[Federal Register Volume 66, Number 11 (Wednesday, January 17, 2001)]
[Rules and Regulations]
[Pages 3861-3876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1249]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Bureau of Indian Affairs

25 CFR Part 103

RIN 1076-AD73


Loan Guaranty, Insurance, and Interest Subsidy

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Final rule.

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

SUMMARY: The Department of the Interior (DOI), Bureau of Indian Affairs 
(BIA) is revising the regulations that implement the Loan Guaranty, 
Insurance, and Interest Subsidy Program. This Program authorizes the 
Secretary of DOI to guaranty or insure loans made by private lenders to 
individual Indians and to organizations of Indians, and to assist 
qualified borrowers with a portion of their interest payments. The new 
regulations clarify prior regulatory language, in keeping with the 
``plain language'' standard required by Executive Order 12866. They 
also reflect evolved BIA policies, and address several issues that 
prior regulations did not cover.

[[Page 3862]]


EFFECTIVE DATE: These regulations take effect on February 16, 2001. 
They do not govern pre-existing loan guarantees. However, a lender may 
elect to have its pre-existing loan guarantees governed by the new 
regulations after the effective date by entering into a new loan 
guaranty agreement with BIA.

FOR FURTHER INFORMATION CONTACT: David B. Johnson, Division of Indian 
Affairs, Office of the Solicitor, 202-208-3401.

SUPPLEMENTARY INFORMATION: The Loan Guaranty, Insurance, and Interest 
Subsidy Program (Program) was established in the Act of April 12, 1974, 
as amended, 88 Stat. 79, 25 U.S.C. 1481 et seq. and 25 U.S.C. 1511 et 
seq. The Program has existed since 1974, and the regulations 
implementing it have existed since 1975. Until now, there has never 
been any extensive or significant revision of these regulations. The 
new regulations clarify part 103, reflect evolved BIA policies, address 
issues that have emerged over the years, and enhance some features of 
the Program. For example, BIA has overhauled the loan insurance feature 
of the Program to encourage lenders to reconsider its many advantages.
    BIA published a proposed rule in the Federal Register on September 
6, 2000 (65 FR 53948). BIA considered all comments received during the 
comment period, September 6, 2000 through November 6, 2000, in drafting 
this final rule.

Review of Public Comments

    BIA received 133 comments during the comment period. Commenters 
generally liked the organization and approach of the proposed rule much 
better than the prior rule, and sought only to influence the effect or 
wording of particular sections. Nonetheless, while most comments were 
rather specific, some raised issues of greater impact than was 
apparently envisioned. Correspondingly, in some cases BIA had to 
rethink sections of the proposed rule other than the one cited by the 
commenter. Here is a detailed breakdown of the comments, and how they 
impacted the proposed rule:

Subpart A--General Provisions

    Section 103.1What does this part do? There were no comments on this 
section.
    Section 103.2  Who does the Program help? One commenter felt that 
the second sentence of proposed Section 103.2 was superfluous. BIA 
agrees. The final rule omits the sentence.
    Section 103.3   Who administers the Program? Two commenters made 
three comments on this section, to the effect that BIA regional offices 
cannot and should not be the first point of contact for all applicants. 
BIA agrees. The final rule now has applicants contact ``the BIA office 
serving the borrower's location.''
    Section 103.4  What kinds of loans will BIA guarantee or insure? 
Three commenters made five comments on this section, two of which were 
subsequently withdrawn. One comment stated that paragraph (a) should 
require a business to contribute to the economy of an Indian 
reservation, instead of to ``an Indian tribe or its members.'' BIA 
agrees in part, and has changed the phrase in the final rule to ``an 
Indian reservation or tribal service area recognized by BIA.''
    Another commenter stated that qualified loans should include 
individual housing loans, but should not include loans for refinancing. 
BIA disagrees with both of these comments. Individual housing loans are 
outside the apparent scope of statutory authority for the Program, 
whereas loans for refinancing Indian businesses are not. In BIA's 
experience, refinancing loans is occasionally required to meet Program 
objectives.
    Section 103.5  What size loan will BIA guarantee or insure? Four 
commenters made five comments on this section. They generally 
questioned the concept of an ``acceptable Indian business entity,'' and 
warned of the potential abuse of small partnerships seeking big loans. 
BIA disagrees with these comments. It is BIA's duty to determine when 
there is a reasonable prospect of loan repayment. No regulatory ceiling 
on the amount an Indian business entity can borrow, especially one 
dependent on the organizational structure of the borrower, is an 
acceptable substitute for BIA's exercise of its reasonable discretion 
on a case-by-case basis.
    A comment on Section 103.6, however, resulted in a change to 
Section 103.5. The commenter pointed out that the proposed rule 
appeared to allow an individual Indian to apply for more than one loan 
in a manner that would enable the borrower to exceed the statutory 
limitation of $500,000 for an individual Indian. BIA agrees, and has 
added language to Section 103.5 to resolve this potential concern.
    Section 103.6  To what extent will BIA guarantee or insure a loan? 
Two commenters made three comments on this section, one of which was 
subsequently withdrawn and one of which was actually addressed in 
Section 103.5. The remaining comment was to the effect that BIA should 
allow only one guaranteed loan at a time between a particular borrower 
and lender. BIA disagrees, and believes that the proposed rule offers a 
more workable balance between reasonable limits and flexibility.
    Section 103.7  Must the borrower have equity in the business being 
financed? Two commenters made comments on this section. One comment was 
subsequently withdrawn, and the other merely expressed confusion over 
the proposed language. Upon review, BIA does not find any need to 
change this section.
    Section 103.8  Is there any cost for a BIA guaranty or insurance 
coverage? There were no comments on this section.

Subpart B--How a Lender Obtains a Loan Guaranty or Insurance Coverage

    Section 103.9  Who applies to BIA under the Program? Three 
commenters made four comments on this section, one of which was 
subsequently withdrawn. The remaining comments were to the effect that 
the last sentence of the proposed section was partly redundant, and 
partly unnecessary. BIA agrees, and has deleted it in the final rule.
    Section 103.10  What lenders are eligible under the Program? Three 
commenters made five comments on this section. Two commenters felt that 
tribes should not qualify as lenders. BIA disagrees with this comment, 
but notes that paragraph (b) of the proposed rule is superfluous, and 
eliminating it would satisfy these commenters, at least in part. BIA 
has removed the former paragraph (b) in the final rule, and re-lettered 
the remaining provisions accordingly.
    Another commenter suggested that BIA establish minimum ownership 
interests for those lenders who sell off portions of their guaranteed 
loans; the commenter suggested 25 percent. BIA agrees in part, and has 
established a minimum ownership interest of 10 percent. The final rule 
reflects this change in Section 103.28(a), not Section 103.10.
    A commenter suggested that BIA insert a new section, between 
proposed Secs. 103.10 and 103.11, to explain how a lender applies to 
BIA to become an approved lender under the Program. BIA disagrees. 
Historically, lenders interested in the Program have expressed no 
trouble getting channeled to BIA Regional Credit Officers, who in turn 
make the application process simple and expeditious in the vast 
majority of cases. BIA also has new, OMB-approved Loan Guaranty 
Agreement and Loan Insurance Agreement forms (BIA forms 5-4753

[[Page 3863]]

and 5-4754) that are designed to answer a number of questions and 
circumstances that prior forms bearing those numbers did not. In 
summary, the process is simple and is adequately explained in standard 
forms. There is no need to put the procedure in the rule itself.
    A final comment was unclear to BIA, and did not result in any 
change in the final rule.
    Section 103.11  How does BIA approve lenders for the Program? Six 
commenters made fifteen comments on this section. Five comments were 
directed at the need for three different levels of guaranteed lender 
approval, and how those levels are defined. BIA did not change the 
final rule as a result of these comments. The three levels of 
guaranteed lender approval are fully explained in BIA's new form 5-
4753, Loan Guaranty Agreement.
    Four comments noted a typographical error repeated in paragraphs 
(b) and (c), which previously used the phrase ``loan agreement.'' BIA 
has corrected the phrase, which is now ``loan guaranty agreement.''
    Four comments addressed the concern that a lender might think the 
suspension of its loan guaranty agreement and/or loan insurance 
agreement had an adverse impact on loan guarantees or insurance 
coverage already in effect. BIA has added a new paragraph (e) to 
clarify its intent.
    One comment requested a grace period prior to the suspension of a 
lender's loan guaranty agreement and/or loan insurance agreement 
following a change in corporate structure or merger. BIA disagrees with 
this request. Suspension affects only the lender's ability to issue new 
guaranteed or insured loans, and can be quickly remedied when and if 
the lender has a new qualified loan to present.
    One comment focused on the precise nature of the corporate changes 
that would trigger a suspension under this section. BIA agrees with the 
general comment, and has made changes in the final rule to clarify its 
intent. The changes appear in Sec. 103.11(b)(2), and in the new 
paragraph (c). Correspondingly, BIA has renumbered the former paragraph 
(c) as paragraph (d). BIA also has added a new paragraph (g) in 
Sec. 103.33, to conform with these changes.
    Section 103.12  How does a lender apply for a loan guaranty? Four 
commenters made thirteen comments on this section, two of which were 
subsequently withdrawn. One comment suggested specifying that a lender 
should submit its application to the BIA Superintendent where the 
business is located. BIA's response to this comment already is 
incorporated in the changes made to Section 103.3.
    One comment raised a question about the lender's role in providing 
a borrower with technical assistance, or even in evaluating the 
borrower's need for technical assistance. BIA agrees with this concern. 
BIA has reworded proposed paragraph (c) of this section--paragraph (d) 
in the final rule--to relieve the lender of these duties. BIA will bear 
primary responsibility for questions of technical assistance, to the 
extent it is able.
    One comment suggested that in some cases obtaining a credit report 
on a natural person other than the borrower might violate the Fair 
Credit Reporting Act. BIA agrees that the law is not entirely clear. 
Accordingly, it has reworded proposed paragraph (d) of this section--
paragraph (e) in the final rule.
    One comment suggested that credit reports be more current than 90 
days at the time of the application. BIA disagrees. The loan process 
can be lengthy, and BIA does not want to cause a borrower any 
unnecessary expense or a high number of credit report ``inquiries,'' 
when the reason for a stale credit report may not even be the 
borrower's fault. Lenders still may require a more recent credit report 
if that is their ordinary procedure.
    One comment said that lenders should not have to issue a commitment 
letter to a borrower until after BIA has approved the loan under the 
Program. BIA disagrees. A lender can avoid potential exposure by 
issuing its commitment letter subject to BIA approval under the 
Program. BIA, on the other hand, has no substitute for having before it 
the lender's blueprint for how it thinks a given loan will work.
    One comment requested a stylistic change in proposed paragraph (f) 
of this section. Upon reflection, BIA slightly re-worded paragraph (f), 
but in a manner different from the suggested wording. The meaning 
remains the same.
    One comment recommended establishing a standard for the maximum 
interest rate BIA would find acceptable. BIA disagrees, noting the 
historic volatility of interest rates.
    Two comments noted that proposed paragraphs (e) and (h) of this 
section would require a borrower to make a substantial investment of 
time and money, very early in the overall application process. This 
investment may prove unwarranted, since some projects do not get even 
tentative approval before denial. BIA agrees. BIA has removed the 
requirements described in these proposed paragraphs, and made them 
conditions of closing in Sec. 103.17 instead.
    One comment displayed confusion over whether the proposed paragraph 
(h)--now, paragraph (d) in Sec. 103.17--required each of the items in 
sub-paragraphs 1 through 4, or merely listed the items for convenience, 
should they apply in a given transaction. BIA has reworded the final 
rule to reduce the likelihood of confusion, and also to clarify the 
process for establishing that a proposed business will not be located 
in a special flood hazard area.
    One comment stated that proposed Secs. 103.12 and 103.26 are 
redundant. BIA agrees in part. BIA has eliminated the redundant 
features of these sections and placed their common components in 
Sec. 103.17.
    Section 103.13  How does a lender apply for loan insurance 
coverage? One commenter felt that lenders should always have to ask for 
BIA's approval, even to obtain loan insurance for a loan of under 
$100,000. BIA disagrees, noting the apparent intent of Congress in 25 
U.S.C. 1484.
    Section 103.14  Can BIA request additional information? There were 
no comments on this section.
    Section 103.15  Are there any prohibited loan terms? Five 
commenters made seven comments on this section, one of which was 
subsequently withdrawn. One commenter felt that BIA should be flexible 
concerning balloon payments, with the understanding that BIA would 
normally avoid them in determining whether there was a reasonable 
prospect of loan repayment. BIA agrees, and has deleted proposed 
paragraph (e).
    Two commenters recommended establishing a standard for the maximum 
interest rate BIA would find acceptable. BIA disagrees, noting the 
historic volatility of interest rates.
    One commenter suggested that BIA limit interest rate adjustments to 
quarterly. BIA disagrees. BIA has no compelling reason to force lenders 
to use special interest rate change dates, which could be viewed by 
lenders as a disincentive to use the Program.
    Two commenters questioned the late fee limitations in proposed 
paragraph (j)(3), now paragraph (i)(3). BIA agrees in part. It has 
removed the $100 cap on late fees.
    Section 103.16  How does BIA approve or reject a loan guaranty or 
insurance application? One commenter made a comment on this section, 
then withdrew it.
    Section 103.17  Must the lender follow any special procedures to 
close the loan? Three commenters made seven comments on this section, 
four of which were withdrawn. One commenter suggested that BIA require 
lenders to

[[Page 3864]]

submit three copies of all loan closing documents. BIA disagrees. It 
has no compelling reason to force lenders to undertake large amounts of 
photocopying for BIA's convenience.
    One commenter questioned whether BIA really needs copies of 
construction contracts and plans and specifications. BIA disagrees. BIA 
has experience with loans in which the absence of such documents has 
been disruptive.
    One commenter felt that a lender should be given 90 days, not 60, 
within which to close a loan that BIA has approved under the Program. 
BIA agrees and correspondingly has changed proposed paragraph (c) of 
this section, which is paragraph (f) of this section in the final rule.
    In addition, due to comments received with respect to proposed 
Secs. 103.12 and 103.26, in the final rule BIA has taken requirements 
from those locations and placed them in Sec. 103.17, specifically at 
paragraphs (c) and (d).
    Section 103.18  How does BIA issue a loan guaranty certificate or 
confirm loan insurance? There were no comments on this section.
    Section 103.19  When must the lender pay BIA the loan guaranty or 
insurance premium? One commenter made a comment on this section, then 
withdrew it.

Subpart C--Interest Subsidy

    Section 103.20  What is interest subsidy? BIA received two comments 
on this section. One commenter asked BIA to adopt Robert Morris 
Associates as its standard for establishing industry norms for 
earnings. BIA disagrees. No single private source for such figures 
covers every circumstance that BIA encounters, and BIA typically avoids 
tying regulatory requirements to standards that are in the hands of a 
single private source.
    A second commenter wanted BIA to delete the second sentence, 
effectively throwing interest subsidy open to every eligible borrower, 
regardless of their projected or historical earnings. BIA disagrees. 
The purpose and role of interest subsidy has evolved somewhat over the 
years, but at present policy considerations suggest that it should be 
available only in the limited circumstances BIA has proposed.
    Section 103.21  Who applies for interest subsidy payments, and what 
is the application procedure? BIA received two comments on this 
section, one of which was subsequently withdrawn. One comment said that 
lenders should be required to submit interest subsidy applications at 
the same time they submit loan guaranty or loan insurance coverage 
applications. BIA disagrees. Prior regulations contained this 
requirement, and BIA found it too inflexible to adequately address the 
legitimate needs of borrowers.
    Section 103.22  How does BIA determine the amount of interest 
subsidy? BIA received two comments on this section. One commenter 
requested that this section identify a more specific source of the 
``rate determined by the Secretary of the Treasury in accordance with 
25 U.S.C. 1464.'' BIA disagrees. Periodically issued source documents 
have been known to change, whereas the underlying statute can be 
expected to remain more stable. Lenders are of course free at any time 
to consult BIA on the current source document in use.
    Another comment suggested that BIA fix the interest subsidy amount 
as of the date of BIA approval. BIA agrees, and has modified the 
section accordingly.
    Section 103.23  How does BIA make interest subsidy payments? There 
were no comments on this section.
    Section 103.24  How long will BIA make interest subsidy payments? 
One commenter suggested that BIA offer interest subsidy payments for 
three years only, with no extensions. BIA disagrees. Experience shows 
that in many cases the fourth and fifth years of a loan are the 
critical years in which a borrower first becomes profitable. Absent 
interest subsidy payments, some borrowers would not survive to see that 
happen.

Subpart D--Provisions Relating to Borrowers

    Section 103.25  What kind of borrower is eligible under the 
Program? Three commenters made six comments, two of which were 
withdrawn. One comment asked BIA to specify that its guaranty would 
automatically be revoked in the event a borrower's business entity 
became less than 51 percent Indian-owned. BIA disagrees. While that 
interpretation may arguably apply to prior regulatory language, BIA 
specifically intends that the final rule preserve for a lender the 
option of either pursuing default remedies under the Program, or else 
ignoring the default (thereby allowing BIA's loan guaranty or insurance 
to become void) and simply carrying the loan on the lender's books 
without the benefit of Program coverage. In other words, prior 
regulatory language suggests that a reduction in the borrower's 
ownership to less than 51 percent Indian would automatically void BIA's 
guaranty or insurance of the lender's loan--through no fault of the 
lender, and without giving the lender any time to react. The new rule 
at least gives the lender the option of pursuing a claim under its loan 
guaranty or insurance coverage, should such an event occur.
    One comment requested that a lender have at least 45 days within 
which to exercise its remedies, should there be a default under the 51 
percent Indian ownership requirement. BIA disagrees. A default under 
the 51 percent Indian ownership requirement triggers the same 
procedures, and the same deadlines, that apply for any other kind of 
default. See Secs. 103.35 and 103.36. Those deadlines already provide 
60 days for the lender to notify BIA of the default, and 90 days from 
the date of the default for the lender to elect a Program remedy.
    One comment suggested that BIA define any ineligible businesses 
there may be, such as business activities involving gaming, currently 
made ineligible due to BIA policy. BIA disagrees. Policy considerations 
can change more rapidly than BIA can revise its regulations, and at 
present there is no other sort of business activity specifically 
prohibited under the Program.
    One comment suggested that, in the event a borrower's business 
becomes less than 51 percent Indian owned, and the lender decides not 
to pursue a claim against BIA under the Program, the lender should be 
required at least to notify BIA of the default under the 51 percent 
Indian ownership requirement. This notification would permit BIA to 
remove the loan from its active recordkeeping system. BIA agrees. BIA 
has not modified this section to reflect the comment, however; it has 
instead made an addition to Sec. 103.33.
    Section 103.26  What must the borrower supply the lender in its 
loan application? Four commenters made thirteen comments on this 
section, one of which was subsequently withdrawn. Three comments 
suggested that a borrower should provide balance sheets and operating 
statements for the preceding three years, instead of two. BIA agrees, 
and has made the change in the final rule.
    Two comments suggested that a borrower should provide three or more 
years of financial projections. BIA agrees, and the final rule reflects 
a requirement of three years.
    Four comments pointed out that the borrower was being required to 
provide appraisals and proof of compliance with applicable law too 
early in the lending process, and that a borrower could unnecessarily 
suffer wasted time and expense pursuing these requirements for a loan 
without even tentative approval from a lender or BIA. BIA agrees. It 
has changed these requirements into conditions for closing, at 
Sec. 103.17.

[[Page 3865]]

    One comment displayed confusion over whether or not the borrower 
was required to supply the kinds of evidence outlined in proposed 
Sec. 103.26(l), or whether the items listed at Sec. 103.26(l)(1)-(4) 
were simply examples, to be used when applicable. BIA has slightly re-
worded the language (now moved to Sec. 103.17(d)) to reduce the 
likelihood of confusion.
    One comment suggested that BIA establish standards for appraisals. 
BIA disagrees. In most cases, existing law or lender policy already 
establishes adequate appraisal standards, and BIA has no compelling 
need to add another system of requirements to what already is in place. 
Any BIA appraisal standards should in any event be designed for 
applicability far beyond the boundaries of the Program; it would be 
inappropriate to establish them for use solely within the Program.
    One comment suggested that parts of Sec. 103.12 and 103.26 are 
redundant. BIA agrees, and has removed the principal redundancies. The 
affected provisions have been combined and added to Sec. 103.17.
    Section 103.27  Can the borrower get help preparing its loan 
application or putting its loan funds to use? There were two comments 
on this section, both of which suggested revising the procedures for 
referring borrowers in need of technical assistance. One comment 
suggested that BIA refer borrowers to tribal business information 
centers. BIA disagrees. While tribal business information centers may 
be one potential source of help, they are not uniformly available and 
may not in some cases be the best available resource.
    One comment noted that BIA does not always have technical 
assistance funding. It suggested revising the proposed regulation to 
eliminate the inference that BIA is obliged to provide free technical 
assistance to a borrower, when BIA has no funds for that purpose. BIA 
agrees, and has removed the last sentence of the proposed section in 
the final rule.
    Changes to proposed Secs. 103.17 and 103.26 also necessitated a 
conforming change in this section.

Subpart E--Loan Transfers

    Section 103.28  What if the lender transfers part of the loan to 
another person? There were three comments on this section. One comment 
wanted BIA to permit the transfer of insured loans, in addition to 
guaranteed loans. BIA disagrees, due to the statutory prohibition 
implied by 25 U.S.C. 1485.
    Two comments expressed confusion over transfers brought about 
through merger, and on the distinction between a lender's right to make 
new guaranteed loans or insured loans under a loan guaranty agreement 
or loan insurance agreement, and a lender's right to guarantee or 
insurance coverage on the asset transferred. BIA has clarified this 
section and Section 103.29 in response to these comments.
    In addition, a comment on Sec. 103.10 caused BIA to insert in this 
section a requirement that lenders maintain at least a 10 percent 
ownership interest in loans they maintain under the Program.
    Section 103.29  What if the lender transfers the entire loan? BIA 
received four comments on this section. One comment suggested that BIA 
restrict transfers to eligible BIA lenders. BIA disagrees. Congress 
specifically expanded the universe of potential transferees when it 
enacted the current 25 U.S.C. 1485.
    One comment wanted BIA to permit the transfer of insured loans, in 
addition to guaranteed loans. BIA disagrees, due to the statutory 
prohibition implied by 25 U.S.C. 1485.
    Two comments expressed confusion over transfers brought about 
through merger, and on the distinction between a lender's right to make 
new guaranteed loans or insured loans under a loan guaranty agreement 
or loan insurance agreement, and a lender's right to guarantee or 
insurance coverage on the asset transferred. BIA has clarified this 
section and Section 103.28 in response to these comments.

Subpart F--Loan Servicing Requirements

    Section 103.30  What standard of care must a lender meet? BIA 
received two comments on this section. One comment requested deleting 
the requirement of automatic bank account debiting. BIA disagrees. The 
requirement is a reasonable and prudent use of modern technology, and 
in any event is required only when feasible.
    One comment suggested an additional place within BIA for recording 
lien instruments. BIA disagrees. The proposed wording covers all 
necessary contingencies, and does not require lenders to file any 
instrument with BIA more than once.
    Section 103.31  What loan servicing requirements apply to BIA? BIA 
received one comment on this section. The commenter suggested deleting 
proposed paragraph (b), as unnecessary. BIA agrees. It has deleted the 
paragraph, and correspondingly re-designated the paragraphs of this 
section in the final rule.
    Section 103.32  What sort of loan documentation does BIA expect the 
lender to maintain? There were no comments on this section.
    Section 103.33  Are there reporting requirements? BIA received two 
comments on this section, one of which was subsequently withdrawn. The 
other commenter asked to reduce the number of lender's reports to once 
per annum. BIA disagrees. It needs quarterly updates to prepare 
accurate reports for the Department of the Treasury.
    Also, due to comments received on Secs. 103.11 and 103.25, BIA 
expanded this section to reflect two additional notices that a lender 
may be obliged to send BIA.
    Section 103.34  What if the lender and the borrower decide to 
change the terms of the loan? There were no comments to this section. 
However, BIA made a minor change in paragraph (a)(7), to conform with a 
change in Sec. 103.4.

Subpart G--Default and Payment by BIA

    Section 103.35  What must the lender do if the borrower defaults on 
the loan? Three commenters made four comments on this section, one of 
which was subsequently withdrawn. One comment suggested a stylistic 
change in the standard for when a lender is required to send a borrower 
notice of its default. BIA disagrees, finding its proposed language 
more appropriate.
    One comment wanted BIA to keep its former requirement of having 
lenders notify BIA of a borrower's default within 45 days. BIA 
disagrees. BIA has determined that giving lenders an additional 15 
days, as in the final rule, can be of significant benefit to lenders 
without exposing BIA to any significant risk of an overall increase of 
Program losses.
    One comment suggested that BIA accept service by overnight delivery 
service. BIA agrees, and has changed the final rule accordingly.
    Section 103.36  What options and remedies does the lender have if 
the borrower defaults on the loan? Four commenters made five comments 
on this section, one of which was subsequently withdrawn. Two comments 
sought additional time for a lender that elects to negotiate a loan 
modification agreement with a borrower. BIA agrees in part. Rather than 
give an automatic 60 days, as one commenter suggested, BIA has added 
language enabling it to extend the 45 day period specified in the 
proposed rule.
    One comment suggested that BIA accept service by overnight delivery

[[Page 3866]]

service. BIA agrees, and has changed the final rule accordingly.
    One comment suggested requiring lenders to liquidate collateral 
before submitting a claim for loss on a loan guaranty. BIA disagrees. 
Congress apparently wants lenders to have the option of making an 
immediate claim for loss without any prior efforts to enforce its other 
default remedies. See 25 U.S.C. 1491 and 1492.
    Section 103.37  What must the lender do to collect payment under 
its loan guaranty certificate or loan insurance coverage? One commenter 
made three comments on this section. One comment suggested requiring 
lenders to submit claims for loss within 45 days of the borrower's 
default. BIA disagrees. Prior regulations gave the lender 60 days, and 
several lenders have had trouble complying with Program requirements 
within even that time period. BIA has determined that extending the 
required submission date for a claim for loss to 90 days will afford 
lenders the additional time they sometimes need, without unduly 
increasing BIA's potential exposure for overall Program losses.
    One comment suggested requiring lenders to liquidate collateral 
before submitting a claim for loss on a loan guaranty. BIA disagrees. 
Congress apparently wants lenders to have the option of making an 
immediate claim for loss without any prior efforts to enforce its other 
default remedies. See 25 U.S.C. 1491 and 1492.
    One comment observed an apparent inconsistency between allowing a 
lender up to 180 days following default to accrue interest while 
pursuing foreclosure remedies, and laws that require BIA to transfer a 
debt to the Department of the Treasury once it has been delinquent for 
180 days. BIA disagrees. BIA is not obliged to send a debt to the 
Department of the Treasury until BIA has held the debt for at least 180 
days, and in any event it need not forward any debt to Treasury that is 
in the process of foreclosure.
    BIA made a change to paragraph (e) of this section, however, on the 
basis of a comment to Section 103.38. BIA has introduced a 90 day 
deadline for rendering a decision on a claim for loss.
    Section 103.38  Is there anything else for BIA or the lender to do 
after BIA makes payment? BIA received two comments on this section, one 
of which was subsequently withdrawn. One comment asked BIA to adopt a 
60 day deadline for making payment on a claim for loss. BIA agrees in 
part. It has added a 90 day deadline for rendering decision on a claim 
for loss. The change has been made in Sec. 103.37(e).
    Section 103.39  When will BIA refuse to pay all or part of a 
lender's claim? BIA did not receive any comments on this section.
    Section 103.40  Will BIA make exceptions to its criteria for 
denying payment? BIA did not receive any comments on this section.
    Section 103.41  What happens if a lender violates provisions of 
this part? BIA did not receive any comments on this section.
    Section 103.42  How long must a lender comply with Program 
requirements? One commenter made two comments on this section. One 
comment suggested that BIA require either a shorter retention period, 
or else permit electronic data storage. BIA agrees. It has added 
appropriate language to the final rule.
    One comment observed an apparent inconsistency between BIA's 
reservation of rights and applicable statutes of limitations. BIA 
disagrees. The final rule does not and cannot supercede Federal 
statutes of limitations.
    Section 103.43  What must the lender do after repayment in full? 
BIA did not receive any comments on this section.

Subpart H--Definitions and Miscellaneous Provisions

    Section 103.44  What certain terms mean in this part. Two 
commenters made four comments on this section, one of which was 
subsequently withdrawn. One comment suggested eliminating the phrase 
``when used as a noun,'' in the definition of ``mortgage.'' BIA agrees. 
The change is in the final rule.
    One comment suggested further restricting the definition of the 
word ``Tribe'' to those tribes recognized by the Federal government as 
eligible for services from BIA. BIA agrees. The change is in the final 
rule.
    One comment suggested putting the definitions section at the 
beginning of the rule, rather than at the end. BIA disagrees. Current 
regulatory drafting theories suggest placing substantive provisions 
prominently at the beginning of a rule, and leaving reference materials 
towards the end.
    Section 103.45  Information collection. BIA did not receive any 
comments on this section.
    Other changes. In addition to the above comments, the final rule 
reflects a limited number of non-substantive, stylistic changes from 
the proposed rule. BIA added these for enhanced clarity, and in the 
case of a deletion in proposed Sec. 103.30(e), to allow for conformity 
with another anticipated rulemaking. BIA also made a small number of 
conforming changes in definitions and paragraph designations, required 
due to the change, addition, or deletion of rule provisions based on 
public comments.

Regulatory Planning and Review

    This document is not a significant rule and is not subject to 
review by the Office of Management and Budget (OMB) under Executive 
Order 12866.
    This rule will not have an effect of $100 million or more on the 
economy. Current and foreseeable funding levels for the Program will 
permit at most $82 million in new loans per annum. The rule will not 
adversely affect in a material way the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities. The Program is designed to 
enhance, not hinder, productivity, competition, jobs, and the overall 
economy, and there is nothing inherent about the Program or the rule 
that will lead to adverse effects on the environment, public health or 
safety, or State, local, or tribal governments or communities.
    This rule will not create a serious inconsistency or otherwise 
interfere with an action taken or planned by another agency. There is 
nothing in the rule to limit other efforts to encourage Indian economic 
development.
    This rule does not alter the budgetary effects or entitlements, 
grants, user fees, or loan programs or the rights or obligations of 
their recipients. The Program does not create or limit any entitlement, 
has nothing to do with other grant or loan programs, and establishes no 
user fees.
    This rule does not raise novel legal or policy issues. Part 103 has 
caused minimal legal review since 1975, and the new rule is in 
substance very similar to the existing rule.

Regulatory Flexibility Act

    DOI certifies that this document will not have a significant 
economic effect on a substantial number of small entities under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The number of 
lenders who might be impacted by the changes in this document is 
limited by the relatively modest number of individual Indians and 
organizations of Indians whose loans can be guaranteed or insured under 
the Program.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    (a) Does not have an annual effect on the economy of $100 million 
or more. Current and foreseeable funding levels

[[Page 3867]]

for the Program will permit at most $82 million in new loans per annum.
    (b) Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions. The rule is designed to clarify the 
roles and duties of the persons it may impact, and should in fact 
result in administrative savings. Any additional requirements imposed 
by the rule are either very limited in scope, or else in the nature of 
assembling information that lenders typically gather anyway.
    (c) Does not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
U.S.-based enterprises to compete with foreign-based enterprises. To 
the contrary, the rule implements the Program in order to encourage 
investment in new Indian businesses, and thereby increase U.S.-based 
competition, employment, productivity, and innovation.

Unfunded Mandates Reform Act

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. It does not impose any mandates at all. The rule does not have a 
significant or unique effect on State, local, or tribal governments or 
the private sector. Only a small segment of the private sector--the 
lending community--is directly affected by the rule, and the rule (1) 
is functionally very similar to existing law, and (2) relates to a 
Program that will permit at most $82 million in new loans per annum, 
based on current and foreseeable funding levels. A statement containing 
the information required by the Unfunded Mandates Reform Act (2 U.S.C. 
1531, et seq.) is not required.

Takings

    In accordance with Executive Order 12630, the rule does not have 
significant takings implications. The Program enhances the security 
available to lenders, and does not inherently involve any action that 
could deprive anyone of property without just compensation. A takings 
implication assessment is not required.

Federalism

    In accordance with Executive Order 13132, this rule does not have 
federalism implications. This rule does not substantially and directly 
affect the relationship between the Federal and State governments. The 
rule is directed at the relationship between lenders and the Federal 
Government, and does not impact States at all. This rule does not 
impose costs on States or localities, for the same reason.

Civil Justice Reform

    In accordance with Executive Order 12988, the Office of the 
Solicitor has determined that this rule does not unduly burden the 
judicial system and meets the requirements of sections 3(a) and 3(b)(2) 
of the Order.

Paperwork Reduction Act

    The Office of Management and Budget has reviewed and approved the 
information collections contained in this rule and assigned them number 
1076-0020. The proposed rule was published on September 6, 2000 (65 FR 
53948) and solicited comments on the information collection. OMB 
expressed no concerns with the information collection, and no comments 
were received from the public.
    The information collection is required to obtain or retain a 
benefit. Information covered by the Privacy Act will be kept 
confidential as required by law. Please note that a Federal agency may 
not collect or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number.

National Environmental Policy Act

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. A detailed statement 
under the National Environmental Policy Act of 1969 is not required.

List of Subjects in 25 CFR Part 103

    Indians--Insurance, Interest subsidy, and Loan guaranty.

    For the reasons given in the preamble, BIA is revising part 103 in 
chapter I of title 25 of the Code of Federal Regulations as set forth 
below.

PART 103--LOAN GUARANTY, INSURANCE, AND INTEREST SUBSIDY

Subpart A--General Provisions
Sec.
103.1  What does this part do?
103.2  Who does the Program help?
103.3  Who administers the Program?
103.4  What kinds of loans will BIA guarantee or insure?
103.5   What size loan will BIA guarantee or insure?
103.6   To what extent will BIA guarantee or insure a loan?
103.7   Must the borrower have equity in the business being 
financed?
103.8   Is there any cost for a BIA guaranty or insurance coverage?
Subpart B--How a Lender Obtains a Loan Guaranty or Insurance Coverage
103.9   Who applies to BIA under the Program?
103.10   What lenders are eligible under the Program?
103.11   How does BIA approve lenders for the Program?
103.12   How does a lender apply for a loan guaranty?
103.13   How does a lender apply for loan insurance coverage?
103.14   Can BIA request additional information?
103.15   Are there any prohibited loan terms?
103.16   How does BIA approve or reject a loan guaranty or insurance 
application?
103.17   Must the lender follow any special procedures to close the 
loan?
103.18   How does BIA issue a loan guaranty or confirm loan 
insurance?
103.19   When must the lender pay BIA the loan guaranty or insurance 
premium?
Subpart C--Interest Subsidy
103.20   What is interest subsidy?
103.21   Who applies for interest subsidy payments, and what is the 
application procedure?
103.22   How does BIA determine the amount of interest subsidy?
103.23   How does BIA make interest subsidy payments?
103.24   How long will BIA make interest subsidy payments?
Subpart D--Provisions Relating to Borrowers
103.25   What kind of borrower is eligible under the Program?
103.26   What must the borrower supply the lender in its loan 
application?
103.27   Can the borrower get help preparing its loan application or 
putting its loan funds to use?
Subpart E--Loan Transfers
103.28   What if the lender transfers part of the loan to another 
person?
103.29   What if the lender transfers the entire loan?
Subpart F--Loan Servicing Requirements
103.30   What standard of care must a lender meet?
103.31   What loan servicing requirements apply to BIA?
103.32   What sort of loan documentation does BIA expect the lender 
to maintain?
103.33   Are there reporting requirements?
103.34   What if the lender and borrower decide to change the terms 
of the loan?
Subpart G--Default and Payment by BIA
103.35   What must the lender do if the borrower defaults on the 
loan?
103.36   What options and remedies does the lender have if the 
borrower defaults on the loan?
103.37   What must the lender do to collect payment under its loan 
guaranty certificate or loan insurance coverage?
103.38   Is there anything else for BIA or the lender to do after 
BIA makes payment?
103.39   When will BIA refuse to pay all or part of a lender's 
claim?

[[Page 3868]]

103.40   Will BIA make exceptions to its criteria for denying 
payment?
103.41   What happens if a lender violates provisions of this part?
103.42   How long must a lender comply with Program requirements?
103.43   What must the lender do after repayment in full?
Subpart H--Definitions and Miscellaneous Provisions
103.44   What certain terms mean in this part.
103.45   Information collection.

    Authority: 25 U.S.C. 1498, 1511.

Subpart A--General Provisions


Sec. 103.1  What does this part do?

    This part explains how to obtain and use a BIA loan guaranty or 
loan insurance agreement under the Program, and who may do so. It also 
describes how to obtain and use interest subsidy payments under the 
Program, and who may do so.


Sec. 103.2  Who does the Program help?

    The purpose of the Program is to encourage eligible borrowers to 
develop viable Indian businesses through conventional lender financing. 
The direct function of the Program is to help lenders reduce excessive 
risks on loans they make. That function in turn helps borrowers secure 
conventional financing that might otherwise be unavailable.


Sec. 103.3  Who administers the Program?

    Authority for administering the Program ultimately rests with the 
Secretary, who may exercise that authority directly at any time. Absent 
a direct exercise of authority, however, the Secretary delegates 
Program authority to BIA officials through the U.S. Department of 
Interior Departmental Manual. A lender should submit all applications 
and correspondence to the BIA office serving the borrower's location.


Sec. 103.4  What kinds of loans will BIA guarantee or insure?

    In general, BIA may guarantee or insure any loan made by an 
eligible lender to an eligible borrower to conduct a lawful business 
organized for profit. There are several important exceptions:
    (a) The business must contribute to the economy of an Indian 
reservation or tribal service area recognized by BIA;
    (b) The borrower may not use the loan for relending purposes;
    (c) If any portion of the loan is used to refinance an existing 
loan, the borrower must be current on the existing loan; and
    (d) BIA may not guarantee or insure a loan if it believes the 
lender would be willing to extend the requested financing without a BIA 
guaranty or insurance coverage.


Sec. 103.5  What size loan will BIA guarantee or insure?

    BIA can guarantee or insure a loan or combination of loans of up to 
$500,000 for an individual Indian, or more for an acceptable Indian 
business entity, Tribe, or tribal enterprise involving two or more 
persons. No individual Indian may have an outstanding principal balance 
of more than $500,000 in guaranteed or insured loans at any time. BIA 
can limit the size of loans it will guarantee or insure, depending on 
the resources BIA has available.


Sec. 103.6  To what extent will BIA guarantee or insure a loan?

    (a) BIA can guarantee up to 90 percent of the unpaid principal and 
accrued interest due on a loan.
    (b) BIA can insure up to the lesser of:
    (1) 90 percent of the unpaid principal and accrued interest due on 
a loan; or
    (2) 15 percent of the aggregate outstanding principal amount of all 
loans the lender has insured under the Program as of the date the 
lender makes a claim under its insurance coverage.
    (c) BIA's guaranty certificate or loan insurance agreement should 
reflect the lowest guaranty or insurance percentage rate that satisfies 
the lender's risk management requirements.
    (d) Absent exceptional circumstances, BIA will allow no more than:
    (1) Two simultaneous guarantees under the Program covering 
outstanding loans from the same lender to the same borrower; or
    (2) One loan guaranty under the Program when the lender 
simultaneously has one or more outstanding loans insured under the 
Program to the same borrower.


Sec. 103.7  Must the borrower have equity in the business being 
financed?

    The borrower must be projected to have at least 20 percent equity 
in the business being financed, immediately after the loan is funded. 
If a substantial portion of the loan is for construction or renovation, 
the borrower's equity may be calculated based upon the reasonable 
estimated value of the borrower's assets after completion of the 
construction or renovation.


Sec. 103.8  Is there any cost for a BIA guaranty or insurance coverage?

    BIA charges the lender a premium for a guaranty or insurance 
coverage.
    (a) The premium is:
    (1) Two percent of the portion of the original loan principal 
amount that BIA guarantees; or
    (2) One percent of the portion of the original loan principal 
amount that BIA insures, without considering the 15 percent aggregate 
outstanding principal limitation on the lender's insured loans.
    (b) Lenders may pass the cost of the premium on to the borrower, 
either by charging a one-time fee or by adding the cost to the 
principal amount of the borrower's loan. Adding the premium to the 
principal amount of the loan will not make any further premium due. BIA 
will guarantee or insure the additional principal to the same extent as 
the original approved principal amount.

Subpart B--How a Lender Obtains a Loan Guaranty or Insurance 
Coverage


Sec. 103.9  Who applies to BIA under the Program?

    The lender is responsible for determining whether it will require a 
BIA guaranty or insurance coverage, based upon the loan application it 
receives from an eligible borrower. If the lender requires a BIA 
guaranty or insurance coverage, the lender is responsible for 
completing and submitting a guaranty application or complying with a 
loan insurance agreement under the Program.


Sec. 103.10  What lenders are eligible under the Program?

    (a) Except as specified in paragraph (b) of this section, a lender 
is eligible under the Program, and may be considered for BIA approval, 
if the lender is:
    (1) Regularly engaged in the business of making loans;
    (2) Capable of evaluating and servicing loans in accordance with 
reasonable and prudent industry standards; and
    (3) Otherwise reasonably acceptable to BIA.
    (b) The following lenders are not qualified to issue loans under 
the Program:
    (1) An agency or instrumentality of the Federal Government;
    (2) A lender that borrows money from any Federal Government source, 
other than the Federal Reserve Bank System, for purposes of relending;
    (3) A lender that does not include the interest on loans it makes 
in gross income, for purposes of chapter 1, title 26 of the United 
States Code; and
    (4) A lender that does not keep any ownership interest in loans it 
originates.

[[Page 3869]]

Sec. 103.11  How does BIA approve lenders for the Program?

    (a) BIA approves each lender by entering into a loan guaranty 
agreement and/or a loan insurance agreement with it. BIA may provide up 
to three different levels of approval for a lender making guaranteed 
loans, depending on factors such as:
    (1) The number of loans the lender makes under the Program;
    (2) The total principal balance of the lender's Program loans;
    (3) The number of years the lender has been involved with the 
Program;
    (4) The relative benefits and opportunities the lender has given to 
Indian business efforts through the Program; and
    (5) The lender's historical compliance with Program requirements.
    (b) BIA will consider a lender's loan guaranty agreement and/or 
loan insurance agreement suspended as of:
    (1) The effective date of a change in the lender's corporate 
structure;
    (2) The effective date of a merger between the lender and any other 
entity, when the lender is not the surviving entity; or
    (3) The start of any legal proceeding in which substantially all of 
the lender's assets may be subject to disposition through laws 
governing bankruptcy, insolvency, or receivership.
    (c) A change in a lender's name, without any other change specified 
under paragraph (b) of this section, will not cause a suspension of the 
lender's loan guaranty agreement and/or loan insurance agreement. The 
lender should notify BIA of its name change as soon as possible.
    (d) If a lender's loan guaranty agreement and/or loan insurance 
agreement is suspended under paragraph (b) of this section, the lender, 
or its successor in interest, must enter into a new loan guaranty 
agreement and/or loan insurance agreement with BIA in order to secure 
any new BIA loan guarantees or insurance coverage.
    (e) The suspension of a loan guaranty agreement and/or loan 
insurance agreement does not affect the validity of any guaranty 
certificate or insurance coverage in effect before the date of the 
suspension. Any such certificate or insurance coverage will remain 
governed by applicable terms of the suspended loan guaranty agreement 
and/or loan insurance agreement.


Sec. 103.12  How does a lender apply for a loan guaranty?

    To apply for a loan guaranty, a BIA-approved lender must submit to 
BIA a loan guaranty application request form, together with each of the 
following:
    (a) A written explanation from the lender indicating why it needs a 
BIA guaranty for the loan, and the minimum loan guarantee percentage it 
will accept;
    (b) A copy of the borrower's complete loan application;
    (c) A description of the borrower's equity in the business being 
financed;
    (d) A copy of the lender's independent credit analysis of the 
borrower's business, repayment ability, and loan collateral (including 
insurance);
    (e) An original report from a nationally-recognized credit bureau, 
dated within 90 days of the date of the lender's loan guaranty 
application package, outlining the credit history of the borrower, and 
to the extent permitted by law, each co-maker or guarantor of the loan 
(if any);
    (f) A copy of the lender's loan commitment letter to the borrower, 
showing at a minimum the proposed loan amount, purpose, interest rate, 
schedule of payments, and security (including insurance requirements), 
and the lender's terms and conditions for funding;
    (g) The lender's good faith estimate of any loan-related fees and 
costs it will charge the borrower, as authorized under this part;
    (h) If any significant portion of the loan will be used to finance 
construction, renovation, or demolition work, the lender's:
    (1) Insurance and bonding requirements for the work;
    (2) Proposed draw requirements; and
    (3) Proposed work inspection procedures;
    (i) If any significant portion of the loan will be used to 
refinance or otherwise retire existing indebtedness:
    (1) A clear description of all loans being paid off, including the 
names of all makers, cosigners and guarantors, maturity dates, payment 
schedules, uncured delinquencies, collateral, and payoff amounts as of 
a specific date; and
    (2) A comparison of the terms of the loan or loans being paid off 
and the terms of the new loan, identifying the advantages of the new 
loan over the loan being paid off.


Sec. 103.13  How does a lender apply for loan insurance coverage?

    BIA-approved lenders can make loans insured under the Program in 
two ways, depending on the size of the loan:
    (a) For loans in an original principal amount of up to $100,000 per 
borrower, the lender can make each loan in accordance with the lender's 
loan insurance agreement, without specific prior approval from BIA.
    (b) For loans in an original principal amount of over $100,000, the 
lender must seek BIA's specific prior approval in each case. The lender 
must submit a loan insurance coverage application request form, 
together with the same information required for a loan guaranty under 
Sec. 103.12, except for the information required by Sec. 103.12(a).
    (c) The lender must submit a loan insurance application package 
even for a loan of less than $100,000 if:
    (1) The total outstanding balance of all insured loans the lender 
is extending to the borrower under the Program exceeds $100,000; or
    (2) the lender makes a request for interest subsidy, pursuant to 
Sec. 103.21.


Sec. 103.14  Can BIA request additional information?

    BIA may require the lender to provide additional information, 
whenever BIA believes it needs the information to properly evaluate a 
new lender, guaranty application, or insurance application. After BIA 
issues a loan guaranty or insurance coverage, the lender must let BIA 
inspect the lender's records at any reasonable time for information 
concerning the Program.


Sec. 103.15  Are there any prohibited loan terms?

    A loan agreement guaranteed or insured under the Program may not 
contain:
    (a) Charges by the lender styled as ``points,'' loan origination 
fees, or any similar fees (however named), except that if authorized in 
the loan agreement, the lender may charge the borrower a reasonable 
annual loan servicing fee that:
    (1) Is not included as part of the loan principal; and
    (2) Does not bear interest;
    (b) Charges of any kind by the lender or by any third party except 
for the reasonable and customary cost of legal and architectural 
services, broker commissions, surveys, compliance inspections, title 
inspection and/or insurance, lien searches, appraisals, recording 
costs, premiums for required hazard, liability, key man life, and other 
kinds of insurance, and such other charges as BIA may approve in 
writing;
    (c) A loan repayment term of over 30 years;
    (d) Payments scheduled less frequently than annually;
    (e) A prepayment penalty, unless the terms of the penalty are 
clearly specified in BIA's loan guaranty or loan insurance conditions;
    (f) An interest rate greater than what BIA considers reasonable, 
taking into account the range of rates prevailing in the private market 
for similar loans;
    (g) A variable interest rate, unless the rate is tied to a specific 
prime rate

[[Page 3870]]

published from time to time by a nationally recognized financial 
institution or news source;
    (h) An increased rate of interest based on default;
    (i) A fee imposed for the late repayment of any installment due, 
except for a late fee that:
    (1) Is imposed only after the borrower is at least 30 days late 
with payment;
    (2) Does not bear interest; and
    (3) Equals no more than 5 percent of the late installment;
    (j) An ``insecurity'' clause, or any similar provision permitting 
the lender to declare a loan default solely on the basis of its 
subjective view of the borrower's changed repayment prospects;
    (k) A requirement that the borrower take title to any real or 
personal property purchased with loan proceeds by a title instrument 
containing restrictions on alienation, control or use of the property, 
unless otherwise required by applicable law; or
    (l) A requirement that a borrower which is a tribe provide as 
security a general assignment of the tribe's trust income. If otherwise 
lawful, a tribe may provide as loan security an assignment of trust 
income from a specific source.


Sec. 103.16  How does BIA approve or reject a loan guaranty or 
insurance application?

    (a) BIA reviews each guaranty or insurance application, and may 
evaluate each loan application independently from the lender. BIA bases 
its loan guaranty or insurance decisions on many factors, including 
compliance with this part, and whether there is a reasonable prospect 
of loan repayment from business cash flow, or if necessary, from 
liquidating loan collateral. Lenders are expected to obtain a first 
lien security interest in enough collateral to reasonably secure 
repayment of each loan guaranteed or insured under the Program, to the 
extent that collateral is available.
    (b) BIA approves applications by issuing an approval letter, 
followed by the procedures in Sec. 103.18. If the guaranty or insurance 
application is incomplete, BIA may return the application to the 
lender, or hold the application while the lender submits the missing 
information. If BIA denies the application, it will provide the lender 
with a written explanation, with a copy to the borrower.


Sec. 103.17  Must the lender follow any special procedures to close the 
loan?

    (a) BIA officials or their representatives may attend the closing 
of any loan or loan modification that BIA agrees to guarantee or 
insure. For guaranteed loans, and insured loans that BIA must 
individually review under this part, the lender must give BIA notice of 
the date of closing at least 5 business days before closing occurs.
    (b) At or prior to closing, the lender must obtain appropriate, 
satisfactory title and/or lien searches for each asset to be used as 
loan collateral.
    (c) At or prior to closing, the lender must obtain recent 
appraisals for all real property and improvements to be used as 
collateral for the loan, to the extent required by law.
    (d) At or prior to closing, the lender must document that the 
lender and borrower have complied with all applicable Federal, State, 
local, and tribal laws implicated by financing the borrower's business, 
for example by securing:
    (1) Copies of all permits and licenses required to operate the 
borrower's business;
    (2) Environmental studies required for construction and/or business 
operations under NEPA and other environmental laws;
    (3) Archeological or historical studies required by law; and
    (4) Certification by a registered surveyor or appropriate BIA 
official indicating that the proposed business will not be located in a 
special flood hazard area, as defined by applicable law.
    (e) The lender must supply BIA with copies of all final, signed 
loan closing documents within 30 days following closing. To the extent 
applicable, loan closing documents must include the following:
    (1) Promissory notes;
    (2) Security agreements, including pledge and similar agreements, 
and related financing statements (together with BIA's written approval 
of any assignment of specific tribal trust assets under Sec. 103.15(l), 
or of any security interest in an individual Indian money account);
    (3) Mortgage instruments or deeds of trust (together with BIA's 
written approval, if required by 25 U.S.C. 483a, or if the mortgage is 
of a leasehold interest in tribal trust property);
    (4) Guarantees (other than from BIA);
    (5) Construction contracts, and plans and specifications;
    (6) Leases related to the business (together with BIA's written 
approval, if required under 25 CFR part 162);
    (7) Attorney opinion letters;
    (8) Resolutions made by a Tribe or business entity;
    (9) Waivers or partial waivers of sovereign immunity; and
    (10) Similar instruments designed to document the loan, establish 
the basis for a security interest in loan collateral, and comply with 
applicable law.
    (f) Unless BIA indicates otherwise in writing, the lender must 
close a guaranteed or insured loan within 90 days of any approval 
provided under Sec. 103.16.


Sec. 103.18  How does BIA issue a loan guaranty or confirm loan 
insurance?

    (a) A loan is guaranteed under the Program when all of the 
following occur:
    (1) BIA issues a signed loan guaranty certificate bearing a series 
number, an authorized signature, a guaranty percentage rate, the 
lender's name, the borrower's name, the original principal amount of 
the loan, and such other terms and conditions as BIA may require;
    (2) The loan closes and funds;
    (3) The lender pays BIA the applicable loan guaranty premium; and
    (4) The lender meets all of the conditions listed in the loan 
guaranty certificate.
    (b) A loan is insured under the Program when all of the following 
occur:
    (1) The loan's purpose and terms meet the requirements of the 
Program and the lender's loan insurance agreement with BIA;
    (2) The loan closes and funds;
    (3) The lender notifies BIA of the borrower's identity and 
organizational structure, the amount of the loan, the interest rate, 
the payment schedule, and the date on which the loan closing and 
funding occurred;
    (4) The lender pays BIA the applicable loan insurance premium;
    (5) If over $100,000 or if the loan requires interest subsidy, BIA 
approves the loan in writing; and
    (6) If over $100,000 or if the loan requires interest subsidy, the 
lender meets all of the conditions listed in BIA's written loan 
approval.


Sec. 103.19  When must the lender pay BIA the loan guaranty or 
insurance premium?

    The premium is due within 30 calendar days of the loan closing. If 
not paid on time, BIA will send the lender written notice by certified 
mail (return receipt requested), or by a nationally-recognized 
overnight delivery service (signature of recipient required), stating 
that the premium is due immediately. If the lender fails to make the 
premium payment within 30 calendar days of the date of BIA's notice, 
BIA's guaranty certificate or insurance coverage with respect to that 
particular loan is void, without further action.

[[Page 3871]]

Subpart C--Interest Subsidy


Sec. 103.20  What is interest subsidy?

    Interest subsidy is a payment BIA makes for the benefit of the 
borrower, to reimburse part of the interest payments the borrower has 
made on a loan guaranteed or insured under the Program. It is available 
to borrowers whose projected or historical earnings before interest and 
taxes, after adjustment for extraordinary items, is less than the 
industry norm.


Sec. 103.21  Who applies for interest subsidy payments, and what is the 
application procedure?

    (a) An eligible lender must request interest subsidy payments on 
behalf of an eligible borrower, after determining that the borrower 
qualifies. Typically, the lender should include a request for interest 
subsidy at the time it applies for a guaranty or insurance coverage 
under the Program. A request for interest subsidy must be supported by 
the information required in Secs. 103.12 and 103.13 (relating to loan 
guaranty and insurance coverage applications). BIA approves, returns, 
or rejects interest subsidy requests in the same manner indicated in 
Sec. 103.16, based on the factors in Sec. 103.20 and BIA's available 
resources.
    (b) BIA's approval of interest subsidy for an insured loan may 
provide for specific limitations on the manner in which the lender and 
borrower can modify the loan.


Sec. 103.22  How does BIA determine the amount of interest subsidy?

    Interest subsidy payments should equal the difference between the 
lender's rate of interest and the rate determined by the Secretary of 
the Treasury in accordance with 25 U.S.C. 1464. BIA will fix the amount 
of interest subsidy as of the date it approves the interest subsidy 
request.


Sec. 103.23  How does BIA make interest subsidy payments?

    The lender must send BIA reports at least quarterly on the 
borrower's loan payment history, together with a calculation of the 
interest subsidy then due. The lender's reports and calculation do not 
have to be in any specific format, but in addition to the calculation 
the reports must contain at least the information required by 
Sec. 103.33(a). Based on the lender's reports and calculation, BIA will 
send interest subsidy payments to the borrower in care of the lender. 
The payments belong to the borrower, but the borrower and lender may 
agree in advance on how the borrower will use interest subsidy 
payments. BIA may verify and correct interest subsidy calculations and 
payments at any time.


Sec. 103.24  How long will BIA make interest subsidy payments?

    (a) BIA will issue interest subsidy payments for the term of the 
loan, up to 3 years. If interest subsidy payments still are justified, 
the lender may apply for up to two 1-year extensions of this initial 
term. BIA will make interest subsidy payments on a single loan for no 
more than 5 years.
    (b) BIA will choose the date from which it calculates interest 
subsidy years, usually the date the lender first extends the loan 
funds. Interest subsidy payments will apply to all loan payments made 
in the calendar years following that date.
    (c) Interest subsidy payments will not be due for any loan payment 
made after the corresponding loan guaranty or insurance coverage stops 
under the Program, regardless of the circumstances.

Subpart D--Provisions Relating to Borrowers


Sec. 103.25  What kind of borrower is eligible under the Program?

    (b) A borrower is eligible for a BIA-guaranteed or insured loan if 
the borrower is:
    (1) An Indian individual;
    (2) An Indian-owned business entity organized under Federal, State, 
or tribal law, with an organizational structure reasonably acceptable 
to BIA;
    (3) A tribe; or
    (4) A business enterprise established and recognized by a tribe.
    (b) To be eligible for a BIA-guaranteed or insured loan, a business 
entity or tribal enterprise must be at least 51 percent owned by 
Indians. If at any time a business entity or tribal enterprise becomes 
less than 51 percent Indian owned, the lender either may declare a 
default as of the date the borrower stopped being at least 51 percent 
Indian owned and exercise its remedies under this part, or else 
continue to extend the loan to the borrower and allow BIA's guaranty or 
insurance coverage to become invalid.


Sec. 103.26  What must the borrower supply the lender in its loan 
application?

    The lender may use any form of loan application it chooses. 
However, the borrower must supply the lender the information listed in 
this section in order for BIA to process a guaranty or insurance 
coverage application:
    (a) The borrower's precise legal name, address, and tax 
identification number or social security number;
    (b) Proof of the borrower's eligibility under the Program;
    (c) A statement signed by the borrower, indicating that it is not 
delinquent on any Federal tax or other debt obligation;
    (d) The borrower's business plan, including resumes of all 
principals and a detailed discussion of the product or service to be 
offered, market factors, the borrower's marketing strategy, and any 
technical assistance the borrower may require;
    (e) A detailed description of the borrower's equity in the business 
being financed, including the method(s) of valuation;
    (f) The borrower's balance sheets and operating statements for the 
preceding 3 years, or so much of that period that the borrower has been 
in business;
    (g) The borrower's current financial statement, and the financial 
statements of all co-makers and guarantors of the loan (other than 
BIA);
    (h) At least 3 years of financial projections for the borrower's 
business, consisting of pro-forma balance sheets, operating statements, 
and cash flow statements;
    (i) A detailed list of all proposed collateral for the loan, 
including asset values and the method(s) of valuation;
    (j) A detailed list of all proposed hazard, liability, key man 
life, and other kinds of insurance the borrower will maintain on its 
business assets and operations;
    (k) If any significant portion of the loan will be used to finance 
construction, renovation, or demolition work:
    (1) Written quotes for the work from established and reputable 
contractors; and
    (2) To the extent available, copies of all construction and 
architectural contracts for the work, plans and specifications, and 
applicable building permits;
    (l) If the borrower is a tribe or a tribal enterprise, resolutions 
by the tribe and proof of authority under tribal law permitting the 
borrower to borrow the loan amount and offer the proposed loan 
collateral; and
    (m) If the borrower is a business entity, resolutions by the 
appropriate governing officials and proof of authority under its 
organizing documents permitting the borrower to borrow the loan amount 
and offer the proposed loan collateral.


Sec. 103.27  Can the borrower get help preparing its loan application 
or putting its loan funds to use?

    A borrower may seek BIA's assistance when preparing a loan 
application or

[[Page 3872]]

when planning business operations, including assistance identifying and 
complying with applicable laws as indicated by Sec. 103.17(d). The 
borrower should contact the BIA field or agency office serving the area 
in which the borrower's business is to be located, or if there is no 
separate field or agency office serving the area, then the borrower 
should contact the BIA regional office serving the area.

Subpart E--Loan Transfers


Sec. 103.28  What if the lender transfers part of the loan to another 
person?

    (a) A lender may transfer one or more interests in a guaranteed 
loan to another person or persons, as long as the parties have in place 
an agreement that designates one person to perform all of the duties 
required of the lender under the Program and the loan guaranty 
certificate. Starting on the date of the transfer, only the person 
designated to perform the duties of the lender will be entitled to 
exercise the rights conferred by BIA's loan guaranty certificate, and 
will from that point forward be considered the lender for purposes of 
the Program. A lender under the Program must both service the 
guaranteed loan and own at least a 10 percent interest in the 
guaranteed loan. BIA will not consider more than one person at any 
given time to be the lender with respect to any loan guaranty 
certificate. If the person designated to perform the duties of the 
lender in an agreement among loan participants is not the original 
lender, then the provisions of Sec. 103.29(a) will apply (relating to 
sale or assignment of guaranteed loans), and the person designated to 
perform the duties of the lender must give BIA notice of its interest 
in the loan. Failure to provide notice in accordance with 
Sec. 103.29(a) will void BIA's loan guaranty certificate, without 
further action.
    (b) Transferring any interest in an insured loan to another person 
will void the insurance coverage for that loan, except where the 
transfer is effected by a merger.


Sec. 103.29  What if the lender transfers the entire loan?

    (a) A lender may transfer all of its rights in a guaranteed loan to 
any other person. The acquiring person must send BIA written notice of 
the transfer, describing the borrower, the loan, BIA's loan guaranty 
certificate number, and the acquiring person's name and address. 
Starting on the date of the transfer, only the acquiring person will be 
entitled to exercise the rights conferred by BIA's loan guaranty 
certificate, and will from that point forward be considered the lender 
for purposes of the Program. The acquiring person must service the 
guaranteed loan and otherwise perform all of the duties required of the 
lender under the Program and the loan guaranty certificate. Except when 
a transfer is effected by a merger, any failure by the acquiring person 
to send BIA proper notice of the transfer within 30 calendar days of 
the transfer date will void BIA's loan guaranty certificate, without 
further action.
    (b) Transferring an insured loan to another person will void the 
insurance coverage for that loan, except where the transfer is effected 
by a merger.
    (c) If a lender is not the surviving entity after a merger, the 
lender's successor must notify BIA in writing of the change within 30 
calendar days of the merger. The lender also must re-apply to become an 
approved lender under the Program, as indicated in Sec. 103.11.

Subpart F--Loan Servicing Requirements


Sec. 103.30  What standard of care must a lender meet?

    Lenders must service all loans guaranteed or insured under the 
Program in a commercially reasonable manner, in accordance with 
standards and procedures adopted by prudent lenders in the BIA region 
in which the borrower's business is located, and in accordance with 
this part. If the lender fails to follow any of these standards, BIA 
may reduce or eliminate entirely the amount payable under its guaranty 
or insurance coverage to the extent BIA can reasonably attribute the 
loss to the lender's failure. BIA also may deny payment completely if 
the lender gets a loan guaranty or insurance coverage through fraud, or 
negligently allows a borrower's fraudulent loan application or use of 
loan funds to go undetected. In particular, and without limitation, 
lenders must:
    (a) Check and verify information contained in the borrower's loan 
application, such as the borrower's eligibility, the authority of 
persons acting on behalf of the borrower, and the title status of any 
proposed collateral;
    (b) Take reasonable precautions to assure that loan proceeds are 
used as specified in BIA's guaranty certificate or written insurance 
approval, or if not so specified, then in descending order of 
importance:
    (1) BIA's written loan guaranty approval;
    (2) The loan documents;
    (3) The terms of the lender's final loan commitment to the 
borrower; or
    (4) The borrower's loan application;
    (c) When feasible, require the borrower to use automatic bank 
account debiting to make loan payments;
    (d) Require the borrower to take title to real and personal 
property purchased with loan proceeds in the borrower's own name, 
except for real property to be held in trust by the United States for 
the benefit of a borrower that is a tribe;
    (e) Promptly record all security interests and subsequently keep 
them in effect. Lenders must record all mortgages and other security 
interests in accordance with State and local law, including the laws of 
any tribe that may have jurisdiction. Lenders also must record any 
leasehold mortgages or assignments of income involving individual 
Indian or tribal trust land with the BIA office having responsibility 
for maintaining records on that trust land;
    (f) Assure, to the extent reasonably practicable, that the borrower 
and any guarantor of the loan (other than BIA) keep current on all 
taxes levied on real and personal property used in the borrower's 
business or as collateral for the loan, and on all applicable payroll 
taxes;
    (g) Assure, to the extent reasonably practicable, that all required 
insurance policies remain in effect, including hazard, liability, key 
man life, and other kinds of insurance, in amounts reasonably necessary 
to protect the interests of the borrower, the borrower's business, and 
the lender;
    (h) Assure, to the extent reasonably practicable, that the borrower 
remains in compliance with all applicable Federal, State, local and 
tribal laws, including environmental laws and laws concerning the 
preservation of historical and archeological sites and data;
    (i) Assure, to the extent reasonably practicable, that the borrower 
causes any construction, renovation, or demolition work funded by the 
loan to proceed in accordance with approved construction contracts and 
plans and specifications, which must be sufficient in scope and detail 
to adequately govern the work;
    (j) Reserve for itself and BIA the right to inspect the borrower's 
business records and all loan collateral at any reasonable time;
    (k) Promptly notify the borrower in writing of any material breach 
by the borrower of the terms of its loan, with specific instructions on 
how to cure the breach and a deadline for doing so;
    (l) Participate in any probate, receivership, bankruptcy, or 
similar proceeding involving the borrower and

[[Page 3873]]

any guarantor or co-maker of the borrower's debt, to the extent 
necessary to maintain the greatest possible rights to repayment; and
    (m) Otherwise seek to avoid and mitigate any potential loss arising 
from the loan, using at least that level of care the lender would use 
if it did not have a BIA loan guaranty or insurance coverage.


Sec. 103.31  What loan servicing requirements apply to BIA?

    Once a lender extends a loan that is guaranteed or insured under 
the Program, BIA has no responsibility for decisions concerning it, 
except for:
    (a) Any approvals required under this part;
    (b) Any decisions reserved to BIA under conditions of BIA's 
guaranty certificate or insurance coverage; and
    (c) Decisions concerning a loan that the lender has assigned to BIA 
or to which BIA is subrogated by virtue of paying a claim based on a 
guaranty certificate or insurance coverage.


Sec. 103.32  What sort of loan documentation does BIA expect the lender 
to maintain?

    For every loan guaranteed or insured under the Program, the lender 
must maintain:
    (a) BIA's original loan guaranty certificate or insurance coverage 
approval letter, if applicable;
    (b) Original signed and/or certified counterparts of all final loan 
documents, including those listed in Sec. 103.17 (concerning documents 
required for loan closing), all renewals, modifications, and additions 
to those documents, and signed settlement statements;
    (c) Originals or copies, as appropriate, of all documents gathered 
by the lender under Secs. 103.12, 103.13 and 103.26 (concerning 
information submitted by the borrower in its loan application, and 
information supplied to BIA in the lender's loan guaranty or insurance 
coverage application);
    (d) Originals or copies, as appropriate, of all applicable 
insurance binders or certificates, including without limitation hazard, 
liability, key man life, and title insurance;
    (e) A complete and current history of all loan transactions, 
including dated disbursements, payments, adjustments, and notes 
describing all contacts with the borrower;
    (f) Originals or copies, as appropriate, of all correspondence with 
the borrower, including default notices and evidence of receipt;
    (g) Originals or copies, as appropriate, of all correspondence, 
notices, news items or other information concerning the borrower, 
whether gathered by the lender or furnished to it, containing material 
information about the borrower and its business operations;
    (h) Originals or copies, as appropriate, of all advertisements, 
notices, title instruments, accountings, and other documentation of 
efforts to liquidate loan collateral; and
    (i) Originals or copies, as appropriate, of all notices, pleadings, 
motions, orders, and other documents associated with any legal 
proceeding involving the lender and the borrower or its assets, 
including without limitation judicial or non-judicial foreclosure 
proceedings, suits to collect payment, bankruptcy proceedings, probate 
proceedings, and any settlement associated with threatened or actual 
litigation.


Sec. 103.33  Are there reporting requirements?

    (a) The lender must periodically report the borrower's loan payment 
history so that BIA can recalculate the government's contingent 
liability. Loan payment history reports must be quarterly unless BIA 
provides otherwise for a particular loan. These reports can be in any 
format the lender desires, as long as they contain:
    (1) The lender's name;
    (2) The borrower's name;
    (3) A reference to BIA's Loan Guaranty Certificate or Loan 
Insurance Agreement number;
    (4) The lender's internal loan number; and
    (5) The date and amount of all loan balance activity for the 
reporting period.
    (b) If applicable, the lender must supply a calculation of any 
interest subsidy payments that are due, as indicated in Sec. 103.23.
    (c) If there is a transfer of any or all of the lender's ownership 
interest in the loan, the party receiving the ownership interest may be 
required to notify BIA, as indicated in Secs. 103.28 and 103.29.
    (d) If there is a default on the loan, the lender must notify BIA, 
as indicated in Secs. 103.35 and 103.36.
    (e) If the borrower ceases to qualify for a BIA-guaranteed or 
insured loan under Sec. 103.25(b), the lender must promptly notify BIA 
even if the lender does not pursue default remedies under Secs. 103.35 
and 103.36. This notice allows BIA to eliminate the guaranty or 
insurance coverage from its active recordkeeping system.
    (f) If the loan is prepaid in full, the lender must promptly notify 
BIA in writing so that BIA can eliminate the guaranty or insurance 
coverage from its active recordkeeping system.
    (g) If a lender changes its name, it should notify BIA in 
accordance with Sec. 103.11(c).


Sec. 103.34  What if the lender and borrower decide to change the terms 
of the loan?

    (a) The lender must obtain written BIA approval before modifying a 
loan guaranteed or insured under the Program, if the change will:
    (1) Increase the borrower's outstanding principal amount (if a term 
loan), or maximum available credit (if a revolving loan).
    (i) BIA will approve or disapprove a loan increase based upon the 
lender's explanation of the borrower's need for additional funding, and 
updated information of the sort required under Secs. 103.12, 103.13, 
and 103.26, as applicable.
    (ii) Upon approval by BIA and payment of an additional guaranty or 
insurance premium in accordance with Secs. 103.8 and 103.19 and this 
section, the entire outstanding loan amount, as modified, will be 
guaranteed or insured (as the case may be) to the extent BIA specifies. 
The lender must pay the additional premium only on the increase in the 
outstanding principal amount of the loan (if a term loan) or the 
increase in the credit limit available to the borrower (if a revolving 
loan).
    (iii) Lenders may not increase the outstanding principal amount of 
a loan guaranteed or insured under the Program if a significant purpose 
of doing so would be to allow the borrower to pay accrued loan interest 
it otherwise would have difficulty paying.
    (2) Permanently adjust the loan repayment schedule.
    (3) Increase a fixed interest rate, convert a fixed interest rate 
to an adjustable interest rate, or convert an adjustable interest rate 
to a fixed interest rate.
    (4) Allow any changes in the identity or organizational structure 
of the borrower.
    (5) Allow any material change in the use of loan proceeds or the 
nature of the borrower's business.
    (6) Release any collateral taken as security for the loan, except 
items sold in the ordinary course of business and promptly replaced by 
similar items of collateral, such as inventory.
    (7) Allow the borrower to move any significant portion of its 
business operations to a location that is not on or near an Indian 
reservation or tribal service area recognized by BIA.
    (8) Be likely to materially increase the risk of a claim on BIA's 
guaranty or insurance coverage, or materially reduce the aggregate 
value of the collateral securing the loan.
    (9) Cure a default for which BIA is to receive notice under 
Sec. 103.35(b).
    (b) In the case of an insured loan, the amount of which will not 
exceed

[[Page 3874]]

$100,000 when combined with all other insured loans from the lender to 
the borrower, the lender need not obtain BIA's prior approval to make 
any of the loan modifications indicated in Sec. 103.34(a), except as 
provided in Sec. 103.21(b). However, all loan modifications must remain 
consistent with the lender's loan insurance agreement with BIA, and in 
the event of an increase in the borrower's outstanding principal amount 
(if a term loan), or maximum available credit (if a revolving loan), 
the lender must send BIA an additional premium payment in accordance 
with Secs. 103.8, 103.19 and this section. The lender must pay the 
additional premium only on the increase in the outstanding principal 
amount of the loan (if a term loan) or the increase in the credit limit 
available to the borrower (if a revolving loan). To the extent a loan 
modification changes any of the information supplied to BIA under 
Sec. 103.18(b)(3), the lender also must promptly notify BIA of the new 
information.
    (c) Subject to any applicable BIA loan guaranty or insurance 
coverage conditions, a lender may extend additional loans to a borrower 
without BIA approval, if the additional loans are not to be guaranteed 
or insured under the Program.

Subpart G--Default and Payment by BIA


Sec. 103.35  What must the lender do if the borrower defaults on the 
loan?

    (a) The lender must send written notice of the default to the 
borrower, and otherwise meet the standard of care established for the 
lender in this part. The lender's notice to the borrower should be sent 
as soon as possible after the default, but in any event before the 
lender's notice to BIA under paragraph (b) of this section. For 
purposes of the Program, ``default'' will mean a default as defined in 
this part.
    (b) The lender also must send written notice of the default to BIA 
by certified mail (return receipt requested), or by a nationally-
recognized overnight delivery service (signature of recipient required) 
within 60 calendar days of the default, unless the default is fully 
cured before that deadline. This notice is required even if the lender 
grants the borrower a forbearance under Sec. 103.36(a). One purpose of 
the notice is to give BIA the opportunity to intervene and seek 
assistance for the borrower, even though BIA has no duty, either to the 
lender or the borrower, to do so. Another purpose of the notice is to 
permit BIA to plan for a possible loss claim from the lender, under 
Sec. 103.36(d). The lender's notice must clearly indicate:
    (1) The identity of the borrower;
    (2) The applicable Program guaranty certificate or insurance 
agreement number;
    (3) The date and nature of all bases for default;
    (4) If a monetary default, the amount of past due principal and 
interest, the date through which interest has been calculated, and the 
amount of any late fees, precautionary advances, or other amounts the 
lender claims;
    (5) The nature and outcome of any correspondence or other contacts 
with the borrower concerning the default; and
    (6) The precise nature of any action the borrower could take to 
cure the default.


Sec. 103.36  What options and remedies does the lender have if the 
borrower defaults on the loan?

    (a) The lender may grant the borrower a temporary forbearance, even 
beyond any default cure periods specified in the loan documents, if 
doing so is likely to result in the borrower curing the default. 
However, BIA must approve in writing any forbearance or other agreement 
that:
    (1) Permanently modifies the terms of the loan in any manner 
indicated by Sec. 103.34(a);
    (2) Would allow the borrower's default to extend beyond the 
deadline established in Sec. 103.36(d) for the lender to elect a 
remedy; or
    (3) Is not likely to result in the borrower curing the default.
    (b) The lender may make precautionary advances on the borrower's 
behalf during the default, if doing so is reasonably necessary to 
ensure that loan recovery prospects do not significantly deteriorate. 
Items for which the lender may make precautionary advances include, for 
example:
    (1) Hazard, liability, or key man life insurance premiums;
    (2) Security measures to safeguard abandoned business assets;
    (3) Real or personal property taxes;
    (4) Corrective actions required by court or administrative orders; 
or
    (5) Essential maintenance.
    (c) BIA will guaranty or insure the amount of precautionary 
advances from the date of each advance to the same extent as other 
amounts due under the loan, if:
    (1) The borrower has demonstrated its inability or unwillingness to 
make the payment or perform the duty that jeopardizes loan recovery, 
including by undue delay in making the payment or performing the duty;
    (2) The total expense of all precautionary advances by the lender 
does not at the time of the advance exceed 10 percent of the 
outstanding principal balance of the loan;
    (3) Where loan document provisions do not require the borrower to 
repay precautionary advances (however termed) when made by the lender, 
or where the total expense of all precautionary advances by the lender 
will exceed 10 percent of the outstanding principal balance of the loan 
when made, the lender secures BIA's prior written approval; and
    (4) The lender properly claims and documents all precautionary 
advances, if and when it submits a claim for loss under Sec. 103.37.
    (d) If the default remains uncured, the lender must send BIA a 
written notice by certified mail (return receipt requested), or by a 
nationally-recognized overnight delivery service (signature of 
recipient required) within 90 calendar days of the default to select 
one of the following remedies:
    (1) In the case of a guaranteed loan, the lender may submit a claim 
to BIA for its loss;
    (2) In the case of either a guaranteed or insured loan, the lender 
may liquidate all collateral securing the loan, and upon completion, if 
it has a residual loss on the loan, it may submit a claim to BIA for 
that loss; or
    (3) The lender may negotiate a loan modification agreement with the 
borrower to permanently change the terms of the loan in a manner that 
will cure the default. If the lender chooses this remedy, it may take 
no longer than 45 calendar days from the date BIA receives the notice 
of remedy selection to finalize a loan modification agreement and 
secure BIA's written approval of it, unless BIA specifically extends 
this deadline in writing. However, the lender may at any time before 
the expiration of the 45-day period (or any extension thereof) change 
its choice of remedy by sending BIA a notice otherwise complying with 
Sec. 103.36(d)(1) or (2). If the lender fails to send BIA a notice 
changing its choice of remedy and does not finalize an approved loan 
modification agreement within the 45-day period (or any extension 
thereof), the lender's only permissible remedy under the Program will 
be to pursue the procedure specified in Sec. 103.36(d)(2).
    (e) Failure by the lender to provide BIA with notice of the 
lender's election of remedy within 90 calendar days of the default, as 
indicated in Sec. 103.36(d), will invalidate BIA's loan guaranty 
certificate or insurance coverage for that particular loan, absent an 
express

[[Page 3875]]

waiver of this provision by BIA. BIA may preserve the validity of a 
loan guaranty certificate or insurance coverage through waiver of this 
provision only when BIA determines, in its discretion, that:
    (1) The lender consistently has acted in good faith, and
    (2) The lender's failure to provide timely notice either:
    (i) Has not caused any actual or potential prejudice to BIA; or
    (ii) Was the result of the lender relying upon specific written 
advice from a BIA official.


Sec. 103.37  What must the lender do to collect payment under its loan 
guaranty certificate or loan insurance coverage?

    (a) For guaranteed loans, the lender must submit a claim for its 
loss on a form approved by BIA.
    (1) If the lender makes an immediate claim under Sec. 103.36(d)(1), 
it must send BIA the claim for loss within 90 calendar days of the 
default by certified mail (return receipt requested), or by a 
nationally-recognized overnight delivery service (signature of 
recipient required). The lender's claim for loss may include interest 
that has accrued on the outstanding principal amount of the loan only 
through the date it submits the claim.
    (2) If the lender elects first to liquidate the collateral securing 
the loan under Sec. 103.36(d)(2), and has a residual loss after doing 
so, it must send BIA the claim for loss within 30 calendar days of 
completing all liquidation efforts. The lender must perform collateral 
liquidation as expeditiously and thoroughly as is reasonably possible, 
within the standards established by this part. The lender's claim for 
loss may include interest that has accrued on the outstanding principal 
amount of the loan only through the earlier of:
    (i) The date it submits the claim;
    (ii) The date the lender gets a judgment of foreclosure or sale (or 
the non-judicial equivalent) on the principal collateral securing the 
loan; or
    (iii) One hundred eighty calendar days after the date of the 
default.
    (b) For insured loans, after liquidating all loan collateral, the 
lender must submit a claim for its loss (if any) on a form approved by 
BIA. The lender must send BIA the claim for loss by certified mail 
(return receipt requested), or by a nationally-recognized overnight 
delivery service (signature of recipient required) within 30 calendar 
days of completing all liquidation efforts. The lender must perform 
collateral liquidation as expeditiously and thoroughly as is reasonably 
possible, within the standards established by this part. The lender's 
claim for loss may include interest that has accrued on the outstanding 
principal amount of the loan through the earlier of:
    (1) The date it submits the claim;
    (2) The date the lender gets a judgment of foreclosure or sale (or 
the non-judicial equivalent) on the principal collateral securing the 
loan; or
    (3) One hundred eighty calendar days after the date of the default.
    (c) Whenever the lender liquidates loan collateral under 
Sec. 103.36(d)(2), it must vigorously pursue all reasonable methods of 
collection concerning the loan collateral before submitting a claim for 
its residual loss (if any) to BIA. Without limiting the generality of 
the preceding sentence, the lender must:
    (1) Foreclose, either judicially or non-judicially, all rights of 
redemption the borrower or any co-maker or guarantor of the loan (other 
than BIA) may have in collateral under any mortgage securing the loan;
    (2) Gather and dispose of all personal property pledged as 
collateral under the loan, in accordance with applicable law;
    (3) Exercise all set-off rights the lender may have under contract 
or applicable law;
    (4) Make demand for payment on the borrower, all co-makers, and all 
guarantors of the loan (other than BIA); and
    (5) Participate fully in all bankruptcy proceedings that may arise 
involving the borrower and any co-maker or guarantor of the loan. Full 
participation might include, for example, filing a proof of claim in 
the case, attending creditors' meetings, and seeking a court order 
releasing the automatic stay of collection efforts so that the lender 
can liquidate affected loan collateral.
    (d) BIA may require further information, including without 
limitation copies of any documents the lender is to maintain under 
Sec. 103.32 and all documentation of liquidation efforts, to help BIA 
evaluate the lender's claim for loss.
    (e) BIA will pay the lender the guaranteed or insured portion of 
the lender's claim for loss, to the extent the claim is based upon 
reasonably sufficient evidence of the loss and compliance with the 
requirements of this part. BIA will render a decision on a claim for 
loss within 90 days of receiving all information it requires to 
properly evaluate the loss.


Sec. 103.38  Is there anything else for BIA or the lender to do after 
BIA makes payment?

    When BIA pays the lender on its claim for loss, the lender must 
sign and deliver to BIA an assignment of rights to its loan agreement 
with the borrower, in a document acceptable to BIA. Immediately upon 
payment, BIA is subrogated to all rights of the lender under the loan 
agreement with the borrower, and must pursue collection efforts against 
the borrower and any co-maker and guarantor, as required by law.


Sec. 103.39  When will BIA refuse to pay all or part of a lender's 
claim?

    BIA may deny all or part of a lender's claim for loss when:
    (a) The loan is not guaranteed or insured as indicated in 
Sec. 103.18;
    (b) The guarantee or insurance coverage has become invalid under 
Secs. 103.28, 103.29, or 103.36(e);
    (c) The lender has not met the standard of care indicated in 
Sec. 103.30;
    (d) The lender presents a claim for a residual loss after 
attempting to liquidate loan collateral, and:
    (1) The lender has not made a reasonable effort to liquidate all 
security for the loan;
    (2) The lender has taken an unreasonable amount of time to complete 
its liquidation efforts, the probable consequence of which has been to 
reduce overall prospects of loss recovery; or
    (3) The lender's loss claim is inflated by unreasonable liquidation 
expenses or unjustifiable deductions from collateral liquidation 
proceeds applied to the loan balance; or
    (e) The lender has otherwise failed in any material respect to 
follow the requirements of this part, and BIA can reasonably attribute 
some or all of the lender's loss to that failure.


Sec. 103.40  Will BIA make exceptions to its criteria for denying 
payment?

    (a) BIA will not reduce or deny payment solely on the basis of 
Secs. 103.39(c) or (e) when the lender making the claim for loss:
    (1) Is a person to whom a previous lender transferred the loan 
under Secs. 103.28 or 103.29 before maturity for value;
    (2) Notified BIA of its acquisition of the loan interest as 
required by Secs. 103.28 or 103.29;
    (3) Had no involvement in or knowledge of the actions or 
circumstances that would have allowed BIA to reduce or deny payment to 
a previous lender; and
    (4) Has not itself violated the standards set forth in 
Secs. 103.39(c) or (e).
    (b) If BIA makes payment to a lender under this section, it may 
seek reimbursement from the previous lender or lenders who contributed 
to the loss by violating Secs. 103.39(c) or (e).

[[Page 3876]]

Sec. 103.41  What happens if a lender violates provisions of this part?

    In addition to reducing or eliminating payment on a specific claim 
for loss, BIA may either temporarily suspend, or permanently bar, a 
lender from making or acquiring loans under the Program if the lender 
repeatedly fails to abide by the requirements of this part, or if the 
lender significantly violates the requirements of this part on any 
single occasion.


Sec. 103.42  How long must a lender comply with Program requirements?

    (a) A lender must comply in general with Program requirements 
during:
    (1) The effective period of its loan guaranty agreement or loan 
insurance agreement; and
    (2) Whatever additional period is necessary to resolve any 
outstanding loan guaranty or insurance claims or coverage the lender 
may have.
    (b) Except as otherwise required by law, a lender must maintain 
records with respect to a particular loan for 6 years after either:
    (1) The loan is repaid in full; or
    (2) The lender accepts payment from BIA for a loss on the loan, 
pursuant to a guaranty certificate or an insurance agreement.
    (c) At any time 2 years or more following one of the events 
specified in paragraphs (b)(1) or (2) of this section, a lender may 
convert its records for corresponding loans to any electronic format 
that is readily retrievable and that provides an accurate, detailed 
image of the original records. Upon converting its records in this 
manner, the lender may dispose of its original loan records.
    (d) This section does not restrict any claims BIA may have against 
the lender or any other party arising from the lender's participation 
in the Program.


Sec. 103.43  What must the lender do after repayment in full?

    The lender must completely and promptly release of record all 
remaining collateral for a guaranteed or insured loan after the loan 
has been paid in full. The release must be at the lender's sole cost. 
In addition, if the loan is prepaid the lender must notify BIA in 
accordance with Sec. 103.33(f).

Subpart H--Definitions and Miscellaneous Provisions


Sec. 103.44  What certain terms mean in this part.

    BIA means the Bureau of Indian Affairs within the United States 
Department of the Interior.
    Default means:
    (1) The borrower's failure to make a scheduled loan payment when it 
is due;
    (2) The borrower's failure to meet a material condition of the loan 
agreement;
    (3) The borrower's failure to comply with any other condition, 
covenant or obligation under the terms of the loan agreement within 
applicable grace or cure periods;
    (4) The borrower's failure to remain at least 51 percent Indian 
owned, as provided in Sec. 103.25(b);
    (5) The filing of a voluntary or involuntary petition in bankruptcy 
listing the borrower as debtor;
    (6) The imposition of a Federal, State, local, or tribal government 
lien on any assets of the borrower or assets otherwise used as 
collateral for the loan, except real property tax liens imposed by law 
to secure payments that are not yet due;
    (7) Any default defined in the loan agreement, to the extent the 
definition is not inconsistent with this part.
    Equity means the value, after deducting all debt, of the borrower's 
tangible assets in the business being financed, on which a lender can 
perfect a first lien security interest. It can include cash, 
securities, or other cash equivalent instruments, but cannot include 
the value of contractual options, the right to pay below market rental 
rates, or similar rights if those rights:
    (1) Are unassignable; or
    (2) Can expire before maturity of the loan.
    Indian means a person who is a member of a tribe as defined in this 
part.
    Loan agreement means the collective terms and conditions under 
which the lender extends a loan to a borrower, as reflected by the 
documents that evidence the loan.
    Mortgage means a consensual lien on real or personal property in 
favor of the lender, given by the borrower or a co-maker or guarantor 
of the loan (other than BIA), to secure loan repayment. The term 
``mortgage'' includes ``deed of trust.''
    NEPA means the National Environmental Policy Act of 1969, 42 U.S.C. 
4321 et seq.
    Person means any individual or distinct legal entity.
    Program means the BIA's Loan Guaranty, Insurance, and Interest 
Subsidy Program, established under 25 U.S.C. 1481 et seq., 25 U.S.C. 
1511 et seq., and this part 103.
    Reservation means any land that is an Indian reservation, 
California rancheria, public domain Indian allotment, pueblo, Indian 
colony, former Indian reservation in Oklahoma, or land held by an 
Alaska Native corporation under the provisions of the Alaska Native 
Claims Settlement Act (85 Stat. 688), as amended.
    Secretary means the Secretary of the United States Department of 
the Interior, or his authorized representative.
    Tribe means any Indian or Alaska Native tribe, band, nation, 
pueblo, rancheria, village, community or corporation that the Secretary 
acknowledges to exist as an Indian tribe, and that is eligible for 
services from BIA.


Sec. 103.45  Information collection.

    (a) The information collection requirements of Secs. 103.11, 
103.12, 103.13, 103.14, 103.17, 103.21, 103.23, 103.26, 103.32, 103.33, 
103.34, 103.35, 103.36, 103.37, and 103.38 have been approved by the 
Office of Management and Budget under 44 U.S.C. 3501 et seq., and 
assigned approval number 1076-0020. The information will be used to 
approve and make payments on Federal loan guarantees, insurance 
agreements, and interest subsidy awards. Response is required to obtain 
a benefit.
    (b) The burden on the public to report this information is 
estimated to average from 15 minutes to 2 hours per response, including 
the time for reviewing instructions, gathering and maintaining data, 
and completing and reviewing the information collection. Direct 
comments regarding the burden estimate or any other aspect of this 
information collection to the Information Collection Control Officer, 
Bureau of Indian Affairs, MS 4613, 1849 C Street, NW., Washington, DC 
20240.

    Dated: December 28, 2000.
Kevin Gover,
Assistant Secretary--Indian Affairs.
[FR Doc. 01-1249 Filed 1-16-01; 8:45 am]
BILLING CODE 4310-02-P