[Federal Register Volume 67, Number 7 (Thursday, January 10, 2002)]
[Rules and Regulations]
[Pages 1281-1286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-639]


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

FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 619

RIN 3052-AB93


Loan Policies and Operations; Definitions; Loan Purchases and 
Sales

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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

SUMMARY: The Farm Credit Administration (FCA, Agency, we, or our) 
issues this final rule to amend our loan participation regulations. 
This final rule will enable Farm Credit System (FCS or System) 
institutions to better use existing statutory authority for loan 
participations by eliminating unnecessary regulatory restrictions that 
may have impeded effective participation relationships between System 
institutions and non-System lenders. We believe that these regulatory 
changes will improve the risk management capabilities of both System 
and non-System lenders and thereby, enhance the availability of 
reliable and competitive credit for agriculture and rural America.

EFFECTIVE DATE: This regulation will be effective 30 days after 
publication in the Federal Register during which either or both Houses 
of Congress are in session. We will publish a notice of the effective 
date in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Mark L. Johansen, Policy Analyst, Office of Policy and Analysis, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 
883-4444.

 Or

James M. Morris, Senior Counsel, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-
4444.

SUPPLEMENTARY INFORMATION

I. Objectives

    Our objectives for this rule are to:

     Improve System institutions' ability to participate in 
today's loan participation market with both System and non-System 
lenders;
     Increase the flow of credit to agriculture and rural 
America; and
     Encourage improved working relationships between System 
institutions and non-System lenders.
    The rule will help to achieve these objectives by:
     Removing two restrictive definitions of a ``loan 
participation'' which will permit System institutions to purchase or 
sell 100-percent loan participations;
     Removing the 10-percent retention requirement when loan 
servicing remains with a non-System lender; and
     Making technical and clarifying changes in the Federal 
Agricultural Mortgage Corporation's (Farmer Mac) participation 
authorities.

II. Background

    Our existing rule limits the amount a System institution can 
participate in a non-System lender's loan to 90 percent of the 
outstanding principal when the non-System lender retains the servicing 
to the borrower. If the System institution acquires the servicing 
rights, it can participate in more of the loan, but is limited to an 
amount less than 100 percent of the outstanding principal due to the 
``fractional undivided'' language contained in two regulatory 
definitions of ``loan participation.''
    Our present regulations do not specifically refer to Farmer Mac as 
an ``other System institution'' for purposes of loan participation 
authorities because Farmer Mac's authority to buy, sell, hold, or 
assign loans was granted after the present regulations were written. 
These final regulations correct this omission.

[[Page 1282]]

III. Comments

    On July 26, 2000, we published a proposed rule in the Federal 
Register to amend parts 614 and 619 of our regulations. See 65 FR 
45931. We received 61 comment letters in response to our proposal. The 
majority of the comment letters were from boards of directors, 
management, or customers of System associations. We also received 
comments from five Farm Credit banks, two banking trade groups, and one 
community bank.
    All but four of the comment letters supported the proposed rule. 
The four comment letters expressing concerns were from the banking 
trade groups, the community bank, and one Farm Credit bank. Comments 
opposing the proposed rule ranged from questioning FCA's authority to 
adopt the rule to expressing concerns that the proposed rule moves the 
System away from its cooperative principles. We did not receive any 
comments opposing the removal of the 10-percent retention requirement 
or the proposed technical and clarifying changes concerning Farmer Mac. 
After carefully considering the comments received, we are adopting the 
proposed rule without substantive change.

A. FCA's Authority To Revise the Loan Purchases and Sales Regulation

1. Participation Authority
    The final rule eliminates two overly restrictive regulatory 
definitions in order to give System institutions the authority to buy 
and sell loan participations up to 100 percent of the outstanding 
principal. Some comment letters contend that the Farm Credit Act of 
1971, as amended (Act) does not permit us to authorize the purchase and 
sale of 100-percent participations. FCA has the authority to define the 
meaning of the terms used in the Act. We previously adopted more narrow 
regulatory definitions of loan participations than we now believe is 
required by statute. The Act does not provide a specific definition of 
a loan participation other than that contained in section 
3.1(11)(b)(iv), which specifically applies only to ``similar entity'' 
participations and does not limit the percentage of interest in a 
participation. We now have determined that we should remove these 
regulatory definitions and allow purchases and sales of 100-percent 
loan participations.
    We previously restricted a loan participation to a ``fractional'' 
undivided interest, something less than 100 percent.\1\ Prior to 
issuing the proposed rule last year, we reviewed this restrictive 
language and concluded that the Act does not require such a narrow 
definition. Section 1.5 of the Act provides that Farm Credit Banks, 
``subject to regulation by the Farm Credit Administration, shall have 
power to * * * make, participate in, and discount loans'' and may 
``participate with'' other financial institutions in loans authorized 
under the Act.\2\ There are no statutory limitations on the percentage 
of a loan in which a Farm Credit bank may participate.\3\ Similarly, 
sections 2.2 and 3.1 of the Act provide, respectively, that a 
production credit association may ``make and participate in loans'' and 
a bank for cooperatives may ``participate in loans,'' subject to 
regulation by the FCA. Nowhere does the Act provide that a 
participation interest must be less than 100 percent.
---------------------------------------------------------------------------

    \1\ We expressed this position in the preamble of the proposed 
Lending Authorities regulations (56 FR 2452, January 23, 1991).
    \2\ Section 1.5(16) of the Act authorizes FCS banks operating 
under title I to sell ``interests in loans'' to lenders that are not 
FCS institutions and expressly authorizes FCS banks to buy 
``interests in loans'' from FCS institutions. Section 1.5(6) and 
section 1.5(12) separately grant express authority to 
``participate'' in loans. Section 1.5(12) grants express authority 
to ``participate'' with ``lenders that are not Farm Credit System 
institutions in loans that the bank is authorized to make under this 
title.''
    \3\ We are not aware of any legislative history that limits the 
percentage of authorized ``participations.''
---------------------------------------------------------------------------

    The present FCA regulatory definitions are overly restrictive and 
not consistent with current banking practices. In 1984, the Office of 
the Comptroller of the Currency (OCC) issued a banking circular \4\ 
that provides that loan participations can include ``all or a portion'' 
of the loan. In addition, the Board of Governors of the Federal Reserve 
System (Federal Reserve), the Federal Deposit Insurance Corporation 
(FDIC), the OCC, and the Office of Thrift Supervision (OTS) issued an 
interagency statement on sales of 100-percent loan participations on 
April 10, 1997. The interagency statement provided guidance on the use 
of 100-percent loan participations in light of a 1992 court decision\5\ 
that concluded that such participations did not involve the sale of 
securities under Federal securities laws. By recognizing 100-percent 
loan participations, the banking guidance effectively removed the 
fractional-interest characteristic as a defining feature of a loan 
participation.
---------------------------------------------------------------------------

    \4\ OCC-BC-181 ``Purchases of Loans in Whole or Part-
Participations'' (August 2, 1984).
    \5\ Banco Espanol De Credito v. Security Pacific National Bank, 
973 F.2d 51 (2nd Cir. 1992).
---------------------------------------------------------------------------

    Under the Act, System institutions have the authority to 
participate in loans. Because the Act does not limit the percentage of 
participations, we do not believe that this statutory authority should 
be interpreted to exclude 100-percent loan participations.
    The final rule gives System institutions the freedom to exercise 
their statutory authority to acquire such participations by removing 
the regulatory definitions of ``loan participation'' from 
Secs. 614.4325(a)(4) and 619.9195. By removing these restrictive 
definitions, we provide System institutions comparable flexibility 
afforded by the Federal Reserve, FDIC, OCC and OTS to commercial banks 
and thrift institutions. This will enable System institutions to make 
better use of their statutory authority, to cooperate and participate 
with non-System lenders, and to improve access to credit for 
agriculture and rural America.
    Commenting on our proposed rule, a banking trade group argued that 
in the mid-1990's Congress explicitly denied a System attempt to 
increase its authority to purchase whole loans and to participate with 
non-System lenders in loans of up to 100 percent of the outstanding 
principal. At that time, the System's trade association, the Farm 
Credit Council (FCC), asked Congress to provide the System the 
authority to purchase ``whole'' loans from commercial banks. The 
document that the commenter cited referred to loan purchases, not loan 
participations. We found no evidence that the System's trade 
association included a request for 100-percent participation authority 
with their request for whole loan purchase authority.
2. Distinction Between Loan Participations and Loan Purchases
    Several commenters apparently confused 100-percent loan 
participation authority with the authority to purchase and sell 
interests in ``whole loans.'' The Act recognizes these as separate and 
distinct authorities and specifically authorizes System institutions to 
purchase or sell participations. The authorities are separate 
regardless of whether the interests are 100 percent or something less.
    Loan participations are a type of funding arrangement separate and 
distinct from either partial or whole loan purchases. The distinction 
centers around who retains the legal relationship with the borrower. In 
a loan purchase, part or all of the lending relationship transfers to 
the purchasing institution. By definition, a whole loan purchase 
includes not only the purchase

[[Page 1283]]

of the asset, but its cashflows, the legal relationship, and the 
servicing requirements. The relationship in a loan participation, 
regardless of the participation amount (100 percent or some amount less 
than 100 percent), consists only of cashflows from the loan and 
possibly the servicing rights for the loan. The legal lending 
relationship stays with the originating lender.
    While 100-percent loan participations may resemble whole loan 
purchases in some respects, the financial markets recognize them as 
separate and distinct transactions. In addition, courts have recognized 
the legal distinction between participations and loan purchases and the 
separate legal effects of loan participation agreements.\6\ Finally, 
other financial regulators recognize the legal distinctions between 
loan participations and selling whole loans, which involves the 
transfer of title.\7\
---------------------------------------------------------------------------

    \6\ For example, in McVay v. Western Plains Corp., 823 F.2d 1395 
(10th Cir., 1987), the court stated: ``In general, loan 
participations are a common and wholesome credit device . . . . In a 
typical loan participation . . . . the lead bank enters into 
participation agreements with the other banks but acts in relation 
to the loan and borrower . . . For example, the lead bank will 
appear as the only party on the note and mortgage. It generally also 
services the loan, which includes the right to make decisions 
concerning acceleration, foreclosure, redemption, and 
deficiencies.'' Additionally, In re Okura & Co., 249 B. R. 596 
(Bankr. S.D.N.Y. 2000), concluded that the participation agreement 
between the lead bank and another lender was a ``true loan 
participation'' that did not result in a partial assignment of the 
lead lender's right to payment from the debtor or otherwise give the 
participating bank lender any right to payment from the debtor. 
Therefore, the participant did not have a ``claim'' that would make 
it a ``creditor'' in the debtor's bankruptcy proceeding. In 
discussing the characteristics of loan participations, the court 
stated, ``The most common multiple lending agreement is the loan 
participation agreement, which involves two independent, bilateral 
relationships; the first between the borrower and the lead bank and 
the second between the lead bank and the participant. As a general 
rule, the participants do not have privity of contract with the 
underlying borrower.''
    \7\ For example, a National Credit Union Administration letter, 
dated September 18, 1996, refused to permit the use of 
participations to increase a credit union's lending to one member, 
stating: ``A credit union may not circumvent this restriction by 
selling loan participations because title to the loan normally does 
not transfer to the purchasers. Since the credit union retains 
title, selling loan participations does not reduce the ratio between 
the loan to the member and the credit union's reserves.''
---------------------------------------------------------------------------

B. Participation Authority and Farmer Mac

    The rule clarifies the authority of Farmer Mac and other System 
institutions to participate with each other. Some commenters argued 
that our proposal would duplicate Farmer Mac authorities and increase 
the risk to the System. Comment letters noted that selling loans to the 
secondary market through Farmer Mac provides liquidity and helps 
lending institutions manage portfolio concentrations. A banking trade 
group asserted that the ability of System institutions, acting as 
poolers, to purchase whole loans through the Farmer Mac I program 
provides the same benefit as this final rule would provide, but in a 
safer environment.
    System institutions have several tools they can use to improve 
liquidity and manage their loan portfolios. Selling loans to the 
secondary market is one of these tools, but is not the answer to all of 
an institution's needs.
    Pooling authorities and the ability to purchase or sell 100-percent 
loan participations serve different purposes. As a pooler, a System 
institution is a conduit between the originating lender and the 
secondary market through Farmer Mac. While the System institution, as 
pooler, would receive a fee for its services, it would not be able to 
use this activity as a risk mitigation tool, unless its loans were in 
the pool. On the other hand, if the institution purchased a loan 
participation, it would hold the participation interest in the loan on 
its books and be able to use the participation to mitigate risks in its 
portfolio.
    More significantly, loan participations potentially involve more 
types of loans than are eligible under Farmer Mac authorities. Loans 
sold to Farmer Mac are restricted to first mortgage loans, but System 
institutions and non-System lenders can participate in other types of 
loans. This rule provides more options to the originating and 
participating lender. This will not only afford increased business 
opportunities but will also help lenders to mitigate portfolio and 
concentration risk and better manage liquidity. As a result, the 
authorities provided in this rule, along with the ability to sell 
mortgage loans through Farmer Mac, have the ability to increase the 
availability of credit to farmers, ranchers, agriculture, and rural 
America.
    While we recognize System loan participation authorities may 
overlap with some of Farmer Mac's authorities, we do not believe our 
amended participation regulations will adversely impact Farmer Mac's 
operations. We note that Farmer Mac provided favorable comment on the 
proposed rule and did not indicate that provisions in the rule would be 
harmful.

C. Establishing Loan Participation Relationships

    A Farm Credit Bank asserted that aggressive System institutions 
would retain independent contractors outside of their chartered 
territory to originate loans for them. The commenter stated that this 
rule along with the existing FCA regulation that permits System 
institutions to participate in loans outside their chartered territory 
without the concurrence of other FCS institutions (65 FR 24101, Apr. 
25, 2000) would result in a de facto national charter in that a System 
institution could have lending relationships (in this case a 
participation relationship) outside its chartered territory.
    This rule and the authority for System institutions to participate 
in loans outside their chartered territory without receiving consent 
does not result in a de facto national charter. FCA's removal of the 
concurrence requirement provided FCS institutions the ability to enter 
into less than 100-percent participation interests in loans originated 
outside of their chartered territory without receiving concurrence. The 
actual change that this rule adds is to our participation authorities 
and not to our loan origination authorities. Therefore, it does not 
result in a de facto national charter, as it does not provide System 
institutions the authority to make loans outside their chartered 
territory.
    The FCC asked that System institutions be allowed to purchase 
participation interests in loans from private individuals. System 
institutions are authorized to purchase participation interests in 
loans from ``* * * lenders that are not Farm Credit institutions.'' We 
have previously defined the term ``other lenders'' in a preamble to an 
earlier rulemaking (57 FR 38237, Aug. 24, 1992) to include commercial 
banks, savings associations, credit unions, insurance companies, trust 
companies, agricultural credit corporations, incorporated livestock 
loan companies, and other financial intermediaries that extend credit 
as a regular part of their business. We reiterate our previous 
interpretation here with respect to the meaning of the term ``lender.''

D. Loan Participations and Cooperative Principles

    Several commenters observed that when a System institution buys a 
loan participation the borrower does not obtain stock in the 
institution and is not afforded borrower rights under the Act. 
Commenters stated that a System institution could have a portfolio in 
which the majority of its loans were participations. Commenters argued 
that these loans do not contribute capital, that borrowers holding 
these loans do not participate in System governance, and that these 
borrowers are not afforded the rights given to System borrowers by 
Congress. The comment letters argued that there would be a

[[Page 1284]]

disparity between the System's treatment of those who borrow from the 
System and those in whose loans the System participated.
    In response, we note that the System institutions may not exercise 
their participation authority in a manner that impedes service to their 
territory. Each institution's board of directors must establish limits 
on the amount of loan participations they can purchase.\8\ The preamble 
that proposed the present Sec. 614.4325(c)(4) stated that it ``* *  
would require that institution policies specify limits on the aggregate 
amount of interest on loans that may be purchased, including 
participation interests, sufficient to ensure that the primary mission 
of the institution to provide credit directly to agriculture is not 
compromised.'' (See 56 FR 2452, Jan. 23, 1991) In response to the 
issues raised in the comment letters, we reaffirm that each institution 
needs to establish these limits and that FCA will continue to evaluate 
the institution's participation programs as a part of our examination 
process.
---------------------------------------------------------------------------

    \8\ See Sec. 614.4325(c)(4) of our regulations.
---------------------------------------------------------------------------

    In response to commenters' concerns about System governance and 
borrower rights, borrowers who obtain loans from another lender instead 
of a System institution are not, in fact, System ``borrowers.'' This 
remains true even if a System institution later buys a 100-percent 
participation interest in a loan from a non-System lender. A loan 
participation is a lender-to-lender transaction and, thus, borrowers 
remain obligated to the loan originator. When a borrower receives a 
loan from a non-System lender, that borrower has no legal entitlement 
to System governance rights or System borrower rights. The purchaser of 
a participation interest does not have a legal relationship with the 
borrower.

E. Safety and Soundness

    We view safety and soundness controls as a cornerstone to an 
effective loan participation program. Lenders should use loan 
participations primarily as a risk diversification tool. While this 
rule may increase the System's loan participation activity, we expect 
System institutions to maintain appropriate risk levels and to 
implement the provisions allowed by this rule in a safe and sound 
manner. Commenters also discussed this concern. Institutions should not 
use this authority in a manner that results in an unsafe and unsound 
increase in commodity or geographical risk. We expect a thorough due 
diligence effort at the outset of any participation relationship.
    A participation relationship is a direct relationship between the 
originating lender and the purchasing institution and not between the 
purchasing institution and the borrower. Therefore, prudent 
underwriting procedures dictate that the purchasing institution must 
complete a thorough due diligence analysis of the originating lender 
and the loan, or pool of loans, being participated. We outline specific 
requirements in Sec. 614.4325(e) and provide additional guidance in FCA 
Bookletter (BL-027) which was sent to all Farm Credit institutions on 
March 27, 1996, to ensure the loan or pool of loans being participated 
in is of sound quality and that the originating lender has the capacity 
to manage the risk and exercise the responsibilities retained as the 
seller of a participation.
    The responsibility of the System institution as purchaser does not 
end with the initial due diligence analysis. Following FCA guidance and 
sound lending practices, System institutions should complete a periodic 
analysis of the originating lender to ensure that the lender remains 
able to manage the risk and exercise its responsibilities. Failure to 
complete this due diligence prior to purchasing a loan participation 
and on a periodic basis may be considered an unsafe and unsound 
practice.
    As in the preamble to the proposed rule, we again emphasize the 
importance of appropriate management of loan participations in ensuring 
safety and soundness as follows.
1. Controlling Risk of Participations
    Risk control issues arise with loan participations. Some of these 
are typical of any credit arrangement. However, 100-percent 
participations can increase certain types of risks if not controlled 
and managed appropriately. Therefore, System institutions should take 
extra care in developing the policies and procedures for their 
participation programs, especially if they intend to buy 100-percent 
participations. An institution's policies and procedures and 
participation agreements should, at a minimum, address the following:
     Credit risk--The participant depends on the originating 
lender to obtain, develop, and evaluate the relevant information about 
the borrower and the structure of the credit.
     Legal risk--The originating lender typically prepares the 
documentation for the loan and perfects any security interests. The 
participant generally has a share of the rights of the originating 
lender. If deficiencies exist, the participant's rights may be limited.
     Administrative risk--Typically, the participant must rely 
on the originating lender to: (a) Service, monitor, and control the 
credit relationship with the borrower; (b) provide information about 
the borrower; and (c) remit payments received from the borrower. All of 
these administrative actions should be addressed in the participation 
agreement as well as the parties' duties and responsibilities.
    A participant's administrative risk increases when the originating 
lender has no direct financial interest in the loan. Removing the 10-
percent retention requirement as permitted by this rule could increase 
this risk. The participation agreement should specifically address 
whether the seller has the ability, and under what circumstances, to 
transfer or sell the note or agreement to a third party without 
concurrence by the participant.
2. Managing Portfolio Risk
    Our current regulations (Sec. 614.4325(c)(4)) require each System 
institution involved in loan participation activities to develop and 
implement specific policies and procedures for such programs, including 
establishing appropriate portfolio limits to control risk.
    While participations offer a number of advantages to managing an 
institution's portfolio (especially as risk diversification tools) they 
also carry additional risks not common to a normal borrower/lender 
relationship. We believe policy direction from a System institution's 
board of directors becomes even more important with these changes to 
the existing rule. Each institution board that plans to use loan 
participations should set portfolio limitations and review them 
periodically to ensure loan participations are appropriately integrated 
into the institution's overall business plan and risk management 
strategies.

IV. Conclusion

    After carefully considering all comments received, we adopt the 
rule as proposed without change. We believe that the provisions of this 
final rule will give System institutions the needed flexibility to 
engage in loan participations with other System institutions, Farmer 
Mac, and non-System lenders. Benefits to System institutions include 
risk management and risk concentration alternatives as well as 
additional diversified interest income sources. In addition, to the 
extent this regulation enables System institutions to establish 
relationships with non-System lenders through loan participations, both 
parties should mutually benefit. Possible incidental

[[Page 1285]]

benefits to non-System lenders include increases in fee income, 
immediate liquidity relief, and having access to alternative and 
reliable funding sources. Most importantly, we believe expanded lender-
to-lender relationships will benefit farmers, ranchers, agriculture, 
and rural America by increasing access to available credit.

V. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets in excess of $5 
billion and annual income in excess of $400 million. Therefore, Farm 
Credit System institutions are not ``small entities'' as defined in the 
Regulatory Flexibility Act.

List of Subjects

12 CFR Part 614

    Agriculture, Banks, banking, Flood insurance, Foreign trade, 
Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 619

    Agriculture, Banks, banking, Rural areas.


    For the reasons stated in the preamble, we amend parts 614 and 619 
of chapter VI, title 12 of the Code of Federal Regulations as follows:

PART 614--LOAN POLICIES AND OPERATIONS

    1. The authority citation for part 614 continues to read as 
follows: e

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 
4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 
4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 
7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 
2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 
2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 
2183, 2184, 2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 
2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 
2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5); 
sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart A--Lending Authorities

    2. Amend Sec. 614.4000 as follows:
    a. Remove the word ``and'' at the end of paragraph (d)(1);
    b. Remove the ``.'' and add ``; and'' at the end of paragraph 
(d)(2); and
    c. Add paragraph (d)(3) to read as follows:


Sec. 614.4000  Farm Credit Banks.

* * * * *
    (d)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *

    3. Amend Sec. 614.4010 as follows:
    a. Remove the ``.'' and add ``; and'' at the end of paragraph 
(e)(2); and
    b. Add paragraph (e)(3) to read as follows:


Sec. 614.4010  Agricultural credit banks.

* * * * *
    (e)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *

    4. Amend Sec. 614.4020 as follows:
    a. Remove the ``.'' and add ``; and'' at the end of paragraph 
(b)(2); and
    b. Add paragraph (b)(3) to read as follows:


Sec. 614.4020  Banks for cooperatives.

* * * * *
    (b)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *

    5. Amend Sec. 614.4030 as follows:
    a. Remove the word ``and'' at the end of paragraph (b)(1);
    b. Remove the ``.'' and add ``; and'' at the end of paragraph 
(b)(2); and
    c. Add paragraph (b)(3) to read as follows:


Sec. 614.4030  Federal land credit associations.

* * * * *
    (b)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *
    6. Amend Sec. 614.4040 as follows:
    a. Remove the word ``and'' at the end of paragraph (b)(1);
    b. Remove the ``.'' and add ``; and'' at the end of paragraph 
(b)(2); and
    c. Add paragraph (b)(3) to read as follows:


Sec. 614.4040  Production credit associations.

* * * * *
    (b)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *

    7. Amend Sec. 614.4050 as follows:
    a. Remove the word ``and'' at the end of paragraph (c)(1);
    b. Remove the ``.'' and add ``; and'' at the end of paragraph 
(c)(2); and
    c. Add paragraph (c)(3) to read as follows:


Sec. 614.4050  Agricultural credit associations.

* * * * *
    (c)(3) The Federal Agricultural Mortgage Corporation to the extent 
provided in Sec. 614.4055.
* * * * *

    8. Add a new Sec. 614.4055 to read as follows:


Sec. 614.4055  Federal Agricultural Mortgage Corporation loan 
participations.

    Subject to the requirements of subpart H of this part 614:
    (a) Any Farm Credit System bank or direct lender association may 
buy from, and sell to, the Federal Agricultural Mortgage Corporation, 
participation interests in ``qualified loans.''
    (b) The Federal Agricultural Mortgage Corporation may buy from, and 
sell to, any Farm Credit System bank or direct lender association, or 
lender that is not a Farm Credit System institution, participation 
interests in ``qualified loans.''
    (c) For purposes of this section, ``qualified loans'' means 
qualified loans as defined in section 8.0(9) of the Act.

Subpart H--Loan Purchases and Sales

    9. Amend Sec. 614.4325 by:
    a. Removing paragraph (a)(4);
    b. Redesignating paragraphs (a)(5), (a)(6), and (a)(7) as 
paragraphs (a)(4), (a)(5), and (a)(6), respectively; and revising newly 
designated paragraph (a)(4) to read as follows:


Sec. 614.4325  Purchase and sale of interests in loans.

* * * * *
    (a)(4) Participating institution means an institution that 
purchases a participation interest in a loan originated by another 
lender.
* * * * *


Sec. 614.4330  [Amended]

    10. Amend Sec. 614.4330 as follows:
    a. Remove the words ``an undivided'' and add in their place the 
words ``a participation'' in paragraph (a)(9); and
    b. Remove paragraph (b) and redesignate existing paragraph (c) as 
paragraph (b).

Subpart J--Lending and Leasing Limits


Sec. 614.4358  [Amended]

    11. Amend Sec. 614.4358 as follows:
    a. Remove paragraph (b)(4)(i); and
    b. Redesignate paragraphs (b)(4)(ii) and (b)(4)(iii) as paragraphs 
(b)(4)(i) and (b)(4)(ii), respectively.

[[Page 1286]]

PART 619--DEFINITIONS

    12. The authority citation for part 619 continues to read as 
follows:

    Authority: Secs. 1.7, 2.4, 4.9, 5.9, 5.12, 5.17, 5.18, 7.0, 7.6, 
7.7, 7.8 of the Farm Credit Act (12 U.S.C. 2015, 2075, 2160, 2243, 
2246, 2252, 2253, 2279a, 2279b, 2279b-1, 2279b-2).


Sec. 619.9195  [Removed and Reserved]

    13. Remove and reserve Sec. 619.9195.

    Dated: January 7, 2002.
Kelly Mikel Williams,
Secretary, Farm Credit Administration Board.
[FR Doc. 02-639 Filed 1-9-02; 8:45 am]
BILLING CODE 6705-01-P