[Federal Register Volume 68, Number 151 (Wednesday, August 6, 2003)]
[Proposed Rules]
[Pages 46509-46514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19987]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

7 CFR Part 4279

RIN 0570-AA47


Fiscal and Transfer Agent--Secondary Market Sales

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Business-Cooperative Service (RBS) is proposing new 
regulations to standardize procedures for secondary market 
transactions, including initial and subsequent secondary market sales. 
The agency is proposing to solicit for an independent party to act as a 
Fiscal and Transfer Agent (FTA) to coordinate secondary market 
activities. RBS is taking this action to assure that lenders have a 
standard method in place to facilitate the paperwork and accounting 
associated with secondary market transactions for RBS Guaranteed Loans. 
While authority exists for guaranteed lenders to sell loans on the 
secondary market, many lenders are not active in the program because no 
such sales and accounting standards exist. RBS believes that 
implementing the FTA will result in increased secondary market sales. 
The intended effect of this action will be increased secondary market 
sales by lenders resulting in increased access to capital at 
competitive rates and terms by rural businesses. The FTA will serve as 
the record keeping facility for RBS, thus, eliminating the need for and 
cost of direct Government human and financial resources to administer 
the record keeping for sales on the secondary market.

DATES: Written comments on this proposed rule must be received on or 
before October 6, 2003 to be assured consideration. The comment period 
for the information collection under the Paperwork Reduction Act of 
1995 continues through October 6, 2003.

ADDRESSES: Submit written comments either (1) via the U.S. Postal 
Service to the Regulations and Paperwork Management Branch, Attention: 
Tracy Givelekian, Rural Development, U.S. Department of Agriculture, 
STOP 0742, 1400 Independence Avenue, SW., Washington, DC 20250-0742; or 
(2) via Federal Express Mail to the Regulations and Paperwork 
Management Branch, Attention: Tracy Givelekian, USDA-Rural Development, 
3rd Floor, 300 7th St., SW., Washington, DC 20024. Comments may also be 
submitted via the Internet by addressing them to 
[email protected] and must contain the word ``transfer'' in the 
subject line. All comments will be available for public inspection 
during regular work hours at the 300 7th. Street, SW., address listed 
above.

FOR FURTHER INFORMATION CONTACT: Pandor H. Hadjy, Assistant Deputy 
Administrator, Business Programs, U.S. Department of Agriculture, Rural 
Business Cooperative Service, Room 5050, Stop 3220, 1400 Independence 
Ave., SW., Washington, DC 20250-3220, Telephone: 202-720-9693, FAX: 
(202) 690-0097, E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988, Civil Justice Reform. RBS has determined that this 
proposed rule meets the applicable standards provided in section 3 of 
the Executive Order. In addition, all State and local laws and 
regulations that are in conflict with this rule will be preempted, no 
retroactive effect will be given to this rule, and administrative 
proceedings of the National Appeals Division (7 CFR part 11) must be 
exhausted before an action against the Department or its agencies may 
be initiated.

Regulatory Flexibility Act Certification

    RBS has determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities 
as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
Lenders participating in the Business and Industry Guaranteed Loan 
program are recipients of loan guarantees backed by the full faith and 
credit of the U.S. Government. This rule will not impact a substantial 
number of small entities to a greater extent than large entities. 
Therefore, a regulatory flexibility analysis was not performed.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

National Environmental Policy Act Certification

    The Administrator of RBS has determined that this proposed rule 
will not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.) Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program impacted by this proposed rule is listed in the Catalog 
of Federal Domestic Assistance Programs under number 10.768, Business 
and Industry Loans.

Executive Order 12372

    For the reasons set forth in the Final Rule related Notice to 7 CFR 
part 3015, subpart V, this program is subject to Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials. RBS has conducted intergovernmental consultation in the 
manner delineated in RD Instruction 1940-J.

[[Page 46510]]

Executive Order 13132, Federalism

    This proposal has been reviewed for compliance with Executive Order 
13132 on Federalism, and it has been determined that the regulation has 
no federalism implications, does not impose substantial direct 
compliance costs on State and local governments, and does not preempt 
State law.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, RBS will 
seek Office of Management and Budget (OMB) approval of the reporting 
and record keeping requirements contained in this proposed rule.
    Title: Fiscal and Transfer Agent--Secondary Market Sales.
    Type of Request: New collection.
    Abstract: The Business and Industry (B&I) program was legislated in 
1972 under section 310B of the Consolidated Farm and Rural Development 
Act, as amended. The purpose of the program is to improve, develop, or 
finance businesses, industries, and employment and improve the economic 
and environmental climate in rural communities. This purpose is 
achieved through bolstering the existing private credit structure 
through the guaranteeing of quality loans made by lending institutions, 
thereby providing lasting community benefits. Secondary markets allow a 
lender to sell the loan and an investor to purchase the guaranteed 
portion of a loan, thereby increasing the lender's profit on the loan. 
This collection of information is necessary to standardize 
recordkeeping and facilitate the sale of guaranteed portions of loans 
on the secondary market. The agency is implementing statutory authority 
to establish a Fiscal and Transfer Agent (FTA) to provide central 
registration and act as the paying/transfer agent and administrative 
agent for secondary market transactions. The FTA will serve as a 
centralized, computerized recordkeeping facility for the Rural 
Business-Cooperative Service (RBS). The use of the FTA concept 
eliminates the need and cost for direct Government human and financial 
resources which will be required to administer recordkeeping 
transactions on the secondary market. The B&I program is administered 
by the Agency through Rural Development State Offices and sub-State 
offices serving each State.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 23.9 hours per response.
    Respondents: Lending Institutions, Investors, Financial Services 
Firms.
    Estimated Number of Respondents: 821.
    Estimated Number of Responses per Respondent: 27.3.
    Estimated Number of Responses: 22,385.
    Estimated Total Annual Burden on Respondents: 533,920 hours.
    Copies of this information collection can be obtained from Tracy 
Givelekian, Regulations and Paperwork Management Branch, at (202) 692-
0039.

Comments

    Comments are invited on (a) whether the proposed collection of 
information is necessary for the proper performance of the functions of 
RBS, including whether the information will have practical utility; (b) 
the accuracy of RBS' estimate of the burden of the proposed collection 
of information, including the validity of the methodology and 
assumptions used; (c) ways to enhance the quality, utility, and clarity 
of the information to be collected; and (d) ways to minimize the burden 
of the collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    All responses to this notice will be summarized and included in the 
request for OMB approval. All comments will also become a matter of 
public record. Comments may be sent to Tracy Givelekian, Regulations 
and Paperwork Management Branch, U.S. Department of Agriculture, Rural 
Development, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 
20250.

Background

    RBS is proposing to implement new regulations to standardize record 
keeping and facilitate the sale of guaranteed portions of loans sold on 
the secondary market. Section 338 of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1988), as amended, provides legislative 
parameters for the sale of Guaranteed Loans on the secondary market. 
This section of the Act authorizes the Secretary to facilitate loan 
sales in accordance with regulations as established by the Secretary. 
RBS is implementing this existing statutory authority by promulgation 
of new regulations.
    The Agency is proposing to implement by regulation the authority to 
solicit for an independent party to act as a Fiscal and Transfer Agent 
(FTA) to provide central registration and act as the paying/transfer 
agent and administrative agent for secondary market transactions. The 
FTA will not be eligible to buy and sell loans. The FTA will be 
responsible to handle the mechanical aspects of secondary market 
operations. When this regulation becomes final, the Agency will enter 
into a contract with an independent party to act as the FTA. When that 
contract is in place, a Federal Register Notice will be issued to the 
public announcing the selection of the FTA as well as the date that 
lenders are required to use the selected FTA for processing secondary 
market sales under this regulation.
    Current Agency regulations permit the lender to sell all or part of 
the guaranteed loan on the secondary market or retain the entire loan. 
However, there are inadequate mechanisms in place to facilitate the 
paperwork and accounting associated with secondary market transactions 
of Agency loans. While authority exists for guaranteed lenders to sell 
loans on the secondary market, most lenders are not active in the 
program.
    Over the course of years of experience with secondary market sales, 
it has been demonstrated to the Agency that notification of subsequent 
sales has not consistently taken place in spite of requirements in 
Agency sales documents that require that notifications of subsequent 
sales be transmitted to the servicing office. Thus, a notification 
system has been in existence but has not been effective.
    There are several viable options available to increase access to 
the capital needed to increase rural economic growth. Secondary markets 
allow an investor to purchase the guaranteed portion of a loan. There 
are several reasons why a lender may desire to sell the guaranteed 
portion of the loan. Selling increases the yield to the lender on the 
unguaranteed portion. The increased liquidity gained by selling the 
guaranteed portion of the loan may be used by the lender to make 
additional loans. The broadened customer base offers increased 
opportunities to sell other services offered by the lender. In addition 
to helping with current liquidity problems, the secondary market offers 
lenders a hedge against potential liquidity troubles if a lender knows 
that it can sell guaranteed portions if it encounters liquidity 
problems in the future. In rural areas, where capital is often in short 
supply, the secondary market allows a lender to meet the credit needs 
of the local business community by importing capital from other parts 
of the country.
    The secondary market helps lenders make long-term fixed rate loans 
at a competitive interest rate to small

[[Page 46511]]

businesses. Typically, a lender will arrange forward pricing 
commitments with investors, in which the investor agrees to purchase 
the loan at a specified price if the lender delivers within a specific 
time. In this way, the lender knows its yield and can price 
accordingly. The borrower receives the fixed rate financing at 
competitive rates, which enables it to budget its interest costs more 
accurately. This provides the borrower with a reasonably stable payment 
while protecting the lender from interest rate risk.
    The Agency is proposing to implement by regulation the authority to 
solicit for an independent party to act as a Fiscal and Transfer Agent 
(FTA) to provide central registration and act as the paying/transfer 
agent and administrative agent for secondary market transactions. The 
FTA will not be eligible to buy and sell loans. The FTA will handle the 
mechanical aspects of secondary market operations. When this regulation 
becomes final, the Agency will enter into a contract with an 
independent party to act as the FTA. When that contract is in place, a 
Federal Register Notice will be issued to the public announcing the 
selection date of the FTA as well as an Implementation Date for 
processing secondary market sales under this regulation.
    The FTA will be responsible to serve as a central registry of 
owners of guaranteed loans (Holders); receive, examine, and safe keep 
documents received in connection with the sale; deliver to each 
registered holder the Certificate which evidences ownership interest; 
receive remittances from lenders, with respect to Guaranteed Interests; 
make appropriate payments to the Registered Holder together with a 
Statement of Account; provide the Agency with a statement of the 
outstanding balances of Guaranteed Loans sold on the secondary market 
as they appear from the FTA's books and records; and furnish the Agency 
with timely and current reports on program activity as directed by the 
Agency and which may be changed from time to time as the Agency may 
require. In addition, the FTA will be responsible to check key 
information on the settlement documents against Agency and lender 
records, to insure that they are accurate, and resolve any 
discrepancies before settlement. It is the FTA's responsibility to 
check to ensure that the loan has not been previously sold by the 
lender and/or repurchased prior to settlement. If the loan was 
repurchased due to default, the FTA will be responsible to obtain 
appropriate documentation from the lender and notify the Agency if the 
loan has been previously sold. If a loan was repurchased and 
subsequently sold, the FTA is responsible to examine the payment 
history for the required 12 monthly payments since default and 
repurchase.
    For initial sales, the FTA is responsible to monitor the first four 
payments of all loans sold to determine that the borrower makes 
payments pursuant to repayment agreements. For newly sold loans, the 
FTA is responsible for balance and interest paid-to-date accuracy. If 
the first payment is submitted incorrectly, the FTA will contact the 
lender and review the proper procedure for submission of payment 
information. The FTA will supply explanatory materials to lenders to 
assist with the preparation of payment information. The FTA will check 
all loan payments received to determine if the lender's principal 
balance and paid-to-date information agree with FTA records.
    In order to insure that the Agency's financial interest is 
protected, the FTA will maintain computerized, on-line default and 
prepayment files. The FTA will generate a monthly Late Payment Report 
for each respective servicing office which lists loans 60 days or more 
in default. The FTA will generate additional loan status reports from 
time to time as directed by the Agency. The FTA will provide to each 
servicing office, in a format approved by the Agency, a report of 
initial sales approved during the previous month. The FTA is 
responsible for sending bills to lenders to collect fees as are 
authorized by regulation and sending written instructions to the lender 
on the correct application of loan payments if necessary. The FTA is 
responsible to provide technical assistance to the Agency and maintain 
an inventory of regulations, forms, and program guides.
    The FTA is responsible to operate and maintain an in-house system 
consisting of all hardware, software, and procedures that will be used 
during the term of the agreement by the FTA to service the Secondary 
Market Program. As part of this program, the FTA will agree to provide 
the Agency with financial information as specified in contract on loan 
sales and is responsible for the accuracy of these records. The FTA 
will cooperate in the transfer of the FTA functions from it to a 
successor FTA upon termination or expiration of this contract, 
including all databases pertinent to Loan Sales. The FTA is responsible 
to provide timely answers to inquiries from investors, broker-dealers, 
and lenders concerning sales.
    The FTA is responsible to prepare, authenticate, and deliver 
Certificates to Registered Holders or their representatives. The FTA 
will receive from purchasers notifications of pending sales of 
Guaranteed Interests and monitor the progress of such sales. The FTA 
will establish and maintain a trust account on behalf of the Agency. 
The purpose of this account is to provide funds for the timely payment 
of principal and interest for securities issued under the program.
    The FTA will be required to carry a fidelity bond or similar 
insurance in an amount commensurate with the level of funds in 
possession of the FTA. The bond shall be in place or evidence of a 
legally-binding binder in place for this coverage shall be provided by 
the FTA prior to contract award, preferably the required information 
will be provided with the proposal.
    The FTA will be responsible to provide sufficient staff to act as a 
liaison between program participants for the purpose of handling any 
requests relating to secondary market sales. The FTA will be 
responsible to insure that the customer service function operates 
properly by developing, operating, and staffing an on-line customer 
service inquiry system that will enable customer service 
representatives to log each incoming telephone call and letter and 
track its status. Specific information as required by the agency and 
actions taken as a result of the inquiry must be retained for the 
duration of the contract and is subject to review by the Agency.
    Upon awarding of the contract, the FTA is responsible for 
development of a Secondary Market Program Guide. The guide should 
describe the market for loans sold on an individual basis and the role 
of the FTA. The remainder of the guide may be devoted to special topics 
and reference materials.
    The contract with the FTA will be effective on the date signed and 
expire 1 year after that date. The Agency shall retain the right to 
extend the contract for up to 4 additional years.
    Due to the declining level of resources available, the Agency has 
determined that the most efficient way to address the record keeping 
problems and implement secondary market policy decisions is to require 
the use of the FTA. The FTA will serve as a centralized, computerized 
record keeping facility for the Agency. The Agency will have electronic 
access to information regarding the owner of the guaranteed portion, 
terms of the sale, accounting of the payment flow, etc.
    The Small Business Administration (SBA) has utilized the FTA 
program since the mid-1980s and found that use of the program has 
resulted in several advantages: (1) Greater stability in the secondary 
market, (2) increased

[[Page 46512]]

liquidity providing additional capital to small businesses, (3) 
increased participation by large institutional investors, and (4) 
decreased interest costs to borrowers.
    Establishment of the FTA could encourage program lenders currently 
not utilizing the secondary market to sell loans to investors. SBA has 
operated successfully using the FTA concept. According to the SBA 
Annual Report for calendar year 2001, secondary market dollar volume of 
agency loans rose to an all-time high during that year. The increase in 
secondary market activity is attributed to implementation of the FTA 
concept. We believe that implementation of these regulatory changes 
will increase participation by lenders in the secondary market and make 
more funds available for rural business development. The benefits of 
participation in the secondary market will be passed on to the rural 
business and rural lending institutions.
    In addition, the establishment of the FTA would eliminate the need 
for and cost of direct Government human and financial resources 
required to administer record keeping for sales transactions on the 
secondary market. This action would be in compliance with OMB Circular 
A-76 which states, in part: ``It is the policy of the United States 
Government to * * * rely on the commercially available sources to 
provide commercial products and services * * * the Government shall not 
start or carry on any activity to provide a commercial product or 
service if the product or service can be procured more economically 
from a commercial source.''

List of Subjects in 7 CFR Part 4279

    Loan programs--Business and Industry, Rural areas.

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

PART 4279--GUARANTEED LOANMAKING

    1. The authority citation for part 4279 is revised to read as 
follows:

    Authority: 7 U.S.C. 1988; 7 U.S.C. 1989.

Subpart A--General

    2. Section 4279.75 is amended by adding two sentences at the 
beginning of the introductory text to read as follows:


Sec.  4279.75  Sale or assignment of guaranteed loan.

    This section applies to all loans where the Loan Note Guarantee is 
issued prior to the date in the Federal Register Notice announcing the 
selection of the Fiscal and Transfer Agent under subpart C of this 
part. After this date, all loans must be sold through the RBS Fiscal 
and Transfer Agent. * * *
* * * * *
    3. Section 4279.78 is amended in paragraph (a) by adding one 
sentence after the heading to read as follows:


Sec.  4279.78  Repurchase from holder.

    (a) * * * All loans sold through the FTA will be repurchased in 
accordance with subpart C of this part and the requirements of this 
paragraph. * * *
* * * * *
    4. Subpart C is added to read as follows:
Subpart C--Fiscal and Transfer Agent--Secondary Market Sales
Sec.
4279.201 Purpose.
4279.202 Definitions and abbreviations.
4279.203 Fees.
4279.204 [Reserved]
4279.205 Sale of Guaranteed Loans.
4279.206-4279.222 [Reserved]
4279.223 Lender payments.
4279.224 FTA payment processing responsibilities.
4279.225-4279.231 [Reserved]
4279.232 FTA Certificate administration responsibilities.
4279.233 Disclosures to purchasers.
4279.234-4279.236 [Reserved]
4279.237 Termination of Certificates.
4279.238 [Reserved]
4279.239 Repurchase of Guaranteed Interest by Lender.
4279.240 [Reserved]
4279.241 Repurchase by the Agency.
4279.242 Default by Lender.
4279.243 Surrender of Certificate.
4279.244 Certificates lost, destroyed, stolen, mutilated, or 
defaced.
4279.245 Suspension or revocation of participant in secondary 
market.
4279.246 Eligibility and selection of FTA.
4279.247 4279.299 [Reserved]
4279.300 OMB control number.

    Authority: 7 U.S.C. 1988; 7 U.S.C. 1989.

Subpart C--Fiscal and Transfer Agent--Secondary Market Sales


Sec.  4279.201  Purpose.

    This subpart contains regulations governing the sales of Guaranteed 
Loans by RBS on the secondary market. This subpart applies to all loans 
where the Loan Note Guarantee is issued after the date in the Federal 
Register Notice announcing the selection of the Fiscal and Transfer 
Agent under this subpart. Guaranteed Loans sold on the secondary market 
prior to the date in such Notice will be regulated in accordance with 
subparts A and B of this part and subpart B of part 4287 of this 
chapter. After such date any resale of those loans will be encouraged, 
but not required, to comply with the provisions of this regulation.


Sec.  4279.202  Definitions and abbreviations.

    The definitions and abbreviations in Sec.  4279.2 of subpart A of 
this part are applicable to this subpart in addition to the following:
    Certificate of Beneficial Interest or ``Certificate.'' The document 
that the Fiscal and Transfer Agent issues representing an undivided 
interest in the RBS guaranteed portion of a loan.
    Detached Assignment for Guaranteed Interest Certificate. A document 
used by Registered Holders to transfer Certificates through the Fiscal 
Transfer Agent together with the original Certificate.
    Fiscal and Transfer Agent (FTA). RBS Fiscal and Transfer Agent is 
an independent party responsible for coordinating the secondary market 
activities on behalf of the Agency.
    FTA Due Date. The third calendar day of every month or the next 
business day thereafter if the third calendar day is not a business 
day.
    Guaranteed Interest. The guaranteed portion of a Guaranteed Loan.
    Guaranteed Loans. RBS Guaranteed Loans authorized under 7 U.S.C. 
1932.
    Implementation Date. The date in the Federal Register Notice 
announcing the selection of the Fiscal and Transfer Agent under this 
subpart after which lenders are required to sell loans in the secondary 
market through the FTA.
    Note Rate. The interest rate on the Borrower's Promissory Note.
    Registered Holder. The Certificate owner listed in the FTA's 
records. Registered Holders are entitled to the same rights as Holders 
under Sec. Sec.  4279.16 and 4279.72 (a) and (b) of this part.
    Request for Certification of Assignment Guarantee Agreement. The 
form utilized by the Holder of an Assignment Guarantee Agreement issued 
to the FTA in exchange for a Certificate.
    Rural Business-Cooperative Service (RBS) or Agency. See the 
definition of ``Agency'' in Sec.  4279.2(a) of this part.
    Secondary Market Participation Agreement. The Agreement that 
delineates the rights and responsibilities of the Lender, Holder, FTA, 
and RBS in the secondary market.
    Warranty date. The date the Secondary Market Participation 
Agreement is settled by the Lender and Registered Holder through FTA.


Sec.  4279.203  Fees.

    (a) RBS will charge a program user fee which will be limited to the 
Agency's cost of administering the FTA program.
    (b) RBS will periodically publish a list of fees in the Federal 
Register.

[[Page 46513]]

    (c) The FTA may charge reasonable and customary servicing fees, 
transfer fees, and other fees as approved by RBS.
    (d) FTA and the Agency reserve the right to withhold any unpaid 
fees owed by the Lender or Registered Holder or overpayments from any 
future payment they would otherwise be due.


Sec.  4279.204  [Reserved]


Sec.  4279.205  Sale of Guaranteed Loans.

    (a) Applicability. (1) Guaranteed Loans made prior to the 
Implementation Date may be sold under this subpart or subparts A and B 
of this part and subpart B of part 4287 of this chapter.
    (2) All Guaranteed Loans made after the Implementation Date of this 
regulation must be sold through the FTA in accordance with this part. 
The FTA will issue each Registered Holder a Certificate.
    (b) Sale by Lender. (1) The Lender and Holder must execute a 
Secondary Market Participation Agreement and forward it to the FTA with 
a conformed copy of the Promissory Note. The FTA will handle the 
transfer of funds and issue and register a Certificate of Beneficial 
Interest to the Registered Holder.
    (2) Lender may sell the Guaranteed Loan it has repurchased pursuant 
to Sec.  4279.239 of this subpart.
    (3) Lender shall be liable through the Warranty Date to the Agency 
for any erroneous financial information furnished to the FTA.
    (4) Each Registered Holder shall receive a Certificate of 
Beneficial Interest.
    (c) Sale by Registered Holder. (1) Guaranteed Loans may be sold by 
the Registered Holder under this subpart by providing the FTA with the 
Request for Certification of Assignment Guarantee Agreement.
    (2) Guaranteed Loans will be sold by the Registered Holder by 
providing to the FTA:
    (i) The Certificate of Beneficial Interest,
    (ii) A Detached Assignment for Guaranteed Interest Certificate;
    (iii) Applicable transfer fees, and
    (iv) Any other information needed to effectuate the transfer.
    (3) Transfers shall be effective when registered on the books of 
FTA. FTA will settle Registered Holder's account as of the last 
business day of the prior month.


Sec. Sec.  4279.206-4279.222  [Reserved]


Sec.  4279.223  Lender payments.

    (a) Transmission of payments. Lender shall send the FTA Borrower 
payments, less Agency approved fees, together with account status 
information by the FTA Due Date. All other payments received must be 
remitted by Lender to FTA within 2 business days of receipt.
    (b) Late fees. Lender shall pay the following late fees for 
payments not received within 2 business days of their due date. Failure 
by the Lender to pay these fees within 10 business days of FTA's 
request will constitute a default under Sec.  4279.245 of this subpart.
    (1) A late payment fee to the FTA equal to:
    (i) The interest on the delinquent payment at the rate provided in 
the Promissory Note (less the rate of Lender's servicing fee), and
    (ii) Any other fees approved under Sec.  4279.203 of this subpart; 
and
    (2) A late payment fee to the Agency pursuant to Sec.  4279.203 of 
this subpart (collected by FTA).
    (c) Payment discrepancies. Lender shall work with the Agency and 
FTA to reconcile any payment discrepancies and provide a transcript of 
the account. If the Lender and FTA cannot agree on the balance and 
interest paid-to-date within 10 business days, FTA will immediately 
send the Lender's and FTA's transcript to the Agency for 
reconciliation. The reconciliation by the Agency will be final. If the 
Lender fails to furnish a current transcript statement within 10 
business days after the Agency's request, then the Agency may rely on 
the certified statement of account with supporting documentation from 
FTA. If any such information shall be inaccurate, whether inadvertently 
or otherwise, an appropriate adjustment in settlement will be made as 
expeditiously as possible. Upon request by FTA, the Lender shall issue 
at no charge a certified statement of the outstanding principal amount 
of the Guaranteed Interest and the effective interest rate on the 
Promissory Note. Failure of the Lender to provide a transcript shall 
result in a fee approved under Sec.  4279.203 of this subpart and will 
constitute a default under Sec.  4279.245 of this subpart.
    (d) Modifications to the Borrower's payment schedule. Any payment 
modification must receive prior approval by the Registered Holder and 
the Agency.


Sec.  4279.224  FTA payment processing responsibilities.

    (a) FTA shall remit to the Registered Holder payments received less 
applicable fees in a manner determined by the Agency.
    (b) All other payments from the Lender or the Agency shall be 
remitted by FTA to the Registered Holder within 2 business days of 
receipt of immediately available funds by the FTA.
    (c) Failure of the FTA to pay the Registered Holder will be treated 
the same as failure of the Lender to pay the FTA. If FTA fails to make 
timely payment to the Registered Holder, it will pay the Registered 
Holder:
    (1) Interest on the delinquent payment at the rate provided in the 
Promissory Note less applicable fees; plus
    (2) A late payment fee approved under Sec.  4279.203 of this 
subpart.
    (d) On loan servicing actions, no response by the Registered Holder 
within 30 days is deemed as denial of the request.


Sec. Sec.  4279.225-4279.231  [Reserved]


Sec.  4279.232  FTA Certificate administration responsibilities.

    (a) Administration of Certificates--FTA responsibility. The FTA 
will provide for the central registration and administration of all 
Certificates sold including registration, transfer, and redemption.
    (b) RBS right to subrogation. RBS is subrogated to the extent it 
pays a claim on a Guaranteed Loan under this subpart.


Sec.  4279.233  Disclosures to purchasers.

    As required by law, prior to any sale or transfer, the Lender or 
Registered Holder must disclose to the purchaser, on a form acceptable 
to the Agency, information on the terms, conditions and yield.


Sec. Sec.  4279.234-4279.236  [Reserved]


Sec.  4279.237  Termination of Certificates.

    The FTA and RBS may redeem a Certificate because of default. The 
Certificate will cease to accrue interest as of the date of such 
termination, regardless of whether the Certificate is surrendered. 
Payment will be made only after presentation of the Certificate to FTA 
by the Registered Holder. The Registered Holder shall pay a final 
transfer fee approved under Sec.  4279.203 of this subpart upon 
redemption.


Sec.  4279.238  [Reserved]


Sec.  4279.239  Repurchase of Guaranteed Interest by Lender.

    Where the decision is for the Lender to purchase the Guaranteed 
Interest in accordance with Sec.  4279.78 of this part, FTA, at its 
option, may request a transcript of account from the Lender in 
accordance with Sec.  4279.223(c) of this subpart. Subject to any 
necessary reconciliation, the Lender will give FTA 10 business days' 
written notice of the purchase. Within 2 business days of receiving 
notice, FTA will notify the

[[Page 46514]]

Registered Holder of the repurchase and request the Certificate. On the 
date of repurchase, the Lender will forward a payment to FTA that 
includes the outstanding principal balance of the Guaranteed Interest 
plus interest through the closing date. FTA shall remit this payment, 
less FTA approved fees, to the Registered Holder within 2 business 
days.


Sec.  4279.240  [Reserved]


Sec.  4279.241  Repurchase by the Agency.

    The Agency may repurchase the Guaranteed Interest and request a 
transcription in accordance with Sec.  4279.223(c) of this subpart. 
Written notices will be given to the Lender and FTA when the Agency is 
to purchase the Guaranteed Interest. The Agency shall not be liable for 
any amount attributable to any late payment fees due FTA or the 
Registered Holder.


Sec.  4279.242  Default by Lender.

    The Agency can purchase the Guaranteed Loan when the Lender fails 
to timely pay the Registered Holder or FTA.


Sec.  4279.243  Surrender of Certificate.

    Failure of the Registered Holder to submit the Certificate to FTA 
for redemption on the date of payment specified by the Agency or FTA 
will not entitle the Registered Holder to accrued interest beyond such 
date and will subject them to a fee approved under Sec.  4279.203 of 
this subpart.


Sec.  4279.244  Certificates lost, destroyed, stolen, mutilated or 
defaced.

    Procedures for claims resulting from loss, theft, destruction, 
mutilation, or defacement of a Certificate shall be the same as those 
for replacement of a Loan Note Guarantee found in Sec.  4279.84 of this 
part.


Sec.  4279.245  Suspension or revocation of participant in secondary 
market.

    The Agency may suspend, debar or otherwise revoke the privilege of 
a Lender, broker, dealer, FTA, or Registered Holder to sell, purchase, 
broker, or deal in Guaranteed Loans or Certificates for committing a 
material violation of:
    (a) These regulations;
    (b) Agreements made pursuant to these regulations; or
    (c) Knowingly submitting false or fraudulent information to RBS or 
FTA; in accordance with 7 CFR part 3017.


Sec.  4279.246  Eligibility and selection of FTA.

    (a) The selected FTA must be financially responsible and have 
demonstrated experience in secondary market loan sales. The FTA must 
comply with all laws and regulations applicable to transactions under 
this subpart.
    (b) The Agency will award a contract with an independent party to 
act as the FTA.
    (c) The contract with the FTA will expire in 1 year. The Agency 
shall retain the right to extend the contract for up to 4 additional 
years.
    (d) The selected FTA must agree to allow the Agency access to any 
of the records or facilities of the FTA, as they pertain to activities 
authorized under this subpart, and as provided by the contract.


Sec. Sec.  4279.247-4279.299  [Reserved]


Sec.  4279.300  OMB control number. [Reserved]

    Dated: July 31, 2003.
John Rosso,
Administrator, Rural Business-Cooperative Service.
[FR Doc. 03-19987 Filed 8-5-03; 8:45 am]
BILLING CODE 3410-XY-P