Loans and Grants to Rural Associations and Public Bodies

Federal RegisterJun 15, 1994

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DEPARTMENT OF AGRICULTURE

Farmers Home Administration

7 CFR Parts 1942, 1948, 1951, and 1980

RIN 0575-AB77

Loans and Grants to Rural Associations and Public Bodies

AGENCY: Farmers Home Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its

regulations to increase the loan size threshold for requiring interim

financing, clarify instructions governing the preparation of Community

Program notes and bonds, modify the procedures for monitoring

graduation of existing borrowers to other credit, clarify procedures

for servicing loans to borrowers whose loans were sold in the 1987

Community Program Asset Sale, implement use of an applicant's Internal

Revenue Service (IRS) Taxpayer Identification Number (TIN), and provide

consistency in docket preparation through the use of a checklist. This

action is necessary to reduce the burden on the public, comply with the

OMB Circular A-129 and simplify procedures for the agency's field

staff.

The intended effect of this change is to bring the agency in

compliance with OMB Circular A-129, and to clarify and simplify the

agency regulations to provide better service to the public.

In the Food, Agriculture, Conservation and Trade Act of 1990,

Congress transferred certain community and business programs

administered by FmHA to the newly created Rural Development

Administration (RDA). Until further notice, RDA programs continue to be

administered under FmHA programs regulations.

DATES: Comments must be submitted on or before August 15, 1994.

ADDRESSES: Submit written comments in duplicate to the Office of the

Chief, Regulations Analysis and Control Branch, Farmers Home

Administration, U.S. Department of Agriculture, room 6348, South

Agriculture Building, 14th Street and Independence Avenue SW.,

Washington, DC 20250-0700. All written comments made pursuant to this

notice will be available for public inspection during regular working

hours at the above address.

FOR FURTHER INFORMATION CONTACT: Bill Barrett, Senior Loan Specialist,

Community Facilities Division, Rural Development Administration, U.S.

Department of Agriculture, room 6310, South Agriculture Building, 14th

Street and Independence Avenue SW., Washington DC 20250-0700, telephone

(202) 720-1498.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The reporting and recordkeeping requirements contained in these

regulations have been submitted to the Office of Management and Budget

for review under section 350(h) of the Paperwork Reduction Act of 1980.

The public reporting burden for this collection of information is

estimated to vary from 10 minutes to 15 hours per response, with an

average of 2.47 hours per response including time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Send comments regarding this burden estimate

or any other aspect of this collection of information, including

suggestions for reducing this burden, to Department of Agriculture,

Clearance Officer, OIRM, room 404-W, Attention: Desk Officer for

Farmers Home Administration, Washington, DC, 20503.

Classification

We are issuing this proposed rule in conformance with Executive

Order 12866, and we have determined that it is not a ``significant

regulatory action.'' Based on information compiled by the Department,

we have determined that this proposed rule: (1) Would have an effect on

the economy of less than $100 million; (2) would not adversely affect

in a material way the economy, a sector of the economy, productivity,

competition, jobs, the environment, public health or safety, or State,

local, or tribal governments or communities; (3) would not create a

serious inconsistency or otherwise interfere with an action taken or

planned by another agency; (4) would not alter the budgetary impact of

entitlements, grants, user fees, or loan programs or rights and

obligations of recipients thereof; and (5) would not raise novel legal

or policy issues arising out of legal mandates, the President's

priorities, or principles set forth in Executive Order 12866.

Intergovernmental Review

The programs/activities are listed in the Catalog of Federal

Domestic Assistance under numbers 10.764, Resource Conservation and

Development Loans; 10.760, Water and Waste Disposal Systems for Rural

Communities; 10.770, Water and Waste Disposal Loans and Grants (Section

306C); 10.766, Community Facilities Loans; and 10.434, Nonprofit

National Corporation Loan and Grant Program. The Section 601--Energy

Impacted Area Development Assistance Program is not in the Catalog of

Federal Domestic Assistance because it is not funded. All programs

listed are subject to the provisions of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

FmHA conducts intergovernmental consultation in the manner delineated

in FmHA Instructions 1901-H and 1940-J.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR Part 1940,

Subpart G, ``Environmental Program.'' FmHA has determined this action

does not constitute a major Federal action significantly affecting the

quality of human environment, and in accordance with the National

Environmental Policy Act of 1969, Public Law 91-190, an Environmental

Impact Statement is not required.

Compliance with Executive Order 12778

The regulation has been reviewed in light of Executive Order 12778

and meets the applicable standards provided in sections 2(a) and

2(b)(2) of that Order. Provisions within this part which are

inconsistent with state law are controlling. All administrative

remedies pursuant to 7 CFR Part 1900 Subpart B must be exhausted prior

to filing suit.

The Agency regulations require the use of interim construction

financing for all Community Program loans of $50,000 or more to

encourage the participation of local lenders and to reduce the need for

multiple draws of FmHA loan funds. Interim financing is not cost

effective for very small loans and for those projects that have a short

construction period due to the duplication of much of the financing

costs for the two issues. The Agency proposes to raise the loan size

threshold from $50,000 to $100,000 to reduce the burden on smaller

issues, and give the State Director additional authority to waive the

interim financing requirement for larger issues, projects with a

construction period of 6 months or less, and under other circumstances

when the cost is considered prohibitive.

1. The proposed changes will assist FmHA field employees,

attorneys, and bond counsel in preparing promissory notes and bonds for

Community Programs loans. The section of the regulations used by bond

counsels and others in drafting debt instruments for Community Programs

loans has been found to be incomplete, vague, or poorly organized.

2. FmHA proposes to amend its regulations to incorporate and

require the use of Guide 28, ``Community Programs Lender Contact

Worksheet,'' of subpart A of part 1942, and exhibit D, ``Community

Programs Thorough Review Worksheet,'' of subpart F of part 1951 to

strengthen the documentation on which loanmaking and graduation review

decisions are made. FmHA regulations require that applicants who may be

able to finance projects through commercial sources be referred to

those sources. In addition, when it appears that a borrower can

refinance its loan(s) (graduate), the borrower will be required to seek

other financing. Exhibit D will provide a systematic method to evaluate

each thorough review conducted during the graduation review process

regarding the borrower's ability to refinance its loan(s). This action

is needed to encourage stronger documentation on which decisions are

made by FmHA during loanmaking and graduation reviews.

The proposed changes will provide a system for collecting and

evaluating lending, applicant, and borrower data, and a basis for

referring applicants and borrowers to other lending sources. The new

Guides 28 and 29 of subpart A of part 1942 and Exhibit D of subpart F

of part 1951 are available in any FmHA Office but are not published in

the Federal Register.

The Office of Inspector General (OIG) Review of FmHA Graduation of

Community Programs Loans to Commercial Lenders, dated June 22, 1989,

found, in part, that State and District Office surveys of lender

refinancing criteria were not always adequate. (Guide 28 will be used

to record the lending criteria of commercial lenders and serve as a

basis for applicant referrals to other sources of credit, as well as

resource material for requesting a borrower to refinance.) The OIG

report also found that inadequate or poorly documented graduation

reviews were performed and recommended that a guide be developed to

serve as a basis for making decisions.

3. OMB Circular A-129 requires Federal agencies to obtain the IRS

TIN from all applicants to assist in debt collection. The Agency

proposes to amend its regulations to require the use of the applicant's

TIN as part of its case number.

4. In accordance with the loan sale agreements for the 1987

Community Programs Asset Sale, applicants whose loans were sold are

required to obtain consent from the purchaser of the loans whenever

additional financing is requested. The Agency proposes to incorporate

the purchaser's requirements into its regulations to assist applicants

and FmHA field offices in the orderly processing of such requests for

consent. The proposed Guide 29 of subpart A of part 1942 will provide

detailed and complete instructions to loan applicants and FmHA field

offices to ensure the orderly processing of requests for consent.

5. Community Programs regulations currently include the use of

Forms FmHA 1942-39, FmHA 1942-40, and Guide 15 of subpart A of part

1942 to assist in orderly project development, which have been found to

be ineffective. FmHA proposes to replace Forms FmHA 1942-39, FmHA 1942-

40, and Guide 15 with a comprehensive loan processing checklist. A

general lack of consistency in docket preparation has been observed.

The checklist will provide additional guidance to field offices and

loan/grant applicants in orderly docket preparation and improve the

consistency and quality of Community Programs loans. The revised Guide

15 of subpart A of part 1942 is not published in the Federal Register,

but is available in any State and District Office.

List of Subjects

7 CFR Part 1942

Business and industry, Community facilities, Fire prevention, Loan

programs--housing and community development, Loan programs--natural

resources, Reporting and recordkeeping requirements, Rural areas, Soil

conservation, Waste treatment and disposal, Water supply.

7 CFR Part 1948

Coal, Community facilities, Loan programs--housing and community

development, Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1951

Accounting, Agriculture, Community facilities, Credit, Housing,

Loan programs--housing and community development, Low and moderate

income housing, Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1980

Administrative practice and procedure, Business and industry,

Community facilities, Credit, Loan programs--agriculture, loan

programs--business, Loan programs--housing and community development,

Low and moderate income housing, Reporting and recordkeeping

requirements, Rural areas.

Therefore, Chapter XVIII, Title 7, Code of Federal Regulations is

proposed to be amended as follows:

PART 1942--ASSOCIATIONS

1. The authority citation for part 1942 is revised to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005; 7 CFR

2.23 and 2.70.

Subpart A--Community Facility Loans

2. Section 1942.2 is amended by revising paragraphs (a)(2)(i) and

(c)(3) to read as follows:

Sec. 1942.2 Processing applications.

(a) * * *

(2) * * *

(i) State Directors should maintain files containing criteria from

commercial lenders to be used in determining the preapplications which

should be referred to those lenders. In order to provide a basis for

such referrals, State and District Directors should maintain liaison

with representatives of banks, bond dealers, financial consultants, and

other lender representatives who are interested in financing Water and

Waste and Community Facility projects. State Directors will contact

lenders having potential statewide or multidistrict interest in

Community Programs lending. District Directors will contact lenders

having a potential interest in Community Programs lending primarily

within their District. Guide 28 (available in any State and District

Office), or other locally developed worksheet containing similar

information, will be used to document the contacts with commercial

lenders. The State and District Directors will keep each other informed

of lender criteria by forwarding copies of completed Guide 28 and/or

worksheets to each other.

* * * * *

(3) When an applicant is notified to proceed with an application,

the District Director should arrange for a conference with the

applicant to provide copies of appropriate appendices and forms;

furnish guidance necessary for orderly application processing; and to

initiate a processing checklist for establishing a time schedule for

completing items. Guide 15 (available in any State or District Office)

will be used by the State Director to develop a processing checklist

that includes all applicable items in the guide and any other items

that may be unique to the individual State. The checklist will be

updated during the application conference based upon decisions reached

with the applicant. The District Director will give the applicant a

copy and explain the updating process. The original will be retained in

the District Office official file and will be updated as the

application is processed and the project develops to completion. A copy

will be sent to the State Program Chief who is responsible for keeping

the copy current. The District Director will arrange for additional

conferences with the applicant as needs arise. The applicant's copy of

the processing checklist should be updated during these meetings.

* * * * *

3. Section 1942.5 is amended by adding paragraph (d)(8) to read as

follows:

Sec. 1942.5 Application review and approval.

* * * * *

(d) * * *

(8) The case number will be the applicant's or transferee's

Internal Revenue Service TIN, preceded by State and county code

numbers. Only one case number will be assigned to each applicant

regardless of the number of loans or grants or number of separate

facilities, unless an exception is authorized by the National Office.

When an applicant has not received a TIN, the State Office will assign

a temporary identification number. See the Forms Manual Insert for Form

FmHA 1940-1 for specific instructions. Any temporary number assigned

must be replaced with the TIN prior to loan or grant closing unless

prior approval of the National Office is received.

4. Section 1942.17 is amended by adding paragraph (m)(8) and by

amending the introductory text in paragraph (n)(3) by revising

``$50,000 to ``$100,000'' in the first sentence, by adding the words

``(available in any State or District Office)'' between the words

``Guide 1a'' and the comma in the second sentence, and by adding a new

sentence after the first sentence, to read as follows:

Sec. 1942.17 Community facilities.

* * * * *

(m) * * *

(8) Applicants indebted to the Community Programs Loan Trust 1987-A

(Trust). Applicants indebted to the Trust must obtain consent from the

Trust prior to incurring additional debt. Guide 29 (available in any

State or District Office) outlines the information normally required by

the Trust.

* * * * *

(n) * * *

(3)

(3) * * * However, the State Director may authorize exceptions when

the cost of issuance of both temporary and permanent debt instruments

is considered prohibitive, or the planned construction period does not

exceed 6 months. * * *

* * * * *

5. Section 1942.19 is revised to read as follows:

Sec. 1942.19 Information pertaining to preparation of notes or bonds

and bond transcript documents for public body applicants.

(a) General. This section includes information for use by public

body applicants in the preparation and issuances of evidence of debt

(bonds, notes, or debt instruments, herein referred to as bonds) and

other necessary loan documents.

(b) Policies related to use of bond counsel. The applicant is

responsible for preparation of bonds and bond transcript documents. The

applicant will obtain the services and opinion of recognized bond

counsel experienced in municipal financing with respect to the validity

of a bond issue, except as provided in paragraphs (b)(1) through (3) of

this section. Bond counsel services may be obtained either directly or

through the applicant's local counsel.

(1) Issues of $50,000 or less. With prior approval of the FmHA

State Director, the applicant may elect not to use bond counsel. Such

issues will be closed in accordance with the following:

(i) The applicant must recognize and accept the fact that

application processing may require additional legal and administrative

time;

(ii) It must be established that not using bond counsel will

produce significant savings in total legal costs;

(iii) The local attorney most be able and experienced in handling

this type of legal work;

(iv) The applicant must understand that it will likely have to

obtain an opinion from bond counsel at its expenses if FmHA requires

refinancing of its loan pursuant to statutory refinancing requirements;

(v) Bonds will be prepared in accordance with this regulation and

conform as closely as possible to the preferred methods of preparation

stated in paragraph (e) of this section; and

(vi) Specific closing instructions must be issued by OGC.

(2) Issues of over $50,000 to $250,000. The applicant may elect to

use bond counsel only to issue a final opinion, and not to prepare the

bond transcript and other documents, when the applicant, FmHA, and bond

counsel agree in advance on the method of preparing the bond transcript

documents. In such circumstances, the applicant will be responsible for

preparation of the bond transcript.

(3) Issues of over $250,000 to $500,000. The applicant may elect

not to use bond counsel in a straight note and mortgage situation if

competitive bidding is not required for the sale unless a complicated

financial situation exists. If there is a known backlog in the OGC

Regional Office, FmHA will advise the applicant and suggest that using

bond counsel may be more expeditious. If bond counsel is not used, the

applicant must comply with paragraphs (b)(1)(iii) through (vi) of this

section.

requirements should be discussed with FmHA representatives. Bond

counsel or local counsel, as appropriate, must furnish at least two

complete sets of the following to the applicant, who will furnish one

complete set to FmHA:

(1) Copies of all organization documents;

(2) Copies of general incumbency certificate;

(3) Certified copies of minutes or excerpts from all meetings of

the governing body at which action was taken in connection with

authorizing and issuing the bonds;

(4) Certified copies of documents evidencing that the applicant has

complied fully with all statutory requirements incident to calling and

holding a bond election, if one is necessary.

(5) Certified copies of resolutions, ordinances, or other documents

such as bond authorizing resolutions or ordinance and any resolution

establishing rates and regulating use of the facility, if such

documents are not included in the minutes furnished;

(6) Copies of the official Notice of Sale and the affidavit of

publication of the Notice of Sale when State statute requires a public

sale;

(7) Specimen bond, with any attached coupons;

(8) Attorney's no-litigation certificate;

(9) Certified copies of resolutions or other documents pertaining

to the bond award;

(10) Any additional or supporting documents required by bond

counsel;

(11) For loans involving multiple advances of FmHA loan funds, a

preliminary approving opinion of bond counsel, or local counsel if no

bond counsel is involved, if a final unqualified opinion cannot be

obtained until all funds are advanced. The preliminary opinion for the

entire issue shall be delivered at or before the time of the first

advance of funds. It will state that the applicant has the legal

authority to issue the bonds, construct, operate and maintain the

facility, and repay the loan, subject only to changes during the

advance of funds, such as litigation resulting from the failure to

advance loan funds, and receipt of closing certificates; and

(12) Preliminary approving opinion, if any, and final unqualified

approving opinion of bond counsel, or local counsel if no bond counsel

is involved, including an opinion as to whether interest on bonds will

be exempt from Federal and State income taxes. With approval of the

Administrator, a final opinion may be qualified to the extent that

litigation is pending relating to Indian claims that may affect title

to land or validity of the obligation. It is permissible for such

options to contain:

(i) Language referring to the last sentence of section 306(a)(1) or

to section 309A(h) of the Consolidated Farm and Rural Development Act

(7 U.S.C. 1926(a)(1) or 1929a(h)); or

(ii) Language providing that, if the bonds are acquired by the

Federal Government and sold on an insured basis from the Agriculture

Credit Insurance Fund or the Rural Development Insurance Fund, interest

on such bonds will be included in gross income for the purpose of

Federal income tax statutes.

(d) Interim construction financing from commercial sources for

loans of $100,000 or more. When funds can be borrowed from commercial

sources on an interim basis at reasonable interest rates, such interim

financing will be obtained so as to preclude the necessity for multiple

advances of FmHA funds. The State Director may authorize exceptions

when:

(1) The cost of issuance of both temporary and permanent debt

instruments is considered prohibitive; or

(2) The planned construction period does not exceed 6 months.

(e) Permanent instruments for FmHA loans. FmHA loans will be

evidenced by an instrument determined legally permissible and in

accordance with the following order of preference:

(1) First preference--Form FmHA 440-22. Refer to paragraph (e)(2)

of this section for methods of various frequency payment calculations.

(2) Second preference--single instruments with amortized

installments. A single instrument providing for amortized installments

which follows Form FmHA 440-22 as closely as possible. The full amount

of the loan must show on the face of the instrument, and there must be

provisions for entering the date and amount of each advance on the

reverse or an attachment. When principal payments are deferred, the

instrument will show that ``interest only'' is due on interest-only

installment dates, rather than specific dollar amounts. The payment

period including the ``interest only'' installment cannot exceed 40

years, the useful life of the facility, or State statute of

limitations, whichever occurs first. The amortized installment,

computed as follows, will be shown as due on installment dates

thereafter.

(i) Monthly payments. Multiply by twelve the number of years

between the due date of the last interest-only installment and the

final installment to determine the number of monthly payments. When

there are no interest-only installments, multiply by twelve the number

of years over which the loan is amortized. Then multiply the loan

amount by the amortization factor and round to the next higher dollar:

Example of Computation of Monthly Payment:

Date of Loan Closing

7-5-1986

Loan Amount

$100,000.00

Interest Rate

Amortization Period

40 years

Interest Only

7-5-1987 and 7-5-1988

Installments

First Regular Installment

7-5-1989

Final Installment

7-5-2026

Computation: 2026-1988 38 x 12 = 456 monthly payments

$100,000.00 x .00491 = $491.00 monthly payment due

(ii) Semiannual payments. Multiply by two the number of years

between the due date of the last interest-only installment and the due

date of the final installment to determine the correct number of

semiannual periods. When there are no interest only installments,

multiply by two the number of years over which the loan is amortized.

Then multiply the loan amount by the applicable amortization factor:

Example:

Date of Loan Closing

7-5-1986

Loan Amount

$100,000.00

Interest Rate

Amortization Period

40 years

Interest Only Installments

7-5-1987 and 7-5-1988

First Regular Installment

7-5-1989

Final Installment

7-5-2026

Computation: 2026-1988=38 x 2 = 76 semiannual periods

$100,000.00 x .02952 = $2,950.00 semiannual payment due

(iii) Annual payments. Subtract the due date of the last interest-

only installment from the due date of the final installment to

determine the number of annual payments. When there are no interest-

only installments, the number of annual payments will equal the number

of years over which the loan is amortized. Then multiply the loan

amount by the applicable amortization factor and round to the next

higher dollar:

Example:

Date of Loan Closing

7-5-1986

Loan Amount

$100,000.00

Interest Rate

Amortization Period

40 years

Interest Only Installments

7-5-1987 and 7-5-1988

First Regular Installment

7-5-1989

Final Installment

7-5-2026

Computation: 2026-1988=38 annual payments

$100,000.00 x .05929 = $5,929.00 annual payment due

(3) Third preference-single instrument with installments of

principal plus interest. If a single instrument with amortized

installments is not legally permissible, use a single instrument

providing for installments of principal plus interest accrued on the

principal balance. For bonds with semiannual interest and annual

principal, the interest is calculated by multiplying the principal

balance times the interest rate and dividing this figure by two.

Principal installments are to be scheduled so that total combined

interest and principal payments closely approximate amortized payments.

(i) The repayment terms concerning interest-only installments

described in paragraph (e)(2) of this section apply.

(ii) The instrument shall contain in substance provisions

indicating:

(A) Principal maturities and due dates;

(B) Regular payments shall be applied first to interest due through

the next principal and interest installment due date and then to

principal due in chronological order stipulated in the bond; and

following sequence:

(1) Billed delinquent interest;

(2) Past due interest installments;

(3) Past due principal installments;

(4) Interest installment due; and

(5) Principal installment due.

(4) Fourth preference--serial bonds with installments of principal

plus interest. If instruments described under the first, second, and

third preferences are not legally premissible, use serial bonds with a

bond or bonds delivered in the amount of each advance. Bonds will be

numbered consecutively and delivered in chronological order. Such bonds

will conform to the minimum requirements of paragraph (h) of this

section. Provisions for application of payments will be the same as

those set forth in paragraph (e)(3)(ii) (B) and (C) of this section.

(5) Coupon bonds. Coupon bonds will not be used unless required by

State statute. Such bonds will conform to the minimum requirements of

paragraph (h) of this section. Provisions for application of payments

will be the same as those set forth in paragraph (e)(3)(ii) (B) and (C)

of this section.

(i) To compute the value of each coupon when the bond denomination

is consistent:

(A) Multiply the amount of the loan or advance by the interest rate

and divide the product by 365 days to determine the daily accrual

factor;

(B) Multiply the daily accrual factor by the number of days from

the date of advance or last installment date to the next installment

date; and

section by the number of bonds securing the advance to determine the

individual coupon amount.

(ii) To compute the value of each coupon when the bond denomination

varies:

(A) Multiply the denomination of the bond by the interest rate and

divide the product by 365 days; and

(B) Multiply the daily accrual factor by the number of days from

the date of advance or last installment date to the next installment

due date; to determine the individual coupon amount.

(f) Multiple advances of FmHA funds using permanent instruments.

Where interim financing from commercial sources is not used, FmHA loan

proceeds will be disbursed on an ``as needed by borrower'' basis in

amounts not to exceed the amount needed during the 30-day periods.

(g) Multiple advances of FmHA funds using temporary debt

instruments. When none of the instruments described in paragraph (e) of

this section are legally permissible or practical, a bond anticipation

note or similar temporary debt instrument may be used. The debt

instrument will provide for multiple advances of FmHA loan funds and

will be for the full amount of the FmHA loan. The instrument will be

prepared by bond counsel, or local counsel if bond counsel is not

involved, and approved by the State Director and OGC. At the same time

FmHA delivers the last advance, the borrower will deliver the permanent

bond instrument and the canceled temporary instrument will be returned

to the borrower. The approved debt instrument will show at least the

following:

(1) The date from which each advance will bear interest;

(2) The interest rate as determined by Sec. 1942.17(f)(1) of this

subpart;

(3) A payment schedule providing for interest on outstanding

principal at least annually; and

(4) A maturity date which shall be no earlier than the anticipated

issuance date of the permanent instrument(s) and no longer than the 40-

year statutory limit.

(h) Minimum bond specifications. The provisions of this paragraph

are minimum specifications only and must be followed to the extent

legally permissible.

(1) Type and denominations. Bond resolutions or ordinances will

provide that the instrument(s) be either a bond representing the total

amount of the indebtedness or serial bonds in denominations customarily

accepted in municipal financing (ordinarily in multiples of not less

than $1,000). Single bonds may provide for repayment of principal plus

interest or amortized installments. Amortized installments are

preferred by FmHA.

(2) Bond registration. Bonds will contain provisions permitting

registration for both principal and interest. Bonds purchased by FmHA

will be registered in the name of ``United States of America, Farmers

Home Administration,'' and will remain so registered at all times while

the bonds are held or insured by the Government. The FmHA address for

registration purposes will be that of the Finance Office.

(3) Size and quality. Size of bonds and coupons should conform to

standard practice. Paper must be of sufficient quality to prevent

deterioration through ordinary handling over the life of the loan.

(4) Date of bond. Bonds will normally be dated as of the day of

delivery. However, the borrower may use another date if approved by

FmHA. Bonds may or may not be delivered at the same time funds are

delivered; however, loan closing is the date of delivery of the bonds

or the date of delivery of the first fond when utilizing serial bonds,

regardless of the date of delivery of the funds. The date of delivery

will be stated in the bond if different from the date of the bond. In

all cases, interest will accrue from the date of delivery of the funds.

(5) Payment date. Loan payments will be scheduled to coincide with

income availability and be in accordance with State law.

(i) If income is available monthly, monthly payments will be

required unless precluded by State law. If income is available

quarterly or otherwise more frequently than annually, payments must be

scheduled on such basis. However, if State law only permits principal

plus interest (P&I) type bonds, annual or semiannual payments will be

used.

(ii) The payment schedule will be enumerated in the evidence of

debt, or if that is not feasible, in a supplemental agreement.

(iii) Unless infeasible, the first payment will be scheduled one

full month, or other period as appropriate, from the date of loan

closing or any deferment period. Due dates falling on the 29th, 30th,

or 31st day of the month will be avoided. When principal payments are

deferred, interest-only payments will be scheduled at least annually.

(6) Extra payments. Extra payments are derived from the sale of

basic chattel or real estate security, refund of unused loan funds,

cash proceeds of property insurance as provided in Sec. 1806.5(b) of

this chapter (paragraph V.B. of FmHA Instruction 426.1), and similar

actions which reduce the value of basic security. At the option of the

borrower, regularly facility revenue may also be used as extra payments

when regular payments are current. Unless otherwise established in the

note or bond, extra payments will be applied as follows:

(i) For loans with amortized debt instruments, extra payments will

be applied first to interest accrued through the date of receipt of the

payment and second to principal last to become due.

(ii) For loans with debt instruments with P&I installments, the

extra payment will be applied to the final unpaid principal

installment.

(iii) For borrowers with more than one loan, the extra payment will

be applied to the account secured by the lowest priority of lien on the

property from which the extra payment was obtained. Any balance will be

applied to other FmHA loans secured by the property from which the

extra payment was obtained.

(iv) For assessment bonds, see paragraph (h)(13) of this section.

(7) Place of payment. Payments on bonds purchased by FmHA are to be

submitted to the FmHA District Office. The District Office will process

payments in accordance with part 1951, subpart B, of this chapter.

(8) Redemptions. Bonds will normally contain customary redemption

provisions. However, no premium will be charged for early redemption on

any bonds held by the Government.

(9) Additional revenue bonds. Parity bonds may be issued to

complete the project. Otherwise, parity bonds may not be issued unless

acceptable documentation is provided establishing that net revenues for

the fiscal year following the year in which such bonds are to be issued

will be at least 120 percent of the average annual debt service

requirements on all bonds outstanding, including the newly-issued

bonds. For purposes of this section, net revenues are, unless otherwise

defined by State statute, gross revenues less essential operation and

maintenance expenses. This limitation may be waived or modified by the

written consent of bondholders representing 75 percent of the then-

outstanding principal indebtedness. Junior and subordinate bonds may be

issued in accordance with the loan agreement.

(10) Scheduling of FmHA payments when joint financing is involved.

When FmHA participates with another lender in joint financing of the

project, the FmHA principal and interest payments should approximate

amortized installments.

(11) Precautions. The following types of provisions in debt

instruments should be avoided:

(i) Provisions for the holder to manually post each payment to the

instrument;

(ii) Provisions for returning the permanent or temporary debt

instrument to the borrower in order that it, rather than FmHA, may post

the date and amount of each advance or repayment on the instrument; or

(iii) Provisions that amend covenants contained in Forms FmHA 1942-

47 or FmHA 1942-9.

(12) Defeasance provisions in loan or bond resolutions. When a bond

issue is defeased, a new issue is sold which supersedes the contractual

provisions of the prior issue, including the refinancing requirement

and any lien on revenues. Since defeasance in effect precludes FmHA

from requiring graduation before the final maturity date, it represents

a violation of the statutory refinancing requirement; therefore, it is

disallowed. No loan shall include a provision of defeasance.

(13) Assessment bonds. When security includes special assessment to

be collected over the life of the loan, the instrument should address

the method of applying any payments made before they are due. It may be

desirable for such payments to be distributed over remaining payments

due, rather than to be applied in accordance with normal procedures

governing extra payments, so that the account does not become

delinquent.

(14) Multiple debt instruments. The following will be adhered to

when preparing debt instruments:

(i) When more than one loan type is used in financing a project,

each type of loan will be evidenced by a separate debt instrument or

series of debt instruments;

(ii) Loans obligated in different fiscal years and those obligated

with different terms in the same fiscal year will be evidenced by

separate debt instruments;

(iii) Loans obligated in for the same loan type in the same fiscal

year with the same terms may be combined in the same debt instrument;

(iv) Loans obligated in the same fiscal year with different

interest rates that can be closed at the same interest rate may be

combined in the same debt instrument.

(i) Bidding by FmHA. Bonds offered for public sale shall be offered

in accordance with State law and in such a manner to encourage public

bidding. FmHA will not submit a bid at the advertised sale unless

required by state law nor will reference to FmHA's rates and terms be

included. If no acceptable bid is received, FmHA will negotiate the

purchase of the bonds.

Subpart C--Fire and Rescue Loans

6. Section 1942.111 is amended by revising paragraph (b) to read as

follows:

Sec. 1942.111 Applicant eligibility.

* * * * *

(b) Credit elsewhere determination. District Directors should

maintain files with criteria from commercial lenders to be used in

determining the preapplications which should be referred to those

lenders. If credit elsewhere is indicated, the District Director should

inform the applicant and recommend that they apply to commercial

sources for financing. In order to provide a basis for such referrals,

District Directors should maintain liaison with representatives of

banks, bond dealers, financial consultants, and other lender

representatives who are interested in receiving applicant referrals.

State Directors will contact lenders having a potential statewide or

multidistrict interest in Community Programs lending. District

Directors will contact lenders having a potential interest in Community

Programs lending primarily within their District. Guide 28 (available

in any State or District Office) or locally developed worksheet

containing similar information will be used to document the contacts

with commercial lenders. The State Director and District Director will

keep each other informed of lender criteria by forwarding copies of

completed Guide 28 and/or worksheets to each other.

* * * * *

Subpart I--Resource Conservation and Development (RCD) Loans and

Watershed (WS) Loans and Watershed Advances

7. Section 1942.419 is amended by revising the introductory text of

paragraph (a) to read as follows:

Sec. 1942.419 Approval, closing, and cancellation.

(a) Approval and closing actions will be taken in accordance with

the applicable provisions of FmHA regulations including part 1901,

subpart A, of this chapter and Secs. 1942.5, 1942.6, 1942.7, 1942.8,

and 1942.12, of subpart A of this part, and the following:

* * * * *

PART 1948--RURAL DEVELOPMENT

8. The authority citation for part 1948 is revised to read as

follows:

Authority: 7 U.S.C. 1989; 7 CFR 2.23 and 2.70.

Subpart B--Section 601 Energy Impacted Area Development Assistance

Program

9. Section 1948.92 is amended by removing paragraphs (d) through

(g) and revising paragraph (c) to read as follows:

Sec. 1948.92 Grant approval and fund obligation.

* * * * *

Sec. 1942.5(d) of this chapter.

Sec. 1948.94 [Amended]

10. Section 1948.94 (b) is amended in the second sentence by

revising the reference ``FmHA Instruction 402.1 (available in any FmHA

Office)'' to part 1902, subpart A, of this chapter''.

PART 1951--SERVICING AND COLLECTIONS

11. The authority citation for part 1951 is revised to read as

follows:

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

Subpart E--Servicing of Community and Insured Business Programs

Loans and Grants

12. Subsection 1951.230 (c)(3) is amended by revising the last

sentence to read as follows:

Sec. 1951.230 Transfer of security and assumption of loans.

* * * * *

(3) * * * If applicable, 1942.19 (h)(14) of this chapter will

govern the preparation of any new debt instruments required.

* * * * *

Subpart F--Analyzing Credit Needs and Graduation of Borrowers

13. Section 1951.261 is amended by revising the fourth and fifth

sentences of the introductory text of paragraph (c), and by adding two

new sentences at the end of paragraph (e)(5) to read as follows:

Sec. 1951.261 Graduation of FmHA borrowers to other sources of credit.

* * * * *

for all programs, may use Exhibit A for Farmer Program loans, Exhibit B

for Rural Housing loans, and Guide 28 (available in any State or

District Office) for Community Programs loans.) For Community Programs,

the servicing official will request the assistance of the State

Director pursuant to Sec. 1942.2(a)(2)(i) of this chapter. * * *

* * * * *

(e) * * *

(5) * * * Exhibit D ``Community Programs Thorough Review

Worksheet'' (available in any State or District Office) will be

completed for each Community Programs borrower for whom a thorough

review is conducted. The original will be placed in the borrower's file

and a copy will be forwarded to the State Director for each borrower

recommended for graduation.

* * * * *

PART 1980--GENERAL

14. The authority citation for part 1980 is revised to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480; Pub. L.

100-387, 102 Stat 924; Pub. L. 101-82, 103 Stat 564 (7 U.S.C. 1421

Note); 7 CFR 2.23 and 2.70.

Subpart A--General

15. Section 1890.,12 is revised to read as follows:

Sec. 1980.12 Case and identification (ID) numbers.

(a) Case number. The case number will be the proposed borrower's or

transferee's Social Security or Internal Revenue Service (IRS) Taxpayer

Identification Number (TIN), whichever is appropriate, preceded by

State and County code numbers. The County Supervisor will provide the

lender with these numbers, except for Business and Industry and

Community Programs cases where the State Director or District Director,

respectively, will provide them. Only one case number will be assigned

to each borrower regardless of the number of loans or grants or number

of separate facilities, unless an exception is authorized by the

National Office.

(1) If such party is an individual, his or her Social Security

number will be used. If such party is husband and wife, the Social

Security number of either one, as designated by the spouses, will be

used.

(2) If such party is a legal entity, its TIN will be used.

(b) Temporary ID numbers. When a proposed borrower has not received

a TIN, the State Office will assign a temporary ID number. See the

Forms Manual Insert for Form FmHA 1940-3, ``Request for Obligation of

Funds,'' for specific instructions. Any temporary ID number assigned

must be replaced with the TIN prior to issuing the Loan Note Guarantee

unless prior approval of the National Office is received.

TIN will be used as its ID number in correspondence and FmHA forms

relating to the guarantee.

Subpart I--Community Programs Guaranteed Loans

16. Section 1980.856 is amended by adding paragraph (i) to read as

follows:

Sec. 1980.856 Conditions precedent to issuance of the Loan Note

Guarantee (Form FmHA 449-34).

* * * * *

(i) Proposed borrowers indebted to the Community Program Loan Trust

1987-A (Trust). Proposed borrowers indebted to the Trust must obtain

consent from the Trust prior to incurring additional debt. Guide 29

(available in any State or District Office) outlines the information

normally required by the Trust.

Dated: December 9, 1993.

Bob J. Nash,

Under Secretary, Small Community and Rural Development.

[FR Doc. 94-13743 Filed 6-14-94; 8:45 am]

BILLING CODE 3410-07-M

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.