[Federal Register Volume 62, Number 174 (Tuesday, September 9, 1997)]
[Proposed Rules]
[Pages 47384-47388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23750]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 62, No. 174 / Tuesday, September 9, 1997 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1962, 1965 and 1980
RIN 0560-AE92
Subordination of Direct Loan Basic Security to Secure a
Guaranteed Line of Credit
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) proposes to revise its
regulations regarding loan security servicing to allow the Agency to
enhance the use of subordinations to move direct farm credit program
borrowers to the private sector. The first change is to allow
subordinations of direct loan basic chattel and real estate security if
necessary to secure a guaranteed operating line of credit. This action
is intended to encourage the making of guaranteed lines of credit as
opposed to direct annual operating loans or subordinations. Secondly,
this rule also proposes to revise FCP regulations to allow
subordination of Agency loan security so another lender may refinance a
borrower's debt. This change is needed because recent legislation
places restrictions on the uses of direct loans for refinancing. The
proposal is intended to allow the Agency to transfer a portion of a
direct loan borrower's government debt to commercial credit.
DATES: Comments on the proposed rule, comments on alternatives to this
proposal, and the information collection requirements of this rule must
be received on or before November 10, 1997 to be assured consideration.
ADDRESSES: Send comments on, and alternatives to, the proposed rule to:
Director, Farm Credit Programs Loan Servicing and Property Management
Division (LSPMD), Farm Service Agency (FSA), U.S. Department of
Agriculture (USDA), room 5449-S, 1400 Independence Avenue, SW, STOP
0523, Washington, D.C. 20013-0523. Comments on the information
collection requirements of this proposed rule must be sent to the
Office of Management and Budget (OMB) at the address listed in the
Paperwork Reduction Act section of this preamble or sent to the
Department address listed after the OMB address.
FOR FURTHER INFORMATION CONTACT: Craig Nehls, Branch Chief, USDA, FSA,
Farm Credit Programs Loan Servicing Division, 1400 Independence Avenue,
SW, STOP 0523, Washington, D.C. 20013-0523, telephone (202) 720-1984.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been reviewed under E.O. 12866 and has been
determined to be a significant regulatory action and has been reviewed
by OMB.
Executive Order 12372
1. For the reasons set forth in the Notice related to 7 CFR part
3015, subpart V (48 FR 29115, June 24, 1983), Farm Ownership Loans,
Farm Operating Loans and Emergency Loans are excluded from the scope of
E.O. 12372, which requires intergovernmental consultation with State
and local officials.
2. The Soil and Water Loan Program is subject to and has met the
provisions of E.O. 12372.
Federal Assistance Program
These changes affect the following FSA programs as listed in the
Catalog of Federal Domestic Assistance:
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans
Environmental Impact Statement
It is the determination of the issuing agency that this action is
not a major Federal action significantly affecting the environment.
Therefore, in accordance with the National Environmental Policy Act of
1969, Pub. L. 91-190, and 7 CFR part 1940 subpart G, an Environmental
Impact Statement is not required.
Executive Order 12988
This proposed rule has been reviewed in accordance with E.O. 12988,
Civil Justice Reform. In accordance with this rule; (1) All State and
local laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule: and
(3) administrative proceedings in accordance with 7 CFR parts 11 and
780 must be exhausted before bringing suit in court challenging action
taken under this rule unless those regulations specifically allow
bringing suit at an earlier time.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601--
602), the undersigned has determined and certified by signature of this
document that this rule will not have a significant economic impact on
a substantial number of small entities. This rule does not involve a
new or expanded program and new provisions included in this rule will
not impact a substantial number of small entities to a greater extent
than large entities. Although it is the intent of this rule to move
direct loans to guaranteed loans, participation is voluntary and
requires no action on the part of small entities. Thus, large entities
are subject to these rules to the same extent as small entities.
Therefore, a regulatory flexibility analysis was not performed.
Unfunded Mandates
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.
104-4, requires Federal agencies to assess the effects of their
regulatory actions on State, local, and tribal governments or the
private sector. Agencies generally must prepare a written statement,
including a cost benefit analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures of $100 million or
more in any 1 year for State, local, or tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule.
The rule contains no Federal mandates, as defined under title II of
the UMRA, for State, local, and tribal governments or the private
sector. Thus, this rule is not subject to the
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requirements of sections 202 and 205 of UMRA.
Paperwork Reduction Act
The amendments to 7 CFR parts 1962, 1965 and 1980 set forth in this
proposed rule require no revisions to the information collection
requirements that were previously approved by OMB under the provisions
of 44 U.S.C. chapter 35. Comments regarding the following issues should
be sent to the Desk Officer for Agriculture, Office of Information and
Regulatory Affairs, Office of Management and Budget, Washington, D.C.
20503 and to Craig Nehls, Branch Chief, USDA, FSA, Farm Credit Programs
Loan Servicing Division, Farm Service Agency, USDA, 1400 Independence
Avenue, SW, STOP 0523, Washington, D.C. 20013-0523: (a) Whether the
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information will
have practical utility; (b) the accuracy of the agency's estimate of
burden including the validity of the methodology and assumptions used;
(c) ways to enhance the quality, utility and clarity of the information
to be collected; (d) ways to minimize the burden of the collection of
information on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other technological
collection techniques or other forms of information technology.
Comments regarding paperwork burden will be summarized and included in
the request for OMB approval of the information collection. All
comments will also become a matter of public record.
Title: 7 CFR 1980-B, Farmer Program Loans.
OMB Control Number: 0560-0155.
Expiration Date: March 31, 1998.
Type of Request: Request for Comments.
Abstract: The information collected under OMB Control Number 0560-
0155, as identified above, is needed in order for FSA to effectively
administer the regulation relating to the subordination of direct loan
security to secure a guaranteed loan line of credit. The information is
collected by the loan official in consultation with the lender. The
basic objective of the guaranteed loan program is to provide credit to
applicants who are unable to obtain credit from lending institutions
without a guarantee. The reporting requirements imposed on the public
by the regulations set out in 7 CFR part 1980-B are necessary to
administer the guaranteed loan program in accordance with statutory
requirements listed above and are consistent with commonly performed
lending practices. Collection of information after loans are made is
necessary to protect the Government's financial interest.
This rule--to allow for subordinations of direct loan security to
secure a guaranteed line of credit--is expected to result in the
substitution of guaranteed loans in several cases where direct
Operating Loans (OL) or subordinations are being used to fund annual
farm operating needs. This is expected to result in a slight increase
in the number of guaranteed lines of credit, a decrease in the number
of OL's and an increase in the number of subordinations. The respective
requirements of subordinations and OL loans will not change. The Agency
has determined that the currently approved information collection
requirements contain sufficient estimates to absorb this proposed
change since the first part of this rule will affect the current burden
of these regulations by only 0.3 percent, if at all. Therefore, no
request for revision is being made. Subordinations of direct loan
security (subordinations) are governed by 7 CFR 1962.30 and 1965.12.
Guaranteed Operating loans (OL) are governed by 7 CFR 1980.175.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average .71 hours per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated Number of Respondents: 23,150.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 193,343.
Title: 7 CFR 1962-A, has no information collection requirements and
does not have an OMB Control Number.
Title: 7 CFR 1965-A, Servicing of Real Estate Security for Farmer
Program Loans and Certain Note-Only Cases.
OMB Control Number: 0560-0158.
Expiration Date: April 30, 1998.
Type of Request: Revision and Extension of a Currently Approved
Information Collection.
Abstract: The information collected under OMB Control Number 0560-
0158, as identified above, is collected by the loan servicing official
in consultation with the borrower, another creditor, or other
appropriate individuals from whom information is necessary. The
information is used in order to process subordination request and
effectively administer program policies and procedures in a way that
maximize benefits to borrowers and maintains the Government's financial
interest.
Section 331 of the Consolidated Farm and Rural Development Act, as
amended, authorizes the Secretary of Agriculture to grant releases from
personal liability where security property is transferred to approved
applicants who, under agreement, assume the outstanding secured
indebtedness. That section also authorizes the Secretary of Agriculture
to grant partial releases and subordinations of mortgages subject to
certain conditions and to consent to leases of security and transfers
of security property. FSA county offices must collect information from
borrowers requesting subordinations in order to assure that the program
is carried out in accordance with the applicable laws and authorities.
The 1996 Act modified the authorized loan purposes for direct Farm
Ownership Loans (FO) by eliminating the refinancing of existing
indebtedness as well as placing a limit on the number of times a direct
Farm Operating Loan (OL) may be used for refinancing. This has
unintentionally restricted the Agency's ability to subordinate security
since 7 CFR 1965.12 allows subordination for ``authorized loan
purposes.'' This causes problems in cases where subordinations are
necessary for graduating direct loan borrowers to commercial credit.
Graduation to commercial credit is one of the Agency's basic goals. The
second part of this rule--to allow for subordinations for refinancing
debt--is intended to allow the Agency to meet the need for refinancing
created by the Federal Agriculture Improvement Act of 1996 (1996 Act).
It will have no effect on currently approved information collection
requirements. The public reporting burden under the requirements of the
regulation are shown in the following estimates:
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average .64 hours per response.
Respondents: Individuals or households, businesses or other for
profit and farms.
Estimated Number of Respondents: 29,516.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 18,971.
Discussion of Proposed Rule
These changes involve the Farm Credit Programs (FCP) loans of FSA
formerly administered by the Farmers Home Administration (FmHA) as
Farmer Programs loans.
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Section 1980.108 (a)(iii) of Title 7 of the Code of Federal
Regulations states that when a borrower is involved with both a direct
and guaranteed loan with the Agency, the Agency may subordinate its
lien position only on crops, feeder livestock or livestock products in
order to secure a guaranteed loan and in other limited cases. FCP loan
servicing regulations (7 CFR part 1962, subpart A and part 1965,
subpart A), provide conditions for the subordination of Agency lien
position on basic chattel and real estate security to another lender
without mention of when the Agency will be providing the lender a
guarantee on the loan to be made.
This proposed rule will allow FSA to grant a subordination of basic
chattel and real estate security in connection with a guaranteed line
of credit. Such subordinations will be subject to the applicable
requirements of 7 CFR 1962.30 and 1965.12 as referenced in 7 CFR
1980.108 in addition to conditions specific to granting a subordination
in conjunction with a guaranteed loan. The Agency currently offers
subordinations of basic chattel and real estate security under 7 CFR
1980.108 (a)(1)(iii) up to an amount necessary to collateralize a crop
loan or a guarantee of up to 90 percent of principal and accrued
interest on an operating loan. However, some commercial lenders and
Congressional representatives have expressed concerns that this policy
is too restrictive in areas where commercial lenders do not normally
make loans to farm producers secured only by crops, or livestock
products. Real estate and basic chattel security is desired. The Agency
does not feel that this is a widespread problem. Furthermore, since the
Government will be assuming nearly all of the risk for these
combination subordination and guaranteed loans, conditions are proposed
to ensure that these loans are made only in those areas that can
document problems with credit availability. In addition, the loans will
only be made where the Agency will have an extra 25 percent in security
value to cover its loan after the subordination to protect the
Government from an undue risk of loss.
This rule is also proposing revisions to FCP loan servicing
regulations to allow subordination of Agency loan security so another
lender may refinance a borrower's debt. This is necessary as a result
of a recent modification to Agency loan eligibility criteria made by
the 1996 Act. Section 602 of the 1996 Act does not include refinancing
as an authorized loan purpose for direct Farm Ownership loans (FO).
Section 312 of the 1996 Act also places a limit on the number of times
a direct Farm Operating loan (OL) may be used for refinancing. This has
unintentionally restricted the Agency's ability to subordinate security
since 7 CFR 1962.30 and 1965.12 allow a subordination only for
``authorized loan purposes.'' This language is not required by statute.
The legislation has also caused problems in cases where a subordination
is necessary for graduations of direct loan borrowers to commercial
credit on some of their loans. Graduation is one of the Agency's basic
goals.
To address these problems, the Agency proposes to allow
subordinations for loans to refinance a borrower's debts.
Subordinations for such purposes are not in conflict with the language
or the intent of the 1996 Act. The 1996 Act did not restrict the use of
guaranteed FO's and OL's for refinancing purposes, so it is clear that
Congress did not intend to prohibit all refinancing.
The Agency also proposes to revise the provision concerning the
relationship between direct and guaranteed loans in 7 CFR 1980.108 to
delete the requirement limiting combined direct and guaranteed to
$650,000 when an Economic Emergency loan is involved. This requirement
of the Emergency Agricultural Credit Adjustment Act of 1978 was
repealed by Sec. 1851 of the Food, Agriculture, Conservation, and Trade
Act of 1990 (Pub. L. 101-624).
This rule also removes administrative provisions from some of the
affected sections, leaving only regulatory actions which impact the
public in the Federal Register. Matters involving internal operating
procedures and requirements will be contained in the Agency's
instructions and handbooks. This streamlining makes the regulation more
concise and easier to read and understand. Handbooks and instructions
are available to the public upon request from an FSA office. Daily
management of existing programs will not be affected by these
administrative deletions.
Also, this rule makes minor wording changes, redesignates some
numbered paragraphs and revises references to ``FmHA'' to reference
``FSA'' or ``Agency.''
Accordingly, it is proposed that 7 CFR chapter XVIII be amended as
follows:
List of Subjects
7 CFR Part 1962
Crops, Government property, Livestock, Loan programs--Agriculture,
Rural areas
7 CFR Part 1965
Real Property--Foreclosure, Loan programs--Agriculture, Rural areas
7 CFR Part 1980
General--Agriculture, Loan programs--Agriculture, EM
PART 1962--PERSONAL PROPERTY
1. The authority citation for part 1962 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing and Liquidation of Chattel Security
2. Section 1962.30 is revised to read as follows:
Sec. 1962.30 Subordination and waiver of liens on chattel security.
(a) Purposes. Subject to the limitations set out in paragraph (b)
of this section, the Agency chattel liens may be subordinated to a lien
of another creditor in any of the following situations:
(1) The prior lien will soon mature or has matured and the prior
lienholder desires to extend or renew the obligation, or the obligation
can be refinanced. The relative lien position of the Agency must be
maintained.
(2) The subordination will permit another creditor to refinance
other debt or lend for an authorized direct loan purpose.
(3) The subordination is necessary to obtain crop insurance. The
creditor to whom a subordination is given must consent in writing to
payment of the insurance premiums from the crop or insurance proceeds.
When a subordination is executed to enable the borrower to obtain crop
insurance on Agency security, the borrower will assign the insurance
proceeds to the Agency or name the Agency in the loss-payable clause of
the policy.
(b) Conditions. Agency chattel liens may be subordinated to a lien
of another creditor if all of the following conditions are met:
(1) The lien to be subordinated is on crops, livestock increase,
feeder livestock, and other normal income security. If the lien is on
basic chattel security, the Agency will subordinate only to the extent
necessary to provide the lender with the security it requires to make
the loan.
(2) The subordination is limited to a specific amount.
(3) Only one subordination to one creditor may be outstanding at
any one time in connection with the same security.
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(4) The borrower has not been convicted of planting, cultivating,
growing, producing, harvesting or storing a controlled substance under
Federal or State law. ``Borrower'' for purposes of this provision,
specifically includes an individual or entity borrower and any member
stockholder, partner, or joint operator, of an entity borrower and any
member, stockholder, partner, or joint operator of an entity borrower.
``Controlled substance'' is defined at 21 CFR part 1308. The borrower
will be ineligible for a subordination for the crop year in which the
conviction occurred and the 4 succeeding crop years. Applicants must
attest on the Agency application form that it and its members, if an
entity, have not been convicted of such a crime.
(5) The loan funds will not be used in such a way that will
contribute to erosion of highly erodible land or conversion of wetlands
for the production of an agricultural commodity according to subpart G
of part 1940 of this chapter.
(6) Subordinations will not be granted to another USDA agency.
(c) Subordination to make a guaranteed loan. Notwithstanding the
requirements of this section subordinations on chattel security to make
a guaranteed loan will be approved in accordance with Sec. 1980.108 of
subpart B of part 1980 of this chapter.
(d) Forms. Subordinations will be executed on Agency forms
available in any FSA office or on another form approved by the Agency.
PART 1965--REAL PROPERTY
3. The authority citation for 7 CFR part 1965 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989 and 42 U.S.C. 1480.
Subpart A--Servicing of Real Estate Security for Farmer Program
Loans and Certain Note-Only Cases
4. Section 1965.12 is revised to read as follows:
Sec. 1965.12 Subordination of an Agency mortgage.
(a) A subordination may be granted if all of the following
conditions are met:
(1) The subordination is to refinance debt or for any other
authorized loan purpose.
(2) The Agency debt cannot be refinanced without a subordination.
(3) The subordination will further the purposes for which the
Agency loans were originally made.
(4) Any cooperative stock required in connection with the loan
secured by the subordinated security will be assigned to the Agency.
(5) If the unpaid principal and accrued interest balance of the
Agency loan exceeds the value of the loan security, a subordination may
be granted only if the value of the security will be increased by at
least the amount of the advances to be made.
(6) The Agency loan is still adequately secured after the
subordination.
(7) The borrower can document the ability to repay the total amount
due under subordination and pay all other debt payments scheduled for
the subject operating cycle.
(8) The loan funds will not be used in such a way that will
contribute to erosion of highly erodible land or conversion of wetlands
for the production of an agricultural commodity according to part 1940,
subpart G of this chapter.
(9) When a non-farm tract secures a single family housing (SFH)
loan, the other lender's funds will only be used for the same purposes
and with the same limitations that would be applicable if a SFH loan
were made.
(10) When the subordination will be used to acquire land, the FSA
county committee has made a favorable recommendation.
(11) Any planned development performed in a manner directed by the
creditor and agreed to by the Agency which reasonably attains the
objectives of part 1924, subpart A of this chapter.
(12) Funds to be used to develop or to acquire land will be
deposited in a supervised bank account that is subject to signature by
the Agency and the borrower or in a similar arrangement to ensure that
funds will be spent for the planned purposes.
(13) In cases of land purchase or exchange of property, the Agency
will obtain a valid mortgage on the acquired land. Title clearance and
loan closing will be required as for an initial or subsequent FO loan,
as appropriate.
(14) The borrower has not been convicted of planting, cultivating,
growing, producing, harvesting or storing a controlled substance under
Federal or State law. ``Borrower'' for purposes of this provision,
specifically includes an individual or entity borrower and any member
stockholder, partner, or joint operator, of an entity borrower and any
member, stockholder, partner, or joint operator of an entity borrower.
``Controlled substance'' is defined at 21 CFR part 1308. The borrower
will be ineligible for a subordination for the crop year in which the
conviction occurred and the four succeeding crop years. Applicants must
attest on the Agency application form that it and its members, if an
entity, have not been convicted of such a crime.
(b) Subordination on real estate owned by an entity member. When
the borrower is an entity and the Agency has taken real estate as
additional security on property owned by an entity member, a
subordination for any authorized Farm Credit Programs loan purpose may
be approved when it is needed for the entity member to finance a
separate operation. The subordination, however, may be approved only if
it does not cause the unpaid principal and accrued interest balance of
the Agency loan to exceed the value of the loan security or otherwise
adversely affect the security.
(c) Request for subordination. A borrower must complete an
application provided by the Agency to receive consideration for a
subordination.
(d) Notice of foreclosure. The lienholder requesting the
subordination will agree to give notice of foreclosure as required by
the Agency.
(e) Reamortizing existing Agency debts. The Agency may consent to a
reamortization of an existing Agency debt, other than an SFH debt, when
a subordination is granted to the debt of another lender. The
reamortization will be allowed only when the borrower cannot reasonably
be expected to meet all currently scheduled installments when due and
the conditions of part 1951, subpart S, of this chapter are met.
(g) Subordination to make a guaranteed loan. Notwithstanding the
requirements of this section, subordinations of liens on real estate
security to make a guaranteed loan will be in accordance with
Sec. 1980.108 of this chapter.
PART 1980--GENERAL
5. The authority citation for 7 CFR part 1980 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989 and 42 U.S.C. 1480.
Subpart B--Farmer Programs Loans
6. Section 1980.108 is amended to add paragraphs (a)(1)(v) and (vi)
and to revise paragraphs (a)(1)(iii) and (d) to read as follows:
Sec. 1980.108 General provisions.
(a) ***
(1) ***
(v) The Agency may subordinate its security interest on a direct
loan when a guaranteed loan is involved in any of the following
circumstances:
(A) To permit a guaranteed lender to advance funds and perfect a
security interest in crops, feeder livestock, or
[[Page 47388]]
livestock products, (milk, eggs, wool, etc.).
(B) When the lender requesting the guarantee needs the
subordination of the Agency's lien position to maintain its lien
position when servicing or restructuring.
(C) When the lender requesting the guarantee is refinancing the
debt of another lender and the Agency's position on real estate
security will not be adversely affected.
(vi) The Agency may subordinate its security interest in chattels
and real estate, or both to permit a Contract of Guarantee--Line of
Credit to be advanced for annual operating needs in accordance with
Sec. 1980.175 (c)(2) only when the following conditions are met:
(A) The value of the total security for the direct loan or loans
exceeds the total unpaid balance of the direct loan that it secures by
at least 25 percent of the amount of the proposed line of credit after
the subordination.
(B) The applicant cannot obtain sufficient credit through a
conventional guaranteed loan.
(C) The subordination is limited to a specific amount.
(D) The loan funds will not be used in such a way that will
contribute to erosion of highly erodible land or conversion of wetlands
for the production of an agricultural commodity according to part 1940,
subpart G of this chapter.
(E) The borrower has not been convicted of planting, cultivating,
growing, producing, harvesting or storing a controlled substance under
Federal or State law. ``Borrower'' for purposes of this provision,
specifically includes an individual or entity borrower and any member
stockholder, partner, or joint operator, of an entity borrower and any
member, stockholder, partner, or joint operator of an entity borrower.
``Controlled substance'' is defined at 21 CFR part 1308. The borrower
will be ineligible for a subordination for the crop year in which the
conviction occurred and the 4 succeeding crop years. Applicants must
attest on the Agency application form that it and its members, if an
entity, have not been convicted of such a crime.
(F) No subordination will exist in favor of another creditor on the
same security.
(G) The subordination is not in favor of another USDA agency.
(H) Any stock required in connection with the loan secured by the
subordinated security will be assigned to the Agency.
(I) The borrower can document the ability to repay the total amount
due under subordination and pay all other debt payments scheduled for
the subject operating cycle.
(J) The borrower will complete an application provided by the
Agency to receive consideration for a subordination, and
(K) The lienholder requesting the subordination will agree to give
notice of foreclosure as required by the Agency.
* * * * *
(d) Relationship between Agency loans, direct and guaranteed. A
guaranteed FO or OL loan may be made to an insured borrower with the
same type of direct loan provided:
(1) The outstanding combined direct and guaranteed FO or OL
principal balance owned by the loan applicant or owed by anyone who
will sign the note as cosigner may not exceed the authorized guaranteed
loan limit for that type of loan.
(2) Chattel and real estate collateral must be separate and
identifiable so as to be discernible from the collateral pledged to the
Agency for a direct loan. Different lien positions on real estate are
considered separate and identifiable collateral.
7. Section 1980.175 is amended to add paragraph (h)(3) as follows:
Sec. 1980.175 Operating Loans.
* * * * *
(h) Special security requirements. (1) * * *
(3) Subject to the requirements of this section, the Agency may
approve a Contract of Guarantee for a line of credit to be secured by
basic chattel or real estate security in which the Agency has
subordinated its lien position in accordance with Sec. 1980.108.
* * * * *
Signed in Washington, DC, on September 2, 1997.
Dallas Smith,
Acting Under Secretary for Farm and Foreign Agricultural Services.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-23750 Filed 9-8-97; 8:45 am]
BILLING CODE 3410-05-P