 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 
Government, 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 Government with 
all the data required under Agency regulations and any additional 
information necessary for Government to monitor the health of its 
guaranteed loan portfolio, and to satisfy external reporting 
requirements.
    The Lender also agrees to provide to Government, as requested by 
the Government 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 Government to properly monitor the Lender's performance.

C. Underwriting Requirements

    1. Responsibility. The Lender is responsible for originating, 
servicing, and collecting all guaranteed Farm Credit Programs loans 
in accordance with Government regulations.
    2. Origination Process.
    a. General Eligibility. The Lender shall make a preliminary 
determination whether loan applicants meet the general eligibility 
requirements of the Farm Credit Programs Guaranteed Loan Programs. 
The Government will make the final determination.
    b. Delinquency on 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 Government 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 the Government 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 C.F.R. 
1980.117.)
    e. Limitation on Guarantee. Any note requiring the payment of 
interest on interest will not be guaranteed. Default charges, late 
charges of any kind, and/or interest accrued on interest charges 
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 C.F.R. 1980, subparts A and B as set forth in Form 
FmHA 1980-15.
    c. Loan Closing. All loans guaranteed by the Government 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 
Government 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 Government 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 at or after loan 

[[Page 53262]]
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 C.F.R. 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 Government and the borrower of any 
violations. Specific responsibilities are described in 7 C.F.R. 
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 Government 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 to include actions taken up to the time of 
loan maturity or until a final loss is paid. (See 7 C.F.R. 1980.11.)
    3. Payments. Payments from the borrower shall be processed upon 
receipt according to 7 C.F.R. 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 Government 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 Government to resolve the problem. 
Actions taken by the Lender, with written concurrence of Government, 
may include but are not limited to, any curative actions contained 
in subpart B or 7 C.F.R. 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 Government's written agreement.
    c. The Lender will negotiate in good faith to resolve any 
problem in order to allow the borrower to cure 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 C.F.R. part 1980, and 
request a determination of the borrower's eligibility by Government. 
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 C.F.R. 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 
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 rate 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 mediation program of any 
State in accordance with the rules of that system and 7 C.F.R. 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, 
Government will purchase the unpaid principal balance. Upon 
Government's repurchase, the lender will liquidate the account or 
reimburse Government the amount of the repurchase within 180 days of 
Government's repurchase. See 7 C.F.R. 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). Government 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 C.F.R. 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 Government 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 Government, any future funds which may be 
recovered by the Lender will be pro-rated between Government and the 
Lender. Government will be paid the amount recovered in proportion 
to the percentage it guaranteed for the loan.
    d. Transfer and Assumption Cases. Refer to 7 C.F.R. 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 C.F.R. 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 Government. All liquidations must receive prior 
concurrence by the appropriate Government official. Refer to 7 
C.F.R. 1980.146 for specific guidance on the procedures for 
liquidation.
    7. Servicer.
    If the Lender contracts for servicing of guaranteed Farm Credit 
Programs loans, the Lender is not relieved of responsibility for 
proper servicing of the loans.

E. Agency Reviews of Lender's Operations

    The Government 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 Government 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 Government, or any party authorized by the 
Government, to conduct such reviews.

F. Conformance to Standards

    1. Standards. The Lender shall conform to the standards outlined 
in this Agreement and Government regulations for participation in 
Farm Credit Programs Guaranteed Loan Programs. CLP Lenders must 
maintain compliance with the criteria set forth in 7 C.F.R. 
1980.190. The Government shall determine Lender adherence to the 
standards based on:
     Adequacy in meeting requirements for origination, 
servicing, and liquidation of 

[[Page 53263]]
loans and lines of credit, including protection of collateral;
     Satisfaction of the reporting requirements of the 
Government;
     Success in operating in a sound and prudent 
businesslike manner;
     Portfolio performance compared to overall performance 
of the Farm Credit 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 Government shall 
carefully consider the circumstances and available facts in 
determining whether there is a pattern of Lender non-conformance 
with applicable standards. The Government 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 Government and intended by this Agreement that the 
Lender has the authority to exercise reasonable judgment in 
performing acts within its authority. However, the Government 
reserves the right to question any act performed or conclusion drawn 
that is inconsistent with this Agreement or Government regulations.
    3. Government 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, the Government reserves 
the right to take action in accordance with its laws and 
regulations.
    4. Lender Right of Appeal. The Government shall provide the 
Lender an opportunity to appeal, in accordance with Agency 
regulations at 7 C.F.R. Part 1980, subpart A, adverse actions taken 
by the Government.

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 Government regulations which, along 
with any future amendments consistent with this Agreement, contain 
the information necessary for the Lender to be in compliance with 
Government requirements.

1. 7 C.F.R. 1980 subpart A--General
2. 7 C.F.R. 1980 subpart B--Farm Credit 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 C.F.R. 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 Government 
as described below or revoked according to 7 C.F.R. 1980.190. For 
non-CLP Lenders, this Agreement will be valid indefinitely unless 
terminated by the Lender or the Government 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 by the Government. This Agreement may be 
terminated by the Government in accordance with Government 
regulations.
    4. Termination by the Lender. This Agreement may be terminated 
by the Lender by providing 30 days written notice to the Government.
    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 Government 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 the 
Government or the Lender transfers the loans. These requirements 
concerning loan management by the Lender and rights of the 
Government under this Agreement shall remain in effect whether the 
Agreement is terminated by the Lender or the Government.

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 in this Agreement, and in 7 C.F.R. 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 County Offices:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

    Lender: Complete this block of Section IV.

XXI. LENDER------------------------------------------------------------
    (Name)
----------------------------------------------------------------------
    (IRS I.D. Tax No.)
By---------------------------------------------------------------------
    (Signature)
----------------------------------------------------------------------
(Name Typed or Printed)
Title------------------------------------------------------------------
Date-------------------------------------------------------------------
ATTEST-----------------------------------------------------------------

    This block of Section IV will be completed by the Government.

The effective date of this Agreement
is---------------------------------------------------------------------
The expiration date of this Agreement
is---------------------------------------------------------------------
UNITED STATES OF AMERICA
Consolidated Farm Service Agency
By---------------------------------------------------------------------
(Signature)

Title------------------------------------------------------------------
----------------------------------------------------------------------
(Name Typed or Printed)
Date-------------------------------------------------------------------

    13. Appendix K to subpart A is added to read as follows:

Appendix K--Modification of New Contract Relating to Farm Credit 
Programs Guaranteed Loan/Line of Credit

United States Department of Agriculture

Modification of New Contract Relating to Farm Credit Programs 
Guaranteed Loan/Line of Credit

    The Lender's Agreement or Agreement For Participation in Farmer 
Programs Guaranteed Loan Programs of the United States Government 
executed with the Lender dated ______ and the attached Loan Note 
Guarantee or Contract of Guarantee (Line of Credit) executed with 
the Lender dated ______ relating to the loan to ______ in the amount 
of ______ is hereby modified to reflect a new principal amount of 
______ as a result of the capitalization of interest at the 
restructuring of the Farm Credit Programs Loan. This amount does not 
exceed statutory limits. The new guaranteed portion of the loan is 
______.

UNITED STATES OF AMERICA
CONSOLIDATED FARM SERVICE AGENCY
Date-------------------------------------------------------------------
By---------------------------------------------------------------------
Title------------------------------------------------------------------
    14. Appendix L to subpart A is added to read as follows:

Appendix L--Modification of Existing Contract Relating to Farm Credit 
Programs Guaranteed Loan/Line of Credit

United States Department of Agriculture

Modification of Existing Contract Relating to Farm Credit Programs 
Guaranteed Loan/Line of Credit

    The Lender's Agreement or Agreement For Participation in Farmer 
Programs Guaranteed Loan Programs of the United States Government 
executed with the Lender dated ______ and the attached Loan Note 
Guarantee or Contract of Guarantee (Line of Credit) executed with 
the Lender dated ______ relating to the loan to ______ in the amount 
of ______ is hereby modified to permit the capitalization of 
interest when restructuring the Farm Credit Programs loan PROVIDED 
that the new principal amount of ______ does not exceed statutory 
limits. Such capitalized interest on the guaranteed portion of the 
loan will be covered by the CFSA guarantee and will not void the 
contract when the capitalized interest result from restructuring. 
The new guaranteed portion of the loan is ______.

UNITED STATES OF AMERICA
CONSOLIDATED FARM SERVICE AGENCY
Date-------------------------------------------------------------------
By---------------------------------------------------------------------
Title

[[Page 53264]]


Subpart B--Farmer Program Loans

    15. Section 1980.124 is amended by revising the word ``plan(s)'' to 
read ``plan'' in the third sentence of paragraph (b)(10); by removing 
paragraph (d)(1); by redesignating paragraph (a)(8) as paragraph (a)(9) 
and paragraphs (d)(2) and (d)(3) as paragraphs (d)(1) and (d)(2), 
respectively; by revising the word ``FmHA'' to read ``the Agency'' in 
newly redesignated paragraph (d)(2); by revising the word ``FmHa'' to 
read ``Agency'' each place it appears in paragraphs (b)(8) and (c)(3); 
by revising the word ``FmHa'' to read ``the Agency'' in paragraph (f); 
by revising paragraphs (a)(4), (a)(6), (a)(7), (b)(6), (b)(12), and 
(e); and by adding new paragraph (a)(8) to read as follows:


Sec. 1980.124  Consolidation, rescheduling, reamortizing and deferral.

    (a) * * *
    (4) The borrower has acted in good faith demonstrating sincerity 
and honesty in meeting agreements with, and promises made to the lender 
and the Agency. This means cooperating in servicing the account and 
maintaining the security, and satisfactorily completing the Borrower 
Training program if required.
* * * * *
    (6) Any holder agrees in writing to the rescheduling, 
reamortization or deferral. The holder must understand that it will not 
receive any payments from the lender or from the Agency during any 
deferral period.
    (7) The lender may capitalize the outstanding interest when 
restructuring the loan. The restructuring proposal will be reviewed by 
the appropriate agency loan approval official in accordance with loan 
approval authorities based on the total outstanding principal and 
interest at the time of the proposal. Approval of servicing actions on 
guaranteed loans will be based on the new principal and guaranteed 
amounts and the authorities set forth in exhibit C of FmHA Instruction 
1901-A (available in any Agency office). Approved capitalized interest 
will be treated as part of the principal and interest indebtedness in 
calculating the maximum loss amount under Sec. 1980.20.
    (8) Only interest that has accrued at the rate indicated on the 
borrower's original promissory notes may be capitalized. Late payment 
fees or default interest penalties that have accrued due to the 
borrower's failure to make payments as agreed may not be capitalized.
* * * * *
    (b) * * *
    (6) There is no limit on the number of times a consolidation or 
rescheduling action may take place.
* * * * *
    (12) When a consolidation occurs, the new note or line of credit 
agreement will describe the notes or line of credit agreements being 
consolidated and will state that the indebtedness evidenced by such 
notes or line of credit agreements is not satisfied. The original notes 
or line of credit agreements will be retained for identification 
purposes.
* * * * *
    (e) Principal limit. As a result of the capitalization of interest, 
a rescheduled/reamortized note or line of credit agreement may increase 
the amount of principal which the borrower is required to pay above 
what would have been payable had the rescheduling, reamortization, or 
consolidation not occurred. However, in no case will such principal 
amount exceed the statutory loan limits set out in this subpart.
* * * * *


Sec. 1980.125  [Amended]

    16. Section 1980.125 is amended by removing paragraph (a)(10); by 
revising the words ``and/or'' in the first sentence of the introductory 
text of paragraph (a) to read ``and''; by revising ``FmHA'' to read 
``the Agency'' in the introductory text of paragraph (a) and paragraph 
(b)(1)(i) each place it appears; by revising ``FmHA'' to read 
``Agency'' in the introductory text of paragraph (a)(8); and by 
revising ``FmHA'' to read ``the Agency's'' in paragraph (a)(4).
    17. Section 1980.191 is amended by revising paragraph (e) to read 
as follows:


Sec. 1980.191  Borrower training program.

* * * * *
    (e) Vendor monitoring. Borrowers will complete course and 
instructor evaluations provided by the instructor when the borrowers 
complete the course.
    18. Section 1980.200 is revised to read as follows:


Sec. 1980.200  OMB control number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0079. Public reporting burden for this 
collection of information is estimated to vary from 15 minutes to 4 
hours per response, with an average of 1.32 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 
20250; and to the Office of Management and Budget, Paperwork Reduction 
Project (OMB #0575-0079), Washington, D.C. 20503.
    19. Exhibit D of subpart B is amended by revising the word 
``holder(s)'' to read ``holder'' in the first sentence of paragraph 
XVI; by removing the second sentence of paragraph XVI, and by revising 
paragraphs XIII.D., F. and G. to read as follows:

Exhibit D--Interest Assistance Program

* * * * *

XIII. Servicing of Loans/Lines of Credit Covered by an Interest 
Assistance Agreement

* * * * *
    D. In the event of reamortization, rescheduling or deferral of 
loans with Interest Assistance, Interest Assistance will remain 
available for that loan under the terms of the existing Interest 
Assistance Agreement. If additional Interest Assistance is needed to 
produce a positive cash flow throughout the life of the rescheduled/
reamortized loan and funds are not available for the additional 
Interest Assistance, then the rescheduling/reamortization will not 
be approved by the agency. In no case, will the subsidy be extended 
more than ten years from the initial effective date of the original 
Interest Assistance Agreement.
    E. * * *
    F. For Loan Note Guarantees held by holders, Agency purchase of 
the guaranteed portion of the loan will stop Interest Assistance 
payments on that portion. Interest Assistance payments will cease 
upon termination of the Loan Note Guarantee or Contract of Guarantee 
by expiration of the document or cancellation by the Government.
    G. A lender will notify the Agency when a borrower who is not 
receiving maximum Interest Assistance is 30 days past due on a 
payment and is unable to bring the account current within 30 days. 
The lender will request that the Agency make a determination as to 
the borrower's eligibility for Interest Assistance. The lender will 
submit a plan of operation for the farm projecting the repayment 
ability of the borrower with and without Interest Assistance. Upon 
receipt of the agency's determination, the lender may request 
Interest Assistance. If the lender declines Interest Assistance, the 
lender will notify the Agency in writing within 30 days.
* * * * * 

[[Page 53265]]

    Dated: September 14, 1995.
Eugene Moos,
Under Secretary of Agriculture, Farm and Foreign Agricultural Services.

    Dated: September 15, 1995.

Jill Long Thompson,
Under Secretary of Agriculture, Rural Economic and Community 
Development.
[FR Doc. 95-24179 Filed 10-12-95; 8:45 am]
BILLING CODE 3410-07-U