Loan Policies and Operations; Definitions; Loan Underwriting

FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 619

RIN 3052-AB64

Loan Policies and Operations; Definitions; Loan Underwriting

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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

SUMMARY: The Farm Credit Administration (FCA), through the FCA Board

(Board), issues a final rule amending its regulations relating to loan

underwriting in response to comments received from the Board's

initiative to reduce regulatory burden and in an effort to streamline

the regulations and set clear minimum regulatory standards where

appropriate. The Board's action eliminates unnecessary regulations,

requires each Farm Credit System (System or FCS) institution to adopt

loan underwriting policies and standards, and makes other changes to

the regulations governing prudent credit administration.

EFFECTIVE DATE: These regulations shall be effective upon the

expiration of 30 days during which either or both Houses of Congress

are in session. Notice of the effective date will be published in the

Federal Register.

FOR FURTHER INFORMATION CONTACT:

John J. Hays, Policy Analyst, Regulation Development Division, Office

of Policy Development and Risk Control, 703) 883-4498, TDD (703) 883-

4444;

or

Joy E. Strickland, Senior Attorney, Regulatory Enforcement Division,

Office of General Counsel, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: On April 15, 1996, the Board published

proposed amendments to the regulations relating to loan underwriting,

loan sale and purchase transactions, and the lending authority of

production credit associations (PCAs). The amendments were proposed

largely in furtherance of comments received on the Board's request for

public comment on the appropriateness of requirements that the FCA

regulations impose on the System. See 58 FR 34003 (June 23, 1993). The

FCA has addressed many of those comments in previous rulemakings. The

proposed amendments addressed the remaining regulatory burden issues

that relate to loan underwriting and the independent credit judgment

rule for loan sale and purchase transactions through agents. In

addition to responding to the regulatory burden comments, the FCA also

proposed other amendments to refocus regulatory requirements for loan

underwriting, make the regulations more understandable and useful to

the reader, set minimum regulatory standards, and make conforming

amendments.

The FCA received a total of 20 comments on the proposed amendments.

Seventeen (17) Farm Credit institutions and the Farm Credit Council

(FCC) submitted comments. The FCA also received comments from the

Appraisal Subcommittee of the Federal Financial Institutions

Examination Council, and the American Society of Farm Managers and

Rural Appraisers, Inc. (collectively, appraisal groups). In general,

all of the System commenters expressed support for the proposed

regulation and its goal of reducing regulatory burden. Most of the

System commenters also supported FCA's proposals to streamline the

regulations governing the bank/association relationship and place more

decision-making authority and accountability with direct lender

associations. One association commented favorably on the entire

proposal and suggested no changes. Other System commenters stated that

although the proposal is a large step toward reducing regulatory

burden, it did not reduce enough burden in certain areas. Also, some

banks and associations requested clarification of the proposed new

responsibilities of associations and the remaining areas of bank

direction and supervision of associations. The appraisal groups

commented that although they understood the FCA's reasons for the

proposed changes to Secs. 614.4245 and 614.4250, the changes were

inconsistent with the Uniform Standards of Professional Appraisal

Practice (USPAP). The appraisal groups suggested alternatives for the

FCA to achieve its objectives and ensure that appraisals remain in

compliance with USPAP.

Specific comments and changes to the proposed amendments will be

addressed in the section-by-section analysis of the comments that

follows. Except for changes noted in the section-by-section analysis,

the FCA adopts the proposed amendments as final. Specific comments

relating to proposed Sec. 614.4200(b), which contained requirements for

obtaining borrower financial statements, will be addressed in the

discussion of Subparts C and D--Bank/Association Lending Relationship

and General Loan Policies for Banks and Associations. In order to

provide readers with a guideline for the amended regulations, the

following is a list of changes this final rule will make to parts 614

and 619:

Subpart A--Lending Authorities

Secs. 614.4000 through 614.4050--Revised.

Subpart C--Bank/Association Lending Relationship

Secs. 614.4100, 614.4110, and 614.4130--No changes made.

Sec. 614.4120--Revised.

Secs. 614.4135 through 614.4145--Deleted.

Subpart D--General Loan Policies for Banks and Associations

Sec. 614.4150--Revised.

Sec. 614.4160--Deleted.

Sec. 614.4165--Revised.

Subpart E--Loan Terms and Conditions

Sec. 614.4200--Revised.

Secs. 614.4210 through 614.4230--Deleted.

Sec. 614.4231--Revised.

Secs. 614.4232 and 614.4233--No changes made.

Subpart F--Collateral Evaluation Requirements

Sec. 614.4245--Revised.

[[Page 51008]]

Subpart H--Loan Purchases and Sales

Sec. 614.4325--Revised.

Subpart J--Lending Limits

Sec. Sec. 614.4355 and 614.4358--Revised.

Subpart O--Banks for Cooperatives Financing International Trade

Sec. 614.4810--Revised.

Part 619--Definitions

Secs. 619.9165 and 619.9290--Removed.

I. Subpart A--Lending Authorities

The FCA received 12 comments on proposed Sec. 614.4040, which

codifies guidance that the FCA has provided to institutions regarding

loans made by PCAs that have amortization schedules longer than 7

years. The commenters were evenly split, with 6 commenters expressing

support for the proposal and 6 commenters objecting to the proposal.

The comments received in support of the proposal generally stated that

the provisions are appropriate for PCA lending and should not be

broadened or modified. Two PCA commenters noted that the proposal was

more than adequate to offer direction to direct lenders.

All except one of the commenters requesting modification of the

proposal generally believe that it is too restrictive. They object to

the proposed 15-year limitation on amortization periods for PCA loans

because they assert that the statutory 15-year limit applies only to

the term of the loan, not the loan amortization. Those commenters also

stated that the prohibition against a PCA making loans solely to

acquire real estate is without statutory basis and inconsistent with a

PCA's ability to take ``owned'' real estate as collateral. They

asserted their belief that the loan purpose restriction was implemented

only to minimize competition between System institutions. These

commenters suggested the following changes: (1) Apply the 15-year

amortization restriction only to loans with 7 to 10-year terms; (2)

delete any loan purpose restriction; and (3) clarify that the

authorizing policy is the bank's not the association's. One PCA

expressed agreement with the comments regarding the 15-year and loan

purpose restrictions, but differed from the foregoing comments by

urging that the authority for amortizing these loans should be through

association policy rather than bank policy and control. One jointly

managed PCA/Federal land bank association (FLBA) agreed with this PCA

commenter and suggested that bank approval should not be required for

association policies to exercise these authorities and that association

board policies on this issue need only comply with general policies and

standards of the funding bank.

A bank and a FLBA requested clarification of four issues regarding

the loan purpose restriction under Sec. 614.4040(a)(2): (1) Is the

purpose of the loan limited only to financing of facilities; (2) if

real estate is purchased along with a facility, must the real estate be

integral to the operation or can the real estate be separate,

unimproved land, such as two parcels that the seller will only sell

together; (3) if the real estate can be separate, is there a limit on

the value of the real estate versus the value of the facility; and (4)

can a PCA make a loan solely for the purchase of real estate if the PCA

has another production loan to the borrower?

With regard to the comment that Congress intended the 15-year

limitation to apply only to loan term, rather than loan amortization,

the FCA agrees, in part, with the commenters' interpretation of the

Farm Credit Act of 1971, as amended (Act), and its legislative history.

Under the Act, Federal land credit associations (FLCAs) have the

authority to make loans with terms of greater than 15 years, while PCAs

are limited to loan terms of less than 15 years. Although the 15-year

limitation technically applies only to a loan's term, rather than a

loan's amortization, 15 years is the outward limit of PCA loan-making

authority approved by Congress. The FCA concludes that the 15-year

limitation is consistent with the differing lending authorities of PCAs

and FLCAs and recognizes the importance of the Act's distinction

between long-term real estate lenders and short-and intermediate-term

lenders. Based on the outward limits placed on loan term and the

differences between PCA and FLCA lending authorities, the FCA continues

to believe that the 15-year limitation is appropriate and adopts the

limitation and the loan purpose restrictions as proposed. The FCA

clarifies that the loan purpose restriction only applies to loans

amortized for longer than the maximum loan term otherwise authorized

for PCAs in Sec. 614.4040(a)(1).

Since there is a possibility of competition between short- and

long-term lenders in some areas if PCAs amortize loans over periods

longer than their maximum authorized loan terms, the FCA believes that

System borrowers would be best served if the institutions affected by

this issue develop the policies to address it. Because both long- and

short-term lenders are represented at the bank level, the bank, through

its association directors and stockholders, is in the best position to

develop a policy that appropriately considers the needs of the

borrowers and the relationships and conditions existing in each

district. Therefore, the FCA adopts as final the requirement that

association authority to amortize loans under Sec. 614.4040(a)(2) is

pursuant to funding bank approval. The FCA also notes that, pursuant to

section 1.10 of the Act, bank approval continues to be required for PCA

authority to make loans with terms of more than 7, but not more than 10

years.

In response to the questions raised regarding the loan purpose

restriction in Sec. 614.4040(a)(2), the FCA concludes that the

amortization authority in Sec. 614.4040(a)(2) can be used for any

authorized purpose for PCA lending, with the exception that it may not

be used solely to finance the acquisition of unimproved real estate.

Although the restriction excludes loans for the purpose of purchasing

unimproved real estate (the real estate will be considered unimproved

even though it may include minimal improvements, such as fencing), the

authority in Sec. 614.4040(a)(2) clearly provides for the acquisition

of production facilities and the land upon which the facilities are

located. There are many types of loans that fall between these two

boundaries, including those addressed in the bank's questions. The FCA

believes that the institutions involved should establish reasonable

standards for judging compliance with the loan purpose restrictions for

the same reasons that it believes that authority for the amortization

period should be addressed in bank policy, i.e., it allows the

amortization authority to be best tailored to the needs of the

borrowers and the relationships between the institutions in each

district. Therefore each PCA's policy, subject to bank approval, for

implementing the authority in Sec. 614.4040(a)(2) should clearly state

under what circumstances such financing will occur. In response to the

bank's fourth question, however, PCAs are not authorized to finance the

acquisition of unimproved real estate under this authority solely

because they also have outstanding production or equipment loans to the

borrower.

Commenters also suggested two technical changes to

Sec. 614.4040(a)(2): (1) Change the point at which the underwriting

criteria must be met for refinancing from ``maturity'' to the time of

``refinancing'' because a loan may be refinanced prior to its maturity

date; and (2) change the term ``real estate'' to ``land'' to more

clearly authorize the financing of buildings. The FCA agrees that the

term ``refinance'' is more appropriate than ``maturity'' and has

[[Page 51009]]

amended the regulation accordingly. A borrower may wish to refinance a

loan prior to the maturity date, and any refinancing cannot extend the

ultimate repayment of the loan more than 15 years from the date of the

original loan. The FCA believes that the clarifications provided in the

previous paragraph should clear up any doubt that this authority may be

used to finance buildings and other facilities. Therefore, the FCA

adopts in final the term ``real estate'' as proposed.

The FCA also received 2 comments stating that the amended PCA

amortization authority could result in agricultural credit associations

(ACAs) having less authority to make short-and intermediate-term loans

than PCAs. Although the FCA agrees with the commenters that ACAs should

have at least the same authorities as PCAs, applying the provisions of

Sec. 614.4040(a)(2) to ACAs would have the unintended result of

unnecessarily restricting ACAs' authority. Since there are no

limitations in the Act on the length of amortizations for loans and the

existing requirement in Sec. 614.4220(c) that short-and intermediate-

term loans with maturities in excess of 7 years must be amortized over

the term of the loan will be deleted by this rule, there will be no

restrictions on amortizations of loans made by an ACA. As stated above,

the restriction on a PCA's amortization authority derives from the

Act's distinction between long-and short-term lenders. Because an ACA

may make short-, intermediate-, and long-term loans, there is no need

to restrict amortizations for ACA loans. Therefore, the FCA believes

that applying Sec. 614.4040(a)(2) would unnecessarily restrict ACA

lending and is not making the change requested.

II. Subparts C and D--Bank/Association Lending Relationship and General

Loan Policies for Banks and Associations

The FCA proposed to clarify the role of Farm Credit Banks (FCBs)

and agricultural credit banks (ACBs) in the supervision of

associations' credit operations. The FCA believes that autonomy in

association operations promotes accountability in many areas, including

prudent lending operations. Also, the FCA believes that each direct

lender, through its board of directors, should adopt and follow its own

policies and procedures for operations. As noted previously, most of

the commenters were in support of this change and philosophy. The final

rule deletes existing Secs. 614.4135, 614.4140, and 614.4145 as

proposed. However, in taking this action, the FCA recognizes the

continuing importance of general bank oversight of association credit

activities that may have a material impact on the bank and on the

association's ability to perform on its direct loan(s) from the bank.

The FCA proposed a new regulation, Sec. 614.4150, to address credit

supervision by each institution's board of directors and to require

that loan policies and underwriting standards must be adopted by each

direct lending institution. The FCA received six comment letters on

proposed Sec. 614.4150. The commenters sought clarification of the term

``measurable standards'' in Sec. 614.4150(g) and stated that loan

underwriting standards should not include specific ratios, such as debt

coverage and liquidity, on which to base each loan decision. The

commenters also felt that while there is support for measurable

standards, documenting each loan not in compliance with each standard

(Sec. 614.4150(i)) is unduly burdensome. They contend that standards

should be applicable only to the primary portion of the loan portfolio

or a majority of the industry or market that the lender finances and

that the focus should be on documenting those loans in significant

noncompliance with the standards as a whole. The FCC also suggested

alternative language for Sec. 614.4150(i) to encompass this philosophy.

The commenters are concerned that Sec. 614.4150(i) requires that a

single set of standards be applicable to all loans. In response, the

FCA does not intend to require institutions to establish specific

ratios that necessarily apply to all loans. It may be prudent to apply

distinct ratios to differing loans. In developing standards, each

direct lender is expected to identify the similar types of loans in

their portfolios, based on such items as similar operations, sources of

repayment, collateral, and economic or geographic characteristics, and

to establish loan underwriting standards tailored to address the

strengths and weaknesses of each type of loan and the institution's

ability to absorb the risk posed by such loans. Such standards should

include ratios, measures, scoring, and other specific credit evaluation

tools appropriate to the portion of the portfolio being addressed and

the institution's risk-bearing capacity. In addition to specific

standards, general lending guidelines that have applicability to

different types of loans can be useful in identifying risk and may be

necessary for unusual loans that do not fit within any of the lenders'

primary lending areas. A number of things will affect the level of

detail in standards, such as the importance of loan type to the

institution's portfolio and the level of risk in the type of loan, and

the regulations do not prescribe a set formula.

Regarding documentation of noncompliance with the loan underwriting

standards, the regulation requires that whenever a loan does not meet

any of the standards established for that type of loan, the reason for

making an exception to the standards and accepting the loan must be

documented. The FCA believes that this documentation is critical on an

individual loan basis and any burden that arises from this

documentation is outweighed by the importance of the documentation to

sound credit administration. The amount of loans that may require

documentation of noncompliance and the detail of such documentation

will vary according to the standards developed by each institution, and

any burden of such documentation can be reduced by well-tailored,

specific standards. Therefore, the FCA believes the requirements of

Sec. 614.4150 (g) and (i) are appropriate and adopts them as proposed

with minor syntactical changes to paragraph (g).

The commenters also noted that proposed Sec. 614.4150(h) does not

entirely serve the purpose of existing Sec. 614.4160(e) because a

loan's structure should be determined not only by the loan's purpose,

as required by Sec. 614.4150(h), but also by the terms, conditions, and

collateral, which are referenced in existing Sec. 614.4160(e). The FCA

has revised paragraph (h) to state that loan terms and conditions must

be appropriate for the loan. Use of the term ``loan'' includes the

requirement that the terms and conditions must be appropriate for the

purpose of the loan and any other relevant criteria of the loan, such

as collateral. The commenters also requested clarification that

underwriting standards do not have to be included in the policies

adopted by the institutions' boards of directors pursuant to

Sec. 614.4150. The FCA clarifies that loan underwriting standards must

be adopted pursuant to board policies but are not required to be

contained in board policies.

An FCB commenter asserted that the regulations should not be

interpreted to prohibit banks from establishing ``bright line'' credit

standards for associations in general financing agreements (GFAs).

Further, the bank asserts that as long as the FCA approves GFAs, it can

review any ``bright line'' standards for appropriateness through that

avenue. If, on the other hand, the FCA removes the banks' ``regulatory

authority'' to establish credit standards for direct lenders, the FCA

should eliminate its

[[Page 51010]]

approval of GFAs and make clear that the GFAs can include bank approval

of association credit standards and/or compliance with bank collateral

requirements. The FCC requested clarification about the apparent

conflict between the proposal and section 2.4(a) of the Act, which

appears to say that PCAs are required to make loans under standards

approved by the bank. Association commenters requested clarification

that banks do not have to approve association lending policies.

In response to the comments regarding what should be included in

GFAs, it is the FCA's general belief that banks can establish credit

criteria for associations as appropriate to reflect the risks in the

direct loans. This issue will be addressed in revisions to the

regulations governing GFAs 1. The provisions of this

regulation reflect the FCA's views that detailed underwriting standards

for direct lender loans are the responsibility of that lender.

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

\1\ The FCA published proposed amendments to the regulations

governing GFAs on March 24, 1997 (62 FR 13842).

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

Some commenters questioned whether Sec. 614.4150 conflicts with the

provisions of section 1.5(17) of the Act. Section 1.5(17) of the Act

authorizes banks to adopt standards for lending. Nothing in the revised

regulation prohibits the banks from continuing to adopt standards for

making direct loans to direct lender associations and for FLBA lending.

Some comments also questioned whether Sec. 614.4150 is consistent with

section 2.4(a) of the Act. In response, the banks will continue to

develop standards appropriate to ensure repayment of the direct loan,

which in turn helps ensure the safety and soundness of all of the

institutions in the district. The FCA believes that section 2.4(a)

neither requires that banks prescribe detailed association lending

standards nor prohibits associations from adopting standards to govern

their own lending operations. Therefore, the FCA believes that

Sec. 614.4150 is consistent with the Act.

The FCA received comments from the FCC and nine institutions

regarding the proposed requirements for obtaining borrower financial

statements in Sec. 614.4200(b). Most of the commenters urged deleting

all of proposed paragraph (b) except the first sentence. The commenters

strongly believe that even though the financial statement provision was

a significant reduction over existing requirements, the proposal did

not go far enough. They asserted that the proposal was inconsistent

with the FCA regulatory philosophy statement, the FCA Board Chairman's

remarks in the FCA's 1995 annual report, Congressional intent in the

Act, proposed Sec. 614.4150, and the FCA's role as an arms-length

regulator. They also asserted that the proposal was not necessary for

safety and soundness. According to the commenters, this provision of

the regulation micro-manages this one aspect of lending operations,

which is in stark contrast with the overall objective of the proposed

regulation to put loan underwriting in the hands of direct lenders.

Commenters asserted that the thresholds for obtaining financial

statements should not be set by regulation. Instead the standards

should be set by each direct lender institution according to the

institution's financial position, capital strength, risk-bearing

ability, credit quality, portfolio, and operations of the individual

institutions and borrowers (as applicable). The commenters contend that

in this way safety and soundness will be better measured because

standards will be developed on an institution-specific basis.

In addition, the commenters noted that a regulation requiring

institutions to request financial statements at loan origination for

all loans above a set threshold limits the institutions' ability to use

credit scoring with creditworthy customers. They urged that a

borrower's total lending relationship, if quite large, should not

prevent the use of credit scoring on small transactions. Also,

obtaining financial statements at each material servicing action is

vague and could be costly to the System, especially where actions such

as release of collateral pose no risk to the lender. The commenters

also asserted that requesting financial statements can cause problems

in enforcement. They stated that in their experience, very few

borrowers respond to requests, requiring considerable time and money on

the institution's part to obtain the statements, and that it has been

especially difficult to enforce a financial statement submission

requirement if a borrower meets all other loan obligations. Finally,

the commenters stated that the requirement can needlessly drive away

good borrowers and create a competitive disadvantage.

One commenter suggested that if the FCA maintains a requirement

regarding financial statements, the requirement should only apply to

adversely classified loans above $100,000. Another stated that if the

requirement is maintained, ``material servicing action'' should be

changed to ``any servicing action that materially increases the

borrower's access to credit, reduces the institution's collateral

protection, or otherwise materially increases the institution's risk

position.'' Also, the threshold should be changed to $250,000. This

commenter also urged changing ``less than acceptable'' to

``Substandard, Doubtful, and Loss.'' Finally, one PCA commenter

supported the proposal and believes that the requirements for financial

statements are appropriate.

After careful consideration of the issues surrounding borrower

financial statements and the comments received on the proposed

regulation, the FCA concludes that requiring each direct lender to

develop standards for obtaining financial statements and other

financial information is appropriate. The FCA does not adopt proposed

Sec. 614.4200(b) and, instead, incorporates the substance of the first

sentence of this paragraph into the loan underwriting standards

required by Sec. 614.4150. This relocation reflects the decision to

treat this issue as a loan underwriting standard rather than as loan

terms and conditions. Section 614.4150(a) now requires that an

institution's policies and procedures must prescribe the minimum

supporting credit and financial information necessary and the frequency

for collection of such information.

The final regulation requires that each institution include in its

policies and procedures how and when to obtain and use financial

information, including financial statements, to determine

creditworthiness for repayment of loans. The policies must be specific

as to when collection of items such as balance sheets, income

statements, and statements of cashflows will be required and must

address the times for their collection, such as at loan inception, when

taking servicing actions, and periodically during the term of the loan.

The requirements for setting parameters of when to obtain and use

financial information must take into consideration basic criteria

including, but not limited to, loan size, loan type, loan

classification, frequency of payment, source of repayment, applicant's

operation, and capital position and risk bearing capacity of the

institution. The FCA will evaluate and determine the appropriateness of

each institution's policies and procedures on lending practices,

including collection of financial information, during the examination

process.

As noted in the preamble to the proposed regulations, there are no

industrywide standards for the size or complexity of loans warranting

current and complete financial information. However, prudent credit

practices dictate that risk be assessed in each

[[Page 51011]]

loan. The FCA continues to believe that the best method for assessing

risk in certain loans is through analysis of items such as a balance

sheet and income statement and considers the absence of information

necessary to document loan performance expectations to be an unsafe and

unsound lending practice. The FCA also notes that the approach for

addressing the collection and use of financial statements in credit

analysis in this final rule is consistent with the approach taken by

other Federal financial institution regulatory agencies.

Finally, the FCA notes the commenters' concerns regarding potential

reluctance of some borrowers to submit financial statements and

requiring them to do so. However, the FCA believes that for loans where

prudent lending dictates obtaining and evaluating financial statements,

the safety and soundness benefits to the institution outweigh the

potential negative reactions of borrowers. Thus, adequate controls for

enforcing institution policies regarding obtaining financial statements

are expected with implementation of this regulation.

Other than the changes previously noted to paragraphs (a), (h), and

(i), the FCA adopts Sec. 614.4150 as proposed. The FCA also notes that

in instances where direct lending authority has not been transferred to

the FLBAs, the banks must develop lending policies and standards that

all FLBAs within their respective districts must follow in making

credit decisions for the bank. Additionally, in certain circumstances

where loss exposure accrues to individual FLBAs through loss-sharing

agreements with the FCB, loan policies and standards may be needed by

FLBAs to augment and supplement those established by their supervisory

banks.

The FCA received three comments on proposed Sec. 614.4165, which

requires that bank lending policies give special consideration to the

credit needs of young, beginning, and small farmers, ranchers, and

producers or harvesters of aquatic products. The commenters recommended

revising existing paragraph (e) to place the responsibilities for

grouping specialized enterprises according to risk with the direct

lender, whether bank or association. The FCA agrees with the comment

and has revised existing paragraph (e) (now redesignated as paragraph

(c)) to place the responsibility for grouping specialized enterprises

with direct lenders, rather than with the banks, consistent with other

changes in this final rule. Commenters were also concerned that the

proposed changes in the regulation will result in additional regulatory

burden by increasing reporting requirements. They requested

clarification of narrative reporting requirements, asked whether

definitions will be in call reports, and asked how the changes will

reflect the requirements for special enterprises. In response to the

commenters, the FCA clarifies that the reporting requirements, which

are statutory, will not change as a result of the final amendments to

Sec. 614.4165. The amendments merely eliminate the duplication and

inconsistencies that exist between the call reports and regulations.

Also, necessary definitions will continue to be included in the call

reports as they are now and may be modified as the young, beginning,

and small farmer lending environment changes. Therefore, other than the

changes noted to redesignated paragraph (c), the amendments to

Sec. 614.4165 are adopted as proposed.

III. Subpart E--Loan Terms and Conditions

The FCA received two comments on proposed Sec. 614.4200(a)(1). The

commenters suggested that the FCA change the language to refer solely

to a ``written document or documents,'' because loan terms and

conditions may be set forth in more than one document. The FCA

recognizes that terms and conditions may be included in more than one

document and to alleviate any confusion, amends Sec. 614.4200(a)(1) to

refer to a ``written document or documents.'' However, the FCA

continues to list sample documents in the regulation and reiterates

that the list is illustrative only, and does not require that terms and

conditions be set forth in any particular written document.

The FCA also received three comments on Sec. 614.4200(c)(1)

regarding the security requirements for long-term real estate loans. An

ACA commented that the proposed requirement that collateral taken to

secure long-term real estate mortgages must consist primarily of

agricultural real estate limits a System institution's ability to serve

diversified agriculture and creditworthy customers. It asserted that

properties in metropolitan areas, such as nurseries and properties

purchased for the purpose of farming in the future, have high non-

agricultural or commercial values, often over the agricultural value of

the property. An FCB commenter supported the concept of the proposed

amendment but stated that rather than focusing on the value of the

collateral, the amount of agricultural collateral required should be

based on the amount of the loan. The bank suggests that a better

approach to preserve the rural focus of System lending is to require

that the amount of money that may be loaned on the non-agricultural

collateral cannot exceed the amount that could be loaned on the

agricultural collateral. Finally, the commenter suggested that the FCA

add ``buildings or improvements thereto'' after ``agricultural land''

because such improvements add value to the land.

The FCA believes that the requirement that the primary collateral

must be more than 50 percent agricultural or rural land is consistent

with the mandate in section 1.7(a)(1) of the Act that FCS institutions

make real estate mortgage loans in rural areas. The FCA also recognizes

and supports the position that lenders should take the maximum

collateral possible and appropriate to ensure safe and sound lending.

In order to clarify Sec. 614.4200(b)(1), the FCA is specifying in the

regulation that the collateral taken to meet the loan-to-value

limitation in Sec. 614.4200(b)(1) must be primarily agricultural or

rural property. If collateral is available in addition to the

collateral taken to meet the loan-to-value requirement, the lender can,

and is strongly encouraged to, take any additional collateral that

appropriately secures the loan. There is no requirement that this

additional collateral be agricultural or rural property. In response to

the commenters' questions, if the value of the non-agricultural or non-

rural property taken as additional collateral is greater than the value

of the collateral taken to meet the loan-to-value limitation, the

excess value of such additional collateral will not result in a

violation of this section.

Regarding the suggestion to add the words ``buildings and

improvements'' after ``agricultural land,'' the FCA interprets the term

``agricultural land'' to include any buildings and improvements that

have been made to the land and modifies proposed Sec. 614.4200(c)(1)

(now paragraph (b)(1)) to reference ``agricultural land and

improvements made thereto.'' Such improvements are normally considered

in establishing the value of the land for collateral purposes.

The FCA received a comment that institutions should have the

authority to take a second lien on property serving as primary

collateral to meet the loan-to-value ratio for agricultural loans, as

long as the lender also holds the first lien on the property. Similar

authority was proposed in Sec. 614.4200(c)(4) for rural home loans, and

the commenter stated that it should apply to agricultural loans as

well. According to the commenter, having a second lien on property

while already holding a first

[[Page 51012]]

lien to collateralize another loan results in the same level of

security for the lender as having only a first lien position in another

piece of property. Also, the commenter stated that the security

requirements in the Act are the same for both rural home loans and

agricultural loans. The FCA agrees with the commenters that the first

lien loan security requirements in the Act are the same for all real

estate mortgage loans. Therefore, the FCA amends Sec. 614.4200(b)(1) to

authorize lenders to take a second lien interest in real property if

the lender already holds a first lien interest in the property, because

the effective result of both liens is a first lien on the property.

Except for this change, the clarification of agricultural land, and the

changes previously discussed regarding relocating requirements for

collection of financial information to Sec. 614.4150 (and the

redesignation of paragraphs as a result), Sec. 614.4200 is adopted as

proposed.

IV. Subpart F--Collateral Evaluation Requirements

The FCA received comments from two appraisal groups and four System

institution commenters regarding proposed modifications to

Secs. 614.4245 and 614.4250. The appraisal groups concurred that there

is a need to simplify the appraisal process in low-risk, small loan

programs, but thought that the amendments proposed were not the best

way to accomplish the simplification. The appraisal groups suggested

that the USPAP contains sufficient flexibility to meet the collateral

evaluation needs of small loan programs. They further suggested that if

the use of limited appraisals under USPAP rule 1 and summary and

restricted reports under rule 2 are not sufficient, the FCA could

specify appropriate additional departures in regulations, which would

allow appraisers to use the USPAP jurisdictional exception.

Since the publication of the collateral evaluation regulations in

1995, the FCA has received several requests to review those

regulations, because institutions have asserted that certain provisions

are potentially burdensome. The FCA proposed amendments to

Secs. 614.4245 and 614.4250 in an attempt to address those concerns.

After reviewing the comments on the proposed amendments and

reconsidering the requirements of the regulations and comments received

on the collateral evaluation regulation subsequent to publication, the

FCA has decided to withdraw the majority of the proposed amendments to

Secs. 614.4245 and 614.4250 and modify others.

The FCA believes that the departure provisions of USPAP are

sufficient to meet the needs of System institutions in their small loan

programs and encourages institutions to follow those provisions in

developing small loan programs. Once those provisions are implemented,

the FCA will consider whether modifications to the regulations are

necessary to create a jurisdictional exception.2 The FCA

also welcomes institutions to contact the FCA for guidance in using the

USPAP departure provisions in small loan programs.

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

\2\ A jurisdictional exception is intended to provide a saving

or severability clause intended to preserve the balance of USPAP if

one or more of the parts of USPAP are determined to be contrary to

the law or public policy of a jurisdiction. FCA would have to

establish a jurisdictional exception by regulation.

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

The FCA received comments from System institutions to withdraw the

$100,000 loan size limitation on small loan programs referenced in the

proposed amendment to Sec. 614.4245 and provide more flexibility for

small real estate loans and loans for the purchase of new equipment and

vehicles. The FCA agrees with the commenters that a $100,000 blanket

limitation for all small loan programs is not appropriate. Regarding

added flexibility, the FCA believes that the institutions can make use

of the USPAP provisions mentioned above for both small real estate

loans and loans for the purchase of new equipment and vehicles and that

changes are not necessary. Therefore, the FCA withdraws the proposed

amendments to Sec. 614.4250. The FCA adopts as final the proposed

amendments to Sec. 614.4245(d), except that the word ``modified,'' the

reference to Sec. 614.4250(b), and the limitation that small loan

programs consist of loans of $100,000 or less are removed and the term

``minimum information program'' is added in place of small loan

program. With regard to these changes, the FCA notes that institutions

with minimum information programs must set the parameters of those

programs in their policies and loan underwriting standards. Such

parameters should include, but are not necessarily limited to,

portfolio limitations, maximum loan size, collateral requirements, and

information required for documentation of repayment capacity.

V. Subpart H--Loan Purchases and Sales

The FCA received three comments, two from associations and one from

the FCC, regarding the proposed restrictions in Sec. 614.4325 on the

funding bank serving as an agent for an association in purchasing

loans. The commenters stated that restricting the funding bank from

acting as an association's agent limits the System's potential for

cooperating on a regional or national basis to serve rural America.

They offered trade credit projects and other situations in which the

FCA has said that the use of credit scoring is appropriate as examples

of projects that would be impeded if the funding bank were prohibited

from serving as an association's agent. The commenters also noted that

the restriction is inconsistent with the FCA's recognition of direct

lender associations' autonomy and responsibility for their own lending

operations. Further, it is the commenters' belief that there are

different relationships between banks and associations in different

districts, and the FCA should not impinge on those relationships by

regulation. Finally, the commenters suggested that if the FCA is

unwilling to remove the restriction entirely, the FCA should adopt the

position that the funding bank can be an association's agent, but the

association has the authority to terminate the agency relationship with

a 90-day notice to the bank.

In response to the commenters, the FCA notes that the restriction

on a funding bank serving as an association's agent may appear

inconsistent with the philosophy the FCA has adopted in these loan

underwriting regulations that associations adopt their own lending

standards and oversee their lending operations. However, the

relationship between a funding bank and its associations can result in

unequal bargaining positions between banks and associations and create

conflicts with an association's ability to hold its agent, the funding

bank, responsible for acting in the association's best interest. Thus,

notwithstanding potential inconsistencies with association autonomy,

the FCA believes it is necessary to take steps to minimize any damages

caused by these conflicts. As suggested by the commenters, one way to

minimize problems is to require institutions to include in the agency

agreement a provision authorizing an association to terminate the

agreement with notice to the funding bank. The FCA agrees with the

commenters, but believes that termination alone would not be sufficient

to remedy the damages caused by a bank's failure to act appropriately

if an association has purchased loans prior to terminating the agency

agreement. As a result, the FCA withdraws the proposed prohibition in

Sec. 614.4325 against a funding bank serving as an association's agent.

The final regulation contains a provision for termination of the agency

agreement

[[Page 51013]]

with no more than a 60-day notice to the bank, and in addition,

requires a provision in the agreement that the bank would be required

to purchase from the association any loans that the association, in its

sole discretion, determines do not comply with the terms of the agency

agreement or the association's loan underwriting standards. The added

provision will provide a remedy to an association injured by a bank's

breach of the agency agreement and minimize any possible effect of an

unequal bargaining position between a bank and an association. In

addition, although the commenters suggested 90 days, the FCA believes

that a shorter time period for the notice provides greater flexibility

for an association to act in situations in which the association

believes that the bank may not be acting in its interest. Further, 60

days should give banks sufficient notice to make any arrangements

necessary as result of termination of the agency agreement. In

addition, the parties may, by mutual agreement, specify a notice period

of less than 60 days. Other than withdrawing the funding bank

restriction and adding the termination and damages provisions, the FCA

adopts the amendments to subpart H as proposed.

Finally, except where previously noted in this supplementary

information, the proposed amendments, including the many conforming

amendments within subparts A, C, H, J, and Q of part 614 and in part

619, are adopted as final without change.

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, parts 614 and 619 of

chapter VI, title 12 of the Code of Federal Regulations are amended to

read as follows:

PART 614--LOAN POLICIES AND OPERATIONS

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

follows:

Authority: 42 U.S.C. 4012a, 4104a, 4101b, 4106, and 4128; Secs.

1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 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, 4.36,

4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 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, 2096, 2121,

2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201,

2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2207, 2219a, 2219b,

2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f,

2279f-1, 2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat.

1568, 1639.

Subpart A--Lending Authorities

2. Section 614.4000 is amended by removing the words ``agricultural

credit association of a Federal land credit association'' and adding in

its place, the words ``agricultural credit association or a Federal

land credit association'' in the introductory text of paragraph (f),

and revising paragraph (a) to read as follows:

Sec. 614.4000 Farm Credit Banks.

(a) Long-term real estate lending. Except to the extent such

authorities are transferred pursuant to section 7.6 of the Act, Farm

Credit Banks are authorized, subject to the requirements in

Sec. 614.4200 of this part, to make real estate mortgage loans with

maturities of not less than 5 years nor more than 40 years and

continuing commitments to make such loans.

* * * * *

3. Section 614.4010 is amended by removing the reference

``Sec. 614.4230'' and adding in its place, the reference

``Sec. 614.4200'' in paragraphs (d)(1) and (d)(2); and revising

paragraph (a) to read as follows:

Sec. 614.4010 Agricultural credit banks.

(a) Long-term real estate lending. Except to the extent such

authorities are transferred pursuant to section 7.6 of the Act,

agricultural credit banks are authorized, subject to the requirements

of Sec. 614.4200, to make real estate mortgage loans with maturities of

not less than 5 years nor more than 40 years and continuing commitments

to make such loans.

* * * * *

Sec. 614.4020 [Amended]

4. Section 614.4020 is amended by removing the reference

``614.4230'' and adding in its place, the reference ``614.4200'' in

paragraphs (a)(1) and (a)(2).

5. Section 614.4030 is amended by revising paragraph (a) to read as

follows:

Sec. 614.4030 Federal land credit associations.

(a) Long-term real estate lending. Federal land credit associations

are authorized, subject to the requirements of Sec. 614.4200, to make

real estate mortgage loans with maturities of not less than 5 years nor

more than 40 years and continuing commitments to make such loans.

* * * * *

6. Section 614.4040 is amended by removing paragraph (b);

redesignating paragraphs (c) and (d) as new paragraphs (b) and (c),

respectively; removing the reference ``paragraph (c)(2)'' and adding in

its place, the reference ``paragraph (b)(2)'' in newly designated

paragraph (b)(1); and by revising paragraph (a) to read as follows:

Sec. 614.4040 Production credit associations.

(a) Loan terms. (1) Production credit associations are authorized

to make or guarantee loans and other similar financial assistance for

the following terms:

(i) Not more than 7 years

(ii) More than 7 years, but not more than 10 years, subject to

authorization in policies approved by the funding bank

(iii) Not more than 15 years to producers or harvesters of aquatic

products for major capital expenditures, including but not limited to

the purchase of vessels, construction or purchase of shore facilities,

and similar purposes directly related to the producing or harvesting

operation

(2) Subject to policies approved by the funding bank, production

credit associations may amortize loans over a period greater than the

loan terms authorized under paragraph (a)(1) of this section, provided

that:

(i) The loan is amortized over a period not to exceed 15 years

(ii) The loan may be refinanced only if the lender determines, at

the time of refinancing, that the loan meets its loan policy and

underwriting criteria;

(iii) Any refinancing may not extend repayment beyond 15 years from

the date of the original loan; and

(iv) The loan is not being made solely for the purpose of acquiring

unimproved real estate; and

(3) Short-and intermediate-term loans shall be made with maturities

that are appropriate for the purpose and underlying collateral of the

loan and that comply with an institution's loan underwriting standards

adopted pursuant to Sec. 614.4150 and the general requirements of

Sec. 614.4200 of this part.

* * * * *

7. Section 614.4050 is amended by adding introductory text and by

revising paragraphs (a) and (b) to read as follows:

Sec. 614.4050 Agricultural credit associations.

Agricultural credit associations are authorized to make or

guarantee, subject

[[Page 51014]]

to the requirements of Sec. 614.4200 of this part:

(a) Long-term real estate mortgage loans with maturities of not

less than 5 nor more than 40 years, and continuing commitments to make

such loans; and

(b) Short-and intermediate-term loans and provide other similar

financial assistance for a term of not more than 10 years (15 years for

aquatic producers and harvesters).

* * * * *

Subpart C--Bank/Association Lending Relationship

Sec. 614.4120 [Amended]

8. Section 614.4120 is amended by removing the words ``the factors

set forth in Secs. 614.4150 and 614.4160'' and adding in their place,

the words ``the loan underwriting policies and standards adopted

pursuant to Sec. 614.4150'' in the last sentence of paragraph (a).

Secs. 614.4135, 614.4140, and 614.4145 [Removed]

9. Sections 613.4135, 613.4140, and 614.4145 are removed.

Subpart D--General Loan Policies for Banks and Associations

Secs. 614.4150, 614.4160, 614.4170 [Removed]

10. Sections 614.4150, 614.4160, and 614.4170 are removed.

11. New section 614.4150 is added to read as follows:

Sec. 614.4150 Lending policies and loan underwriting standards.

Under the policies of its board, each institution shall adopt

written standards for prudent lending and shall issue written policies,

operating procedures, and control mechanisms that reflect prudent

credit practices and comply with all applicable laws and regulations.

Written policies and procedures shall, at a minimum, prescribe:

(a) The minimum supporting credit and financial information,

frequency for collection of information, and verification of

information required in relation to loan size, complexity and risk

exposure

(b) The procedures to be followed in credit analysis

(c) The minimum standards for loan disbursement, servicing and

collections

(d) Requirements for collateral and methods for its administration

(e) Loan approval delegations and requirements for reporting to the

board

(f) Loan pricing practices

(g) Loan underwriting standards that include measurable standards:

(1) For determining that an applicant has the operational,

financial, and management resources necessary to repay the debt from

cashflow

(2) That are appropriate for each loan program and the

institution's risk-bearing ability; and

(3) That consider the nature and type of credit risk, amount of the

loan, and enterprise being financed

(h) Requirements that loan terms and conditions are appropriate for

the loan; and

(i) Such other requirements as are necessary for the professional

conduct of a lending organization, including documentation for each

loan transaction of compliance with the loan underwriting standards or

the compensating factors or extenuating circumstances that establish

repayment of the loan notwithstanding the failure to meet any one or

more loan underwriting standard.

12. Section 614.4165 is amended by removing paragraphs (b) and (c);

redesignating paragraphs (d) and (e) as new paragraphs (b) and (c)

respectively; and revising paragraph (a) and the last sentence of newly

designated paragraph (c) to read as follows:

Sec. 614.4165 Special credit needs.

(a) The board of each direct lender institution shall adopt

policies to establish programs to provide credit and related services

to young, beginning, and small farmers, ranchers, and producers or

harvesters of aquatic products.

* * * * *

(c) * * * Where such programs are authorized, the direct lender

institution board shall adopt appropriate policies that define criteria

for the selection of specialized high-risk enterprises.

Subpart E--Loan Terms and Conditions

13. Section 614.4200 is revised to read as follows:

Sec. 614.4200 General requirements.

(a) Terms and conditions. (1) The terms and conditions of each loan

made by a Farm Credit bank or association shall be set forth in a

written document or documents, such as a loan agreement, promissory

note, or other instrument(s) appropriate to the type and amount of the

credit extension, in order to establish loan conditions and performance

requirements. Copies of all documents executed by the borrower in

connection with the closing of a loan made under titles I or II of the

Act shall be provided to the borrower at the time of execution and at

any time thereafter that the borrower requests additional copies.

(2) The terms and conditions of all loans shall be adequately

disclosed in writing to the borrower not later than loan closing. For

loans made under titles I and II of the Act, the institution shall

provide prompt written notice of the approval of the loan.

(3) Applicants shall be provided notification of the action taken

on each credit application in compliance with the requirements of 12

CFR 202.9.

(b) Security. (1) Long-term real estate mortgage loans must be

secured by a first lien interest in real estate, except that the loans

may be secured by a second lien interest if the institution also holds

the first lien on the property. No funds shall be advanced, under a

legally binding commitment or otherwise, if the outstanding loan

balance after the advance would exceed 85 percent (or 97 percent as

provided in section 1.10(a) of the Act) of the appraised value of the

real estate, except that a loan on which private mortgage insurance is

obtained may exceed 85 percent of the appraised value of the real

estate to the extent that the loan amount in excess of 85 percent is

covered by such insurance. The real estate that is used to satisfy the

loan-to-value limitation must be comprised primarily of agricultural or

rural property, including agricultural land and improvements thereto, a

farm-related business, a marketing or processing operation, a rural

residence, or real estate used as an integral part of an aquatic

operation.

(2) Notwithstanding the requirements of paragraph (b)(1) of this

section, the lending institution may advance funds for the payment of

taxes or insurance premiums with respect to the real estate, reschedule

loan payments, grant partial releases of security interests in the real

estate, and take other actions necessary to protect the lender's

collateral position. Any action taken that results in exceeding the

loan-to-value limitation shall be in accordance with a policy of the

institution's board of directors and adequately documented in the loan

file.

(3) Short- and intermediate-term loans may be secured or unsecured

as the documented creditworthiness of the borrower warrants.

(4) In addition to the requirements in paragraph (b)(1) of this

section, a long-term, non-farm rural home loan, including a revolving

line of credit, shall be secured by a first lien on the property,

except that it may be secured by a second lien if the institution also

holds the first lien on the property. A short- or intermediate-term

loan on a rural home, including a revolving line of credit, must be

secured by a lien on the

[[Page 51015]]

property unless the financing is provided exclusively for repairs,

remodeling, or other improvements to the rural home, in which case the

loan may be secured by other property or unsecured if warranted by the

documented creditworthiness of the borrower.

(5) Except as provided in Sec. 614.4231, loans made under title III

of the Act may be secured or unsecured, as appropriate for the purpose

of the loan and the documented creditworthiness of the borrower.

Secs. 614.4210, 614.4220, 614.4222, 614.4230 [Removed]

14. Sections 614.4210, 614.4220, 614.4222, and 614.4230 are

removed.

15. Section 614.4231 is revised to read as follows:

Sec. 614.4231 Certain seasonal commodity loans to cooperatives.

Loans on certain commodities that are part of government programs

shall comply with the criteria established for those programs. Security

taken on program commodities shall be consistent with prudent lending

practices and ensure compliance with the government program. The bank

shall provide for periodic review by bank officials of any custodial

activities and shall provide notice to the custodians that their

activities are subject to review and examination by the Farm Credit

Administration.

Subpart F--Collateral Evaluation Requirements

16. Section 614.4245 is amended by adding a new paragraph (d) to

read as follows:

Sec. 614.4245 Collateral evaluation policies.

* * * * *

(d) An institution's board of directors may adopt specific

collateral evaluation requirements, consistent with the regulations in

this subpart, for loans designated as part of a minimum information

program.

Subpart H--Loan Purchases and Sales

17. Section 614.4325 is amended by removing the reference

``Sec. 614.4160'' and adding in its place, the words ``the loan

underwriting standards adopted pursuant to Sec. 614.4150'' in the

fourth sentence of paragraph (e); revising paragraph (a)(1); and adding

new paragraph (h) to read as follows:

Sec. 614.4325 Purchase and sale of interests in loans.

(a) * * *

(1) Interests in loans means ownership interests in the principal

amount, interest payments, or any aspect of a loan transaction and

transactions involving a pool of loans, including servicing rights.

* * * * *

(h) Transactions through agents. Transactions pertaining to

purchases of loans, including the judgment on creditworthiness, may be

performed through an agent, provided that:

(1) The institution establishes the necessary criteria in a written

agency agreement that outlines, at a minimum, the scope of the agency

relationship and obligates the agent to comply with the institution's

underwriting standards;

(2) The institution periodically reviews the agency relationship to

determine if the agent's actions are in the best interest of the

institution;

(3) The agent must be independent of the seller or intermediate

broker in the transaction; and

(4) If an association's funding bank serves as its agent, the

agency agreement must provide that:

(i) The association can terminate the agreement upon no more than

60 days notice to the bank;

(ii) The association may, in its discretion, require the bank to

purchase from the association any interest in a loan that the

association determines does not comply with the terms of the agency

agreement or the association's loan underwriting standards.

Subpart J--Lending Limits

Sec. 614.4355 [Amended]

18. Section 614.4355 is amended by removing the word ``seasonal''

and adding in its place, the word ``commodity'' the second place it

appears in paragraphs (a)(6) and (b)(1) respectively, and in paragraph

(a)(8).

Sec. 614.4358 [Amended]

19. Section 614.4358 is amended by removing the words ``on the

credit factors set forth in Sec. 614.4160'' and adding in their place,

the words ``under the loan underwriting standards adopted pursuant to

Sec. 614.4150'' in paragraph (a)(1)(ii).

Subpart O--Banks for Cooperatives Financing International Trade

Sec. 614.4810 [Amended]

20. Section 614.4810 is amended by removing the words ``credit

factors listed in Sec. 614.4160'' and adding in their place, the words

``the loan underwriting standards adopted pursuant to Sec. 614.4150''

in paragraph (b).

PART 619--DEFINITIONS

21. 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).

Secs. 619.9165 and 619.9290 [Removed]

22. Sections 619.9165 and 619.9290 are removed.

Dated: September 24, 1997.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 97-25934 Filed 9-29-97; 8:45 am]

BILLING CODE 6705-01-P