RD Instruction 4279-A — Part 4279 Guaranteed Loanmaking, Subpart A General (USDA Rural Development)
Summary
RD Instruction 4279-A, Part 4279 - Guaranteed Loanmaking, Subpart A - General, a USDA Rural Development instruction. Its table of contents lists sections including 4279.29 Eligible lenders, 4279.30 Lenders' functions and responsibilities, 4279.78 Repurchase from holder and an Appendix A repurchase checklist. Section 4279.1 states that the subpart contains general regulations for making and servicing Business and Industry (B&I) loans guaranteed by the Agency, and also contains regulations for B&I loans under the authority of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) for working capital in rural areas. It states that some requirements are waived or altered for B&I CARES Act Program Loans, and its definitions follow in section 4279.2.
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Cite this document
“RD Instruction 4279-A — Part 4279 Guaranteed Loanmaking, Subpart A General (USDA Rural Development).”
Original at www.rd.usda.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/usda-rural-development-guaranteed-loan-making-b-i-general-www-rd-usda-gov-2b51e6b211/
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RD Instruction 4279-A
Table of Contents
Page 1
PART 4279 - GUARANTEED LOANMAKING
Subpart A - General
TABLE OF CONTENTS
Sec. Page
4279.1 Introduction. 1
4279.2 Definitions and abbreviations. 1
(a) Definitions. 1
(b) Abbreviations. 10
(c) Accounting terms. 11
4279.3 - 4279.14 [Reserved] 11
4279.15 Exception authority. 11
4279.16 Appeals. 11
4279.17 - 4279.28 [Reserved] 12
4279.29 Eligible lenders. 12
(a) Regulated lenders. 12
(b) Non-regulated lenders. 13
(c) Revocation of eligible lender status. 16
(d) Debarment of lender. 18
4279.30 Lenders' functions and responsibilities. 18
(a) General. 18
(b) Credit evaluation. 20
(c) Environmental responsibilities. 20
4279.31 - 4279.43 [Reserved] 21
4279.44 Access to records. 21
4279.45 - 4279.58 [Reserved] 21
4279.59 Environmental requirements. 21
4279.60 Civil rights impact analysis. 22
4279.61 Equal Credit Opportunity Act. 22
4279.62 - 4279.70 [Reserved] 22
4279.71 Public bodies and nonprofit corporations. 22
4279.72 Conditions of guarantee. 22
(a) Full faith and credit. 23
(b) Rights and liabilities. 24
(c) Payments. 24
(06-12-17) SPECIAL PN
RD Instruction 4279-A
Table of Contents
Page 2
Sec. Page
4279.73 - 4279.74 [Reserved] 24
4279.75 Sale or assignment of guaranteed loan. 24A
(a) Single note system. 25
(b) Multi-note system. 26
4279.76 [Reserved] 26
4279.77 Minimum retention. 26
4279.78 Repurchase from holder. 27
(a) Repurchase by lender. 27
(b) Agency repurchase. 28
(c) Termination of interest accrual. 30
4279.79 - 4279.83 [Reserved] 30
4279.84 Replacement of document. 31
4279.85 - 4279.99 [Reserved] 33
4279.100 OMB control number. 33
Attachment: Appendix A – Repurchase from Holder Checklist
oOo
RD Instruction 4279-A
PART 4279 - GUARANTEED LOANMAKING
Subpart A - General
§ 4279.1 Introduction.
(a) This subpart contains general regulations for making and servicing
Business and Industry (B&I) loans guaranteed by the Agency and applies
to lenders, holders, borrowers, and other parties involved in making,
guaranteeing, holding, servicing, or liquidating such loans. This
subpart is supplemented by subpart B of this part, which contains loan
processing regulations, and subpart B of part 4287 of this chapter,
which contains loan servicing regulations. This subpart also contains
regulations for Business and Industry loans under the authority of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L.
116-136) to provide B&I loan guarantees in response to the
nationalCOVID–19 Public Health Emergency pandemic (COVID-19 pandemic)
for working capital loan purposes to support business operations and
facilities in rural areas (B&I CARES Act Program Loans). Some of the
requirements of this subpart are waived or altered for B&I CARES Act
Program Loans. The waivers and alterations are provided in §§ 4279.190
of this subpart. (Revised 06-04-20, SPECIAL PN.)
(b) The lender is responsible for ascertaining that all requirements
for making, securing, servicing, and collecting the loan are complied
with.
(c) Whether specifically stated or not, whenever Agency approval is
required, it must be in writing. Copies of all forms and regulations
referenced in this subpart may be obtained from any Agency office and
from the USDA Rural Development Web site at
http://www.rd.usda.gov/publications. Whenever a form is designated in
this subpart, it is initially capitalized and its reference includes
predecessor and successor forms, if applicable. Any portion of this
Instruction appearing in italicized type is considered by the Agency to
be administrative procedure and has not been published as part of the
regulation in the Federal Register.
§ 4279.2 Definitions and abbreviations.
(a) Definitions. The following definitions apply to this subpart:
_____________________________________________________________________________
DISTRIBUTION: WSAL Guaranteed Loanmaking
1
(Revision 1)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Administrator. The Administrator of Rural Business–Cooperative Service
within the Rural Development mission area of the U.S. Department of
Agriculture.
Affiliate. An entity that is related to another entity by owning shares
or having an interest in the entity, by common ownership, or by any
means of control.
Agency. The Rural Business-Cooperative Service or successor Agency
assigned by the Secretary of Agriculture to administer the B&I
Guaranteed Loan Program. References to the National or State Office
should be read as prefaced by “Agency” or “Rural Development” as
applicable.
Agricultural production. The breeding, raising, feeding, or housing of
livestock for fiber or food for human consumption and the cultivation,
growing, or harvesting of crops. Examples of agricultural production
include farming, feedlots, and dairies. Agricultural production is only
eligible when in accordance with § 4279.113(q).
Annual renewal fee. The annual renewal fee is a fee that is paid once a
year by the lender and is required to maintain the enforceability of the
Loan Note Guarantee.
Appraisal surplus. The difference between the fair market value of an
asset and its depreciated book value when the fair market value is
higher. Bargain purchase gains are a form of appraisal surplus.
Arm’s-length transaction. A transaction between ready, willing, and
able disinterested parties that are not affiliated with or related to
each other and have no security, monetary, or stockholder interest in
each other.
Assignment Guarantee Agreement. Form RD 4279-6, “Assignment Guarantee
Agreement,” is the signed agreement among the Agency, the lender, and
the holder containing the terms and conditions of an assignment of a
guaranteed portion of a loan, using the single note system.
Bankruptcy Code. The provisions of title 11 of the United States Code
or any successor statute.
Biofuel. A fuel derived from Renewable Biomass.
2
(Revision 1)
RD Instruction 4279-A
§ 4279.2 (Con.)
Bond. A form of debt security in which the authorized issuer (borrower)
owes the bond holder (lender) a debt and is obligated to repay the
principal and interest (coupon) at a later date(s) (maturity). An
explanation of the type of bond and other bond stipulations must be
attached to the bond issuance.
Borrower. The person that borrows, or seeks to borrow, money from the
lender, including any party liable for the loan except for guarantors.
Certificate of Incumbency and Signature. Form RD 4279-7, “Certificate
of Incumbency and Signature,” is used to validate authenticity of Agency
representatives’ signatures on Forms RD 4279-4, 4279-5, and 4279-6.
Collateral. The asset(s) pledged by the borrower to secure the loan.
2A
(Added 06-04-20, SPECIAL PN)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Commercially available. A system that has a proven operating history
for at least 1 year specific to the proposed application. Such a system
is based on established design and installation procedures and
practices. Professional service providers, trades, large construction
equipment providers, and labor are familiar with installation procedures
and practices. Proprietary and the balance of system equipment and
spare parts are readily available, and service is readily available to
properly maintain and operate the system. An established warranty
exists for major parts and labor. If the system is currently
commercially available only outside of the United States, authoritative
evidence of the foreign operating history, performance, and reliability
is required in order to address the proven operating history.
Conditional Commitment. Form RD 4279-3, “Conditional Commitment,” is
the Agency's notice to the lender that the loan guarantee it has
requested is approved subject to the completion of all conditions and
requirements set forth by the Agency and outlined in the attachment to
the Conditional Commitment.
Conflict of interest. A situation in which a person has competing
personal, professional, or financial interests that prevents the person
from acting impartially.
Cooperative organization. An entity that is legally chartered as a
cooperative or an entity that is not legally chartered as a cooperative
but is owned and operated for the benefit of its members, with returns
of residual earnings paid to such members on the basis of patronage.
Debt Collection Improvement Act. The Debt Collection Improvement Act of
1996, 31 U.S.C. 3701 et seq, requires that any monies that are payable
or may become payable from the United States under contracts and other
written agreements to any person not an agency or subdivision of a State
or local government may be subject to certain collection options, such
as administrative offset, for a delinquent debt the person owes to the
United States. The DCIA applies to all loans closed on or after
January 22, 2004, and all personal and corporate guarantors who sign(ed)
Form RD 4279-14, “Unconditional Guarantee,” on or after December 20,
2006.
Default. The condition that exists when a borrower is not in compliance
with the promissory note, the loan agreement, or other documents
relating to the loan. Default could be a monetary or non-monetary
default.
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(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Deficiency balance. The balance remaining on a loan after all
collateral has been liquidated.
Deficiency judgment. A monetary judgment rendered by a court of
competent jurisdiction after foreclosure and liquidation of all
collateral securing the loan.
Delinquency/Delinquent loan. A loan for which a scheduled loan payment
is more than 30 days past due and cannot be cured within 30 days.
Deputy Chief Financial Officer. The Agency officer responsible for
maintaining the Agency financial accounting records at the Finance
Office located in St. Louis, Missouri.
Energy projects. Commercially available projects that generate energy
or power or projects that produce biofuel. Projects that have energy
outputs that are a by-product of operations or that the Agency otherwise
determines is not an energy project are not subject to the increased
equity requirement for energy projects required by § 4279.131(d)(1). An
example of a project that would not be considered an energy project is a
tire recycler that produces power as a by-product of the recycling
process.
Existing business. A business that has been in operation for at least 1
full year. Mergers or changes in the business name or legal type of
entity of a business that has been in operation for at least 1 full year
are considered to be existing businesses as long as there is not a
significant change in operations. Newly-formed entities that are buying
existing businesses will be considered an existing business as long as
the business being bought remains in operation and there is no
significant change in operations.
Existing lender debt. A debt owed by a borrower to the same lender that
is applying for or has received the Agency guarantee.
Fair market value. The price that could reasonably be expected for an
asset in an arm’s-length transaction between a willing buyer and a
willing seller under ordinary economic and business conditions.
Future recovery. Funds collected by the lender after a final loss claim
is processed. This applies only to those loans not subject to the DCIA.
Guaranteed Loan System (GLS). Official accounting system of record for
USDA Rural Development guaranteed loans.
4
RD Instruction 4279-A
§ 4279.2 (Con.)
High impact business development investment. A business that scores at
least 25 points under § 4279.166(b)(4) and is one of the criteria for
reduced guarantee fee eligibility.
High-priority project. A project that scores more than 50 percent of
the priority points available under § 4279.166(b)(1) through (5) and is
one of the eligibility criteria for an increased percentage of guarantee
or a loan over $10 million.
Holder. A person, other than the lender, who owns all or part of the
guaranteed portion of the loan with no servicing responsibilities. When
the single note option is used and the lender assigns a part of the
guaranteed note to an assignee, the assignee becomes a holder only when
the Agency receives notice and the transaction is completed through the
use of the Assignment Guarantee Agreement (Form RD 4279-6).
Immediate family. Individuals who live in the same household or who are
closely related by blood, marriage, or adoption, such as a spouse,
domestic partner, parent, child, sibling, aunt, uncle, grandparent,
grandchild, niece, nephew, or cousin.
In-house expenses. Expenses associated with activities that are
routinely the responsibility of a lender’s internal staff or its agents.
In-house expenses include, but are not limited to, employees’ salaries,
staff lawyers, travel, and overhead.
Interest. A fee paid by a borrower to the lender as a form of
compensation for the use of money. When money is borrowed, interest is
paid as a fee over a certain period of time (typically months or years)
to the lender as a percentage of the principal amount owed. The term
interest does not include default or penalty interest or late payment
fees or charges.
Interim financing. A temporary or short-term loan made with the clear
intent when the loan is made that it will be repaid through another loan
that provides permanent financing. Interim financing is frequently used
to pay construction and other costs associated with a planned project,
with permanent financing to be obtained after project completion.
Lender. The eligible lender approved by the Agency to make, service,
and collect the Agency guaranteed loan that is subject to this subpart.
Agency approval of the lender will be evidenced by an outstanding Form
RD 4279-4, “Lender’s Agreement,” between the Agency and the lender.
5
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Lender's Agreement. Form RD 4279-4, “Lender’s Agreement,” or
predecessor form, between the Agency and the lender setting forth the
lender's loan responsibilities.
Liquidation expenses. Costs directly associated with the liquidation of
collateral, including preparing collateral for sale (e.g., repairs and
transport) and conducting the sale (e.g., advertising, public notices,
auctioneer expenses, and foreclosure fees). Liquidation expenses do not
include in-house expenses. Legal/attorney fees are considered
liquidation expenses provided that the fees are reasonable, as
determined by the Agency, and cover legal issues pertaining to the
liquidation that could not be properly handled by the lender and its in-
house counsel.
Loan agreement. The agreement between the borrower and lender
containing the terms and conditions of the loan and the responsibilities
of the borrower and lender.
Loan classification. The process by which loans are examined and
categorized by degree of potential loss in the event of default.
Loan Note Guarantee. Form RD 4279-5, “Loan Note Guarantee,” issued and
executed by the Agency, containing the terms and conditions of the
guarantee.
Loan packager. A person, other than the applicant borrower or lender,
that prepares a loan application package.
Loan service provider. A person, other than the lender of record, that
provides loan servicing activities to the lender.
Loan-to-discounted value. The ratio of the dollar amount of a loan to
the discounted dollar value of the collateral pledged as security for
the loan.
Loan-to-value. The ratio of the dollar amount of a loan to the dollar
value of the collateral pledged as security for the loan.
Local government. A county, municipality, town, township, village, or
other unit of general government, including tribal governments, below
the State level.
6
RD Instruction 4279-A
§ 4279.2 (Con.)
Material adverse change. Any change in circumstance associated with a
guaranteed loan, including the borrower’s financial condition or
collateral, that, individually or in the aggregate, has jeopardized, or
could be reasonably expected to jeopardize, loan performance.
Natural resource value-added product. Any naturally occurring resource,
including agricultural resources, that is processed to add value or to
generate renewable energy from a natural resource. For example, wind
being used by wind mills for energy generation, grapes that are
processed into wine or jam, or straw that is processed into particle
board. The term does not include conversion of feed to livestock.
Negligent loan origination. The failure of a lender to perform those
services that a reasonably prudent lender would perform in originating
its own portfolio of loans that are not guaranteed. The term includes
the concepts of failure to act, not acting in a timely manner, or acting
in a manner contrary to the manner in which a reasonably prudent lender
would act.
Negligent loan servicing. The failure of a lender to perform those
services that a reasonably prudent lender would perform in servicing
(including liquidation of) its own portfolio of loans that are not
guaranteed. The term includes the concepts of failure to act, not
acting in a timely manner, or acting in a manner contrary to the manner
in which a reasonably prudent lender would act.
New business. A startup or otherwise new business that has been in
operation for less than 1 full year. New businesses include newly-
formed entities leasing space or building ground-up facilities, even if
the owners of the new or startup business own affiliated businesses
doing the same kind of business.
Parity. A lien position whereby two or more lenders share a security
interest of equal priority in collateral. In the event of default, each
lender will be affected on an equal basis.
Participation. Sale of an interest in a loan by the lead lender to one
or more participating lenders wherein the lead lender retains the note,
collateral securing the note, and all responsibility for managing and
servicing the loan. Participants are dependent upon the lead lender for
protection of their interests in the loan. The relationship is
typically formalized by a participation agreement. The participants and
the borrower have no rights or obligations to one another.
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(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Person. An individual or entity.
Poverty. A community or area (including a county, city, or equivalent
such as parish, borough, municipio, or census designated place) where at
least 20 percent of the population have income below the poverty line.
This information may be found on the Census website at the following
address: http://www.census.gov/hhes/www/poverty/
Pro rata. On a proportional basis.
Promissory note. Evidence of debt with stipulated repayment terms.
"Note" or "promissory note" shall also be construed to include "Bond" or
other evidence of debt, where appropriate.
Protective advances. Advances made by the lender for the purpose of
preserving and protecting the collateral where the debtor has failed to,
and will not or cannot, meet its obligations to protect or preserve
collateral. Protective advances include, but are not limited to,
advances affecting the collateral made for property taxes, rent, hazard
and flood insurance premiums, and annual assessments. Legal/attorney
fees are not a protective advance.
Public body. A municipality, county, or other political subdivision of
a State; a special purpose district; an Indian tribe on a Federal or
State reservation or other federally-recognized Indian tribe; or an
organization controlled by any of the above.
Renewable biomass.
(1) Materials, pre-commercial thinnings, or invasive species from
National Forest System land or public lands (as defined in section
103 of the Federal Land Policy and Management Act of 1976 (43
U.S.C. 1702)) that:
(i) Are by-products of preventive treatments that are removed
to reduce hazardous fuels; to reduce or contain disease or
insect infestation; or to restore ecosystem health;
(ii) Would not otherwise be used for higher-value products;
and
8
RD Instruction 4279-A
§ 4279.2 (Con.)
(iii) Are harvested in accordance with applicable law and
land management plans and the requirements for old-growth
maintenance, restoration, and management direction of
paragraphs (2), (3), and (4) of subsection (e) of section 102
of the Healthy Forests Restoration Act of 2003 (16 U.S.C.
6512) and large-tree retention of subsection (f) of that
section; or
(2) Any organic matter that is available on a renewable or
recurring basis from non-Federal land or land belonging to an
Indian or Indian Tribe that is held in trust by the United States
or subject to a restriction against alienation imposed by the
United States, including:
(i) Renewable plant material, including feed grains; other
agricultural commodities; other plants and trees; and algae;
and
(ii) Waste material, including crop residue; other vegetative
waste material (including wood waste and wood residues);
animal waste and by-products (including fats, oils, greases,
and manure); and food and yard waste.
Report of loss. Form RD 449-30, “Guaranteed Loan Report of Loss,” used
by lenders when reporting a financial loss under an Agency guarantee.
Rural Development. The mission area of USDA that is comprised of the
Rural Business–Cooperative Service, the Rural Housing Service, and the
Rural Utilities Service and is under the policy direction and
operational oversight of the Under Secretary for Rural Development.
Spreadsheet. A table containing data from a series of financial
statements of a business over a period of time. A financial statement
analysis normally contains spreadsheets for balance sheet and income
statement items and includes a cash flow analysis and commonly used
ratios. The spreadsheets enable a reviewer to easily scan the data,
spot trends, and make comparisons.
State. Any of the 50 States of the United States, the Commonwealth of
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the
Federated States of Micronesia, and the Republic of the Marshall
Islands.
9
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.2 (Con.)
Subordination. An agreement among the lender, borrower, and Agency
whereby lien priorities on certain assets pledged to secure payment of
the guaranteed loan will be reduced to a position junior to, or on
parity with, the lien position of another loan.
Tangible balance sheet equity. Tangible equity divided by tangible
assets. Formula: ((Assets - intangible assets) – liabilities)/(Assets
- intangible assets) or (Equity – intangible assets)/(Assets –
intangible assets).
Transfer and assumption. The conveyance by a borrower to an assuming
borrower of the assets, collateral, and liabilities of the loan in
return for the assuming borrower's binding promise to pay the
outstanding debt.
USDA Lender Interactive Network Connection (LINC). The portal Web site
currently at https://usdalinc.sc.egov.usda.gov/ used by lenders to
update loan data in the Agency’s Guaranteed Loan System. Current LINC
capabilities include loan closing and status reporting.
Veteran. For the purposes of assigning priority points, a veteran is a
person who is a veteran of any war, as defined in title 38 U.S.C.
101(12).
Working capital. Current assets available to support a business’
operations and growth. Working capital is calculated as current assets
less current liabilities.
(b) Abbreviations. The following abbreviations apply to this subpart:
B&I - Business and Industry
CFR – Code of Federal Regulations
DCFO – Deputy Chief Financial Officer
DCIA – Debt Collection Improvement Act
FDIC – Federal Deposit Insurance Corporation
FSA - Farm Service Agency
GAAP – Generally Accepted Accounting Principles of the United States
GLS – Guaranteed Loan System
LINC – USDA Lender Interactive Network Connection
NAD - National Appeals Division
OMB – Office of Management and Budget
REAP – Rural Energy for America Program
U.S. – United States of America
USDA – U.S. Department of Agriculture
10
RD Instruction 4279-A
§ 4279.2 (Con.)
(c) Accounting terms. Accounting terms not otherwise defined in this
part shall have the definition ascribed to them under GAAP.
§§ 4279.3 - 4279.14 [Reserved]
§ 4279.15 Exception authority.
The Administrator may, on a case-by-case basis, grant an exception to
any requirement or provision of this subpart provided that such an exception
is in the best financial interests of the Federal government. Exercise of
this authority cannot be in conflict with applicable law. Requests for
exceptions must be in writing by the State Director and supported with
documentation to explain the adverse effect on the Federal government’s
financial interest, propose alternative courses of action, and show how the
adverse effect will be eliminated or minimized if the exception is granted.
All requests for exceptions being considered by the Administrator will be
reviewed by the National Office Executive Loan (NOEL) Committee to determine
consistency with applicable regulations and to document the recommendations
of the B&I staff and NOEL Committee. Reasons for granting the exception will
be clearly documented, and an Informational Memorandum outlining the need for
the exception, recommendations of the State Director, B&I staff, and the NOEL
Committee, and reasons for granting the exception will be provided to OGC and
the Under Secretary. The Administrator will fully and clearly address any
concerns raised by the State Director, NOEL Committee, OGC, or the Under
Secretary prior to issuing the exception.
§ 4279.16 Appeals.
Applicants, borrowers, lenders, and holders have appeal or review rights
for Agency decisions made under this subpart, subpart B of this part, or
subpart B of part 4287 of this chapter. Programmatic decisions based on
clear and objective statutory or regulatory requirements are not appealable;
however, such decisions are reviewable for appealability by the National
Appeals Division (NAD). The borrower, lender, and holder can appeal any
Agency decision that directly and adversely impacts them. For an adverse
decision that impacts the borrower, the lender and borrower must jointly
execute a written request for appeal for an alleged adverse decision made by
the Agency. An adverse decision that only impacts the lender may be appealed
by the lender only. An adverse decision that only impacts the holder may be
appealed by the holder only. A decision by a lender adverse to the interest
of the borrower is not a decision by the Agency, whether or not concurred in
by the Agency. Appeals will be conducted by USDA NAD and will be handled in
accordance with 7 CFR part 11. The National Office Program Processing
Division must be notified in advance of appeal hearings and results of any
appeal hearings. (Revised 04-30-20 PN 536.)
11
(Revision 3)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§§ 4279.17 - 4279.28 [Reserved]
§ 4279.29 Eligible lenders.
An eligible lender must be domiciled in a State as defined in § 4279.2
or in the District of Columbia and must not be debarred or suspended by the
Federal government. If the lender is under a cease and desist order, or
similar constraint, from a Federal or State agency, the lender must inform
the Agency. The Agency will evaluate the lender’s eligibility on a case-by-
case basis, given the risk of loss posed by the cease and desist order.
State Offices must report problems with a lender’s eligibility based on a
cease and desist order or other lending restrictions implemented by its
regulator to the National Office Program Processing Division. The Agency
will only approve loan guarantees for lenders with adequate capital to fund
and cover potential liquidation expenses for guaranteed loans it proposes to
make and adequate experience and expertise to make, secure, service, and
collect B&I loans. The lender must provide documentation as to its capital
and experience in commercial lending. State Offices should review this
documentation to determine that the lender has adequate capital and
experience. State Offices should also assess lender capabilities by
evaluating lender philosophy, credit policies and procedures, organizational
structure, and financial condition before allowing a lender to participate in
the program. The lender and the Agency will execute a Lender’s Agreement
(Form RD 4279-4, “Lender’s Agreement”) for each lender approved to
participate in the program. If a valid Lender’s Agreement already exists, it
is not necessary to execute a new Lender’s Agreement with each loan
guarantee; however, a new Lender’s Agreement must be executed with any
existing lenders making new loans on or after August 2, 2016. Original
Lender’s Agreements should be maintained in an operational file in a fire-
resistant cabinet. Each individual case file should contain a copy of the
applicable Lender’s Agreement. The Agency may revoke a lender’s eligible
status at any time for cause, including those examples cited in § 4279.29(c).
(Revised 04-30-20 PN 536.)
(a) Regulated lenders. A regulated lender is any Federal or State
chartered bank or other financial institution, Farm Credit Bank, other
Farm Credit System institution with direct lending authority, Bank for
Cooperatives, Savings and Loan Association, Savings Bank, or mortgage
company that is part of a bank-holding company. These entities must be
subject to credit examination and supervision by either an agency of the
United States or a State. Eligible lenders may also include the
National Rural Utilities Cooperative Finance Corporation and credit
unions provided that they are subject to credit examination and
supervision by either the National Credit Union Administration or a
State agency. (Revised 10-05-16, PN 489.)
12
(Revision 3)
RD Instruction 4279-A
§ 4279.29(b)(1) (Con.)
(b) Non-regulated lenders. The Agency may consider an applicant lender
that does not meet the criteria of paragraph (a) of this section for
eligibility to become a guaranteed lender for a 3-year period provided
that the Agency determines that the applicant lender has the legal
authority to operate a lending program and sufficient lending expertise
and financial strength to operate a successful lending program. When
the applicant lender is a multi-tiered entity, it will be considered in
its entirety. Insurance companies (formerly included as traditional
lenders) and non-regulated lenders (formerly known as other lenders)
previously approved as guaranteed lenders prior to August 2, 2016, must
reapply to become an approved non-regulated lender in order to originate
new guaranteed loans. However, both insurance companies and non-
regulated lenders that have executed a Lender’s Agreement (Form RD 4279-
4, “Lender’s Agreement,”) must continue to service the guaranteed loans
in their portfolios in accordance with that agreement.
(1) In order to become an eligible lender, non-regulated lenders
must:
(i) Have been making commercial loans for at least 5 years;
(ii) Have a record of successfully making at least 10
commercial loans annually totaling at least $1 million for
each of the last 5 years, with lender’s delinquent commercial
loan portfolio over this period not exceeding (a) 6 percent of
all commercial loans made and (b) 3 percent in commercial loan
losses (based on the original principal loan amount);
(iii) Have and maintain tangible balance sheet equity of at
least 10 percent of tangible assets and sufficient funds
available to disburse the guaranteed loans it proposes to
approve within the first 6 months of being approved as a
guaranteed lender;
(iv) Have and maintain a line of credit issued by a regulated
lender that is acceptable to the Agency;
(v) Agree to establish and maintain an Agency approved loss
reserve equal to 3 percent of each B&I loan closed and agree
to increase the loss reserve for anticipated losses as
required by the Agency;
(vi) Have adequate policies and procedures to ensure that
internal credit controls provide adequate loanmaking and
servicing guidance; and
13
(Revision 2)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.29(b)(1) (Con.)
(vii) Have undergone a credit examination at its own expense
from a recognized independent reviewer acceptable to the
Agency. The applicant lender should consult with the Agency
prior to receiving an examination to ensure the examiner will
be acceptable. Examinations completed by qualified, competent
consultants that regulate and supervise credit institutions
are acceptable to the Agency. Examinations will normally
include a review of the lender’s asset quality, capital
adequacy, earnings, liquidity, sensitivity to market risk,
management practices, financial conditions, and compliance
with applicable laws and regulations. (Revised 03-19-18,
PN 510).
(2) A non-regulated lender that wishes consideration to become a
guaranteed lender must submit a request in writing to the Agency.
The State Office where the lender's proposed guaranteed lending and
servicing activity will take place will review and forward the
request, with the State Director’s recommendation, to the National
Office Program Processing Division for consideration. If
eligibility is requested for multiple States, the State Office where
the lender is headquartered will take the lead in coordinating
submission of the request to the National Office. A State Office
receiving a multi-State request should notify each affected State of
such a request and provide information for review and comment prior
to making a recommendation and submission to the National Office.
If eligibility is being requested for expansion into other States,
comments and recommendations from those State Offices, as well as
any States previously approved, should be submitted to the National
Office. The Agency (National Office) will make such investigation
as it deems necessary and will notify the prospective lender,
through the State Director, whether the lender's request for
eligibility is approved or rejected. If rejected, the Agency will
notify the prospective lender, in writing, of the reasons for the
rejection. The lender must include in its written request the
following: (Revised 04-30-20, PN 536.)
(i) An audited financial statement not more than 1 year old
that evidences the lender has the required tangible balance
sheet equity and the resources to successfully meet its
responsibilities;
14
(Revision 2)
RD Instruction 4279-A
§ 4279.29(b)(2) (Con.)
(ii) A copy of any license, charter, or other evidence of
authority to engage in the proposed loanmaking and servicing
activities. If licensing by the State is not required, an
attorney's opinion stating that licensing is not required and
that the entity has the legal authority to engage in the
proposed loanmaking and servicing activities must be
submitted;
(iii) Information on lending experience, including length of
time in the lending business; range and volume of lending and
servicing activity, including a list of the industries for
which it has provided financing; status of its loan portfolio,
including a list of loans in the portfolio with each loan’s
current loan classification code and delinquency and loss
rates as outlined in § 4279.29(b)(1)(ii); experience of
management and loan officers; sources of funds for the
proposed loans; office location and proposed lending area; an
estimate of the number and size of guaranteed loan
applications the lender will develop; and proposed rates and
fees, including loan origination, loan preparation, and
servicing fees;
(iv) A copy of the examination required under paragraph
(b)(1)(vii) of this section; and
(v) Documentation as to how the lender will fulfill the
requirements of § 4279.30.
(3) Non-regulated lenders must submit audited financial statements
to the Agency annually for monitoring purposes. The State Office
will review the lender’s audited financial statements, including its
line of credit information, and document trends in the lender’s
financial strength. Concerns should be brought to the attention of
the National Office Program Processing Division. (Revised 04-30-20,
PN 536.)
(4) Renewal of eligible lender status to continue making B&I loans
is not automatic. Eligible lender status will lapse 3 years from
the date of Agency approval and execution of the Lender’s Agreement
(Form RD 4279-4, “Lender’s Agreement,”) unless the lender obtains a
renewal. A lender whose eligible status has lapsed must continue to
service any outstanding loans guaranteed under this part but may not
submit requests for new loan guarantees. Lenders whose eligibility
has lapsed may file a subsequent request under this subsection.
Lenders requesting renewal must complete and execute a new Lender’s
15
(Revision 1)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.29(b)(4) (Con.)
Agreement, along with a written update of the eligibility criteria
required by this section for approval. Lenders requesting renewal
must resubmit the information required by paragraph (b)(2) of this
section and must address how the lender is complying with each of
the required criteria described in paragraph (b)(1) of this section.
The written update of the eligibility criteria must also include any
change in the persons designated to process and service Agency
guaranteed loans or change in the operating methods used in the
processing and servicing of loans since the original or last renewal
date of eligible lender status. The lender must provide this
information to the Agency at least 60 days prior to the expiration
of the existing agreement to be assured of a timely renewal. Upon
receipt of a lender's renewal request, the State Director should,
within 15 days, request from the lender any additional information
needed to process a renewal request. A review of the lender's
performance will be completed to determine whether the lender has
continually met the eligibility criteria described in paragraph (b)
of this section. The State Director will also consider the lender’s
activity in the program and its delinquency/default rate when making
a determination regarding renewal. Any action by the lender since
it was designated an eligible lender that could be cause for
revoking its status, in accordance with paragraph (c) of this
section, will be considered cause for denying the renewal of
eligible status. The State Director should notify the lender in
writing within 30 days of receipt of a request for renewal that the
request is approved, reasons for denial, or any conditions the
lender must meet for approval. Lenders must be advised of their
appeal rights in accordance with Departmental appeal regulations.
National Office concurrence is not required to renew eligible lender
status for a non-regulated lender but is required to deny renewal of
an eligible lender’s status. The National Office must be advised
when no request for renewed status is received and eligible lender
status expires. The National Office will notify any other affected
States of a change in a lender’s eligible lender status.
(c) Revocation of eligible lender status. The Agency may revoke a
lender's status at any time for cause. National Office concurrence is
required to revoke a lender’s eligible status. The State Director will
provide a recommendation to the National Office Program Processing
Division for consideration. After Review, the National Office will
provide a written reply to the State Director. The revocation may apply
to all branches of the lender, specific branches, or personnel, as
appropriate. ( Cause for revoking eligible status includes: (Revised
04-30-20, PN 536.)
16
(Revision 1)
RD Instruction 4279-A
§ 4279.29(c) (Con.)
(1) Failure to maintain status as an eligible lender as set forth
in § 4279.29 of this subpart;
(2) Knowingly submitting false information when requesting a
guarantee or basing a guarantee request on information known to be
false or which the lender should have known to be false;
(3) Making a guaranteed loan with deficiencies that may cause
losses not to be covered by the Loan Note Guarantee, such as
negligent loan origination;
(4) Conviction of the lender or its officers for criminal acts in
connection with any loan transaction whether or not the loan was
guaranteed by the Agency;
(5) Violation of usury laws in connection with any loan transaction
whether or not the loan was guaranteed by the Agency;
(6) Failure to obtain and maintain the required security for any
loan guaranteed by the Agency;
(7) Using loan funds guaranteed by the Agency for purposes other
than those specifically approved by the Agency in the Conditional
Commitment or amendment thereof in accordance with § 4279.173(b);
(8) Violation of any term of the Lender's Agreement;
(9) Failure to correct any Agency-cited deficiency in loan
documents in a timely manner;
(10) Failure to submit reports required by the Agency in a timely
manner;
(11) Failure to process Agency guaranteed loans as would a
reasonably prudent lender;
(12) Failure to provide for adequate construction planning and
monitoring in connection with any loan to ensure that the project
will be completed with the available funds and, once completed, will
be suitable for the borrower's needs;
17
(Revision 1)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.29(c) (Con.)
(13) Repetitive recommendations for servicing actions or guaranteed
loans with marginal or substandard credit quality or that do not
comply with Agency requirements;
(14) Negligent loan origination;
(15) Negligent loan servicing;
(16) Failure to conduct any approved liquidation of a loan
guaranteed by the Agency or its predecessors in a timely and
effective manner and in accordance with the approved liquidation
plan; or
(17) Violation of applicable nondiscrimination law, including, but
not limited to, statutes, regulations, USDA Departmental
Regulations, the USDA Non-Discrimination Statement, and the Equal
Credit Opportunity Act. USDA’s Non-Discrimination Statement is
located at the following Web site:
http://www.usda.gov/wps/portal/usda/usdahome?navtype=FT&navid=NON_DI
SCRIMINATION.
(d) Debarment of lender. The Agency may debar a lender in addition to
the revocation of the lender’s status.
§ 4279.30 Lenders' functions and responsibilities.
(a) General.
(1) Lenders have the primary responsibility for the successful
delivery of the guaranteed loan program. Any action or inaction on
the part of the Agency does not relieve the lender of its
responsibilities to originate and service the loan guaranteed under
this subpart, subpart B of this part, and subpart B of part 4287 of
this chapter. Lenders may contract for services but are ultimately
responsible for underwriting, loan origination, loan servicing, and
compliance with all Agency regulations. No person may act as, or
work for, both a loan packager and loan service provider on the same
guaranteed loan. In your initial contact with lenders, make sure
that they are well aware of their responsibilities and the fact that
the Agency will enforce the requirements of the Lender’s Agreement
and the regulations. This would also be the perfect time to discuss
18
(Revision 1)
RD Instruction 4279-A
§ 4279.30(a)(1) (Con.)
the benefits and requirements of establishing access to the LINC
system (outlined in Appendix F of subpart B of part 4287) that
allows them to electronically monitor, track, and update the status
of their guaranteed loans. There can be an actual or apparent
conflict of interest if the same person is the loan packager and the
loan service provider on the same guaranteed loan; however, this is
not meant to prohibit the same person from being contracted for both
services when payment for these two distinct services is made only
by the lender. All lenders obtaining or requesting a loan guarantee
are responsible for: (Revised 04-30-20, PN 536.)
(i) Processing applications for guaranteed loans;
(ii) Developing and maintaining adequately documented loan
files, which must be maintained for at least 3 years after any
final loss has been paid;
(iii) Recommending only loan proposals that are eligible and
financially feasible;
(iv) Properly closing the loan and obtaining valid evidence
of debt and collateral in accordance with sound lending
practices prior to disbursing loan proceeds;
(v) Keeping an inventory accounting of all collateral items
and reconciling the inventory of all collateral sold during
loan servicing, including liquidation;
(vi) Monitoring construction and operation;
(vii) Distributing loan funds;
(viii) Servicing guaranteed loans in a prudent manner,
including liquidation if necessary;
(ix) Reporting all conflicts of interest, or appearances
thereof, to the Agency;
(x) Following Agency regulations and agreements; and
(xi) Obtaining Agency approvals or concurrence as required.
19
(Revision 1)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.30(a) (Con.)
(2) This subpart, subpart B of this part, and subpart B of part
4287 of this chapter contain the regulations for this program,
including the lenders' responsibilities. If a lender fails to
comply with these requirements, the Agency may reduce any loss
payment in accordance with the applicable regulations.
(b) Credit evaluation. This is a key function of all lenders during
the loan processing phase. The lender must analyze all credit factors
associated with each proposed loan and apply its professional judgment
to determine that the credit factors, considered in combination, ensure
loan repayment. The lender must have an adequate underwriting process
to ensure that loans are reviewed by persons other than the originating
officer, and there must be good credit documentation procedures. The
Agency will only issue guarantees for loans that are sound and have
reasonable assurance of repayment. The Agency will not issue guarantees
for marginal or substandard loans.
(c) Environmental responsibilities. Lenders are responsible for
becoming familiar with Federal environmental requirements; considering,
in consultation with the prospective borrower, the potential
environmental impacts of their proposals at the earliest planning
stages; and developing proposals that minimize the potential to
adversely impact the environment.
(1) Lenders must assist the borrower in providing details of the
project’s impact on the environment and historic properties in
accordance with 7 CFR part 1970, “Environmental Policies and
Procedures,” (or successor regulation), when applicable; assist in
the collection of additional data when the Agency needs such data to
complete its environmental review of the proposal; and assist in the
resolution of environmental problems.
(2) Lenders must ensure the borrower has:
(i) Provided the necessary environmental information to
enable the Agency to undertake its environmental review
process in accordance with 7 CFR part 1970, “Environmental
Policies and Procedures,” or successor regulation, including
the provision of all required Federal, State, and local
permits;
20
(Revision 1)
RD Instruction 4279-A
§ 4279.30(c)(2) (Con.)
(ii) Complied with any mitigation measures required by the
Agency; and
(iii) Not taken any actions or incurred any obligations with
respect to the proposed project that will either limit the
range of alternatives to be considered during the Agency’s
environmental review process or that will have an adverse
effect on the environment.
20A
(Added 04-30-20, PN 536)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.30(c) (Con.)
(3) Lenders must alert the Agency to any environmental issues
related to a proposed project or items that may require extensive
environmental review.
(4) Technical advice and information on environmental requirements,
including copies of the State’s Natural Resource Management Guide,
are available from the State Environmental Coordinator.
§§ 4279.31 - 4279.43 [Reserved]
§ 4279.44 Access to records.
The lender must permit representatives of the Agency (or other agencies
of the United States) to inspect and make copies of any records of the lender
pertaining to Agency guaranteed loans during regular office hours of the
lender or at any other time upon agreement between the lender and the Agency.
In addition, the lender must cooperate fully with Agency oversight and
monitoring of all lenders involved in any manner with any guarantee to ensure
compliance with this subpart, subpart B of this part, and subpart B of part
4287 of this chapter. Such oversight and monitoring will include, but is not
limited to, reviewing lender records and meeting with lenders in accordance
with subpart B of part 4287 of this chapter.
§§ 4279.45 - 4279.58 [Reserved]
§ 4279.59 Environmental requirements.
The Agency is responsible for ensuring that the requirements of the
National Environmental Policy Act of 1969 (under 40 CFR part 1500) and
related compliance actions, such as Section 106 of the National Historic
Preservation Act (under 36 CFR part 800) and Section 7 of the Endangered
Species Act, are met and will complete the appropriate level of environmental
review in accordance with 7 CFR part 1970, “Environmental Policies and
Procedures,” or successor regulation. Because development of the loan
application occurs simultaneously with development of the environmental
review, applicants, including lenders and borrowers, must not take any
actions or incur any obligations that would either limit the range of
alternatives to be considered in the environmental review or that would have
an adverse effect on the environment. Satisfactory completion of the
environmental review process must occur prior to execution of Form RD 1940-3,
“Request for Obligation of Funds – Guaranteed Loans” and issuance of the
Conditional Commitment to the lender. Technical advice and guidance is
offered through the State Environmental Coordinator and should be obtained as
necessary to ensure compliance with mentioned regulations.
21
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.60 Civil rights impact analysis.
Issuance of a Conditional Commitment is conditioned on the Agency being
able to satisfactorily complete a civil rights impact analysis. This is
evidenced by completion of Form RD 2006-38, “Civil Rights Impact Analysis
Certification.” Technical advice and guidance is offered through the
National Office Civil Rights Staff and should be obtained as necessary to
ensure compliance with regulations.
§ 4279.61 Equal Credit Opportunity Act.
In accordance with the Equal Credit Opportunity Act (15 USC 1691 et
seq.), with respect to any aspect of a credit transaction, neither the lender
nor the Agency will discriminate against any applicant on the basis of race,
color, religion, national origin, sex, marital status, or age (providing the
applicant has the capacity to contract), or because all or part of the
applicant's income derives from a public assistance program, or because the
applicant has, in good faith, exercised any right under the Consumer
Protection Act. The lender must comply with the requirements of the Equal
Credit Opportunity Act as contained in the Federal Reserve Board's Regulation
implementing that Act (see 12 CFR part 202) prior to loan closing.
§§ 4279.62 - 4279.70 [Reserved]
§ 4279.71 Public bodies and nonprofit corporations.
Audits will be required of any public body, nonprofit corporation or
Indian Tribe that receives a guaranteed loan that meets the thresholds
established by 2 CFR part 200, subpart F. Any audit provided by a public
body, nonprofit corporation, or Indian Tribe required by this paragraph will
be considered adequate to meet the audit requirements of the B&I program for
that year.
§ 4279.72 Conditions of guarantee.
A loan guarantee under this part will be evidenced by a Loan Note
Guarantee issued by the Agency. The provisions of this part and part 4287 of
this chapter will apply to all outstanding guarantees. In the event of a
conflict between the guarantee documents and these regulations as they exist
at the time the documents are executed, these regulations will control.
22
RD Instruction 4279-A
§ 4279.72 (Con.)
(a) Full faith and credit. A guarantee under this part constitutes an
obligation supported by the full faith and credit of the United States
and is incontestable except for fraud or misrepresentation of which a
lender or holder has actual knowledge at the time it becomes such lender
or holder or which a lender or holder participates in or condones. The
guarantee will be unenforceable by the lender to the extent that any
loss is occasioned by a provision for interest on interest or default or
penalty interest. In addition, the guarantee will be unenforceable by
the lender to the extent any loss is occasioned by the violation of
usury laws, use of loan proceeds for unauthorized purposes, negligent
loan origination, negligent loan servicing, or failure to obtain or
maintain the required security regardless of the time at which the
Agency acquires knowledge thereof. Any losses occasioned will be
unenforceable by the lender to the extent that loan funds were used for
purposes other than those specifically approved by the Agency in its
Conditional Commitment or amendment thereof in accordance with
§ 4279.173(b). The Agency may for cause terminate or reduce the Loan
Note Guarantee at any time. The Agency will guarantee payment as
follows: (Revised 03-19-18, PN 510.)
(1) To any holder, 100 percent of any loss sustained by the holder
on the guaranteed portion of the loan it owns and on interest due on
such portion less any outstanding servicing fee. For those loans
closed on or after August 2, 2016, the lender or the Agency will
issue an interest termination letter to the holder(s) establishing
the termination date for interest accrual. The guarantee will not
cover interest to any holder accruing after the greater of: 90 days
from the date of the most recent delinquency effective date as
reported by the lender or 30 days from the date of the interest
termination letter. The Agency must ensure the interest termination
letter is issued, whether by the lender or the Agency, 60 days from
the date of the most recent delinquency effective date to ensure
that not more than 90 days of interest is paid. The lender should
issue the interest termination letter to the holder(s) and provide
the Agency with a copy. In the event the lender cannot or will not
issue the letter, the Agency will issue the letter to the holder(s)
and provide the lender with a copy (see Appendix H of RD Instruction
4287-B for a sample letter). The Agency should confirm current
holder contact information with the lender and ensure that
information in GLS is accurate. (Revised 06-12-17, SPECIAL PN.)
(2) To the lender, subject to the provisions of this part and
subpart B of part 4287 of this chapter, the lesser of:
23
(Revision 2)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.72(a)(2) (Con.)
(i) Any loss sustained by the lender on the guaranteed
portion, including principal and interest (for loans closed on
or after August 2, 2016, the guarantee will not cover note
interest to the lender accruing after 90 days from the most
recent delinquency effective date) evidenced by the notes or
assumption agreements and secured advances for protection and
preservation of collateral made with the Agency's
authorization; or
(ii) The guaranteed principal advanced to or assumed by the
borrower and any interest due thereon. For loans closed on or
after August 2, 2016, the guarantee will not cover note
interest to the lender accruing after 90 days from the most
recent delinquency effective date.
(b) Rights and liabilities. When a guaranteed portion of a loan is
sold to a holder, the holder will succeed to all rights of the lender
under the Loan Note Guarantee to the extent of the portion purchased.
The full, legal interest in the note must remain with the lender, and
the lender will remain bound to all obligations under the Loan Note
Guarantee, Lender's Agreement, and Agency program regulations. A
guarantee and right to require purchase will be directly enforceable by
a holder notwithstanding any fraud or misrepresentation by the lender or
any unenforceability of the guarantee by the lender, except for fraud or
misrepresentation of which the holder had actual knowledge at the time
it became the holder or in which the holder participates in or condones.
The lender will reimburse the Agency for any payments the Agency makes
to a holder on the lender’s guaranteed loan that, under the Loan Note
Guarantee, would not have been paid to the lender had the lender
retained the entire interest in the guaranteed loan and not conveyed an
interest to a holder.
(c) Payments. A lender will receive all payments of principal and
interest on account of the entire loan and must promptly remit to the
holder its pro rata share thereof, determined according to its
respective interest in the loan, less only the lender's servicing fee.
§§ 4279.73 - 4279.74 [Reserved]
24
(Revision 2)
RD Instruction 4279-A
§ 4279.75 Sale or assignment of guaranteed loan.
The lender may sell all or part of the guaranteed portion of the loan
on the secondary market or retain the entire loan. The lender must fully
disburse and properly close a loan prior to sale of the note(s) on the
secondary market. The lender cannot sell or participate any amount of the
guaranteed or unguaranteed portion of the loan to the borrower or its parent,
subsidiary, or affiliate or to officers, directors, stockholders, other
owners, or members of their immediate families. The lender cannot share any
premium received from the sale of a guaranteed loan in the secondary market
with a loan packager or other loan service provider. If the lender desires
24A
(Added 06-12-17, SPECIAL PN)
RD Instruction 4279-A
§ 4279.75 (Con.)
to market all or part of the guaranteed portion of the loan at or subsequent
to loan closing, such loan must not be in default. Lenders may use either
the single note or multi-note system as outlined in paragraphs (a) and (b) of
this section. The lender may also obtain participation in the loan under its
normal operating procedures; however, the lender must retain title to the
notes if any of them are unguaranteed and retain the lender’s interest in the
collateral.
(a) Single note system. The entire loan is evidenced by one note, and
one Loan Note Guarantee is issued. The lender must retain title to the
note, retain the lender’s interest in the collateral, and retain the
servicing responsibilities for the guaranteed loan. When the loan is
evidenced by one note, the lender may not at a later date cause any
additional notes to be issued. The lender may assign all or part of the
guaranteed portion of the loan to one or more holders by using Form RD
4279-6, “Assignment Guarantee Agreement.” The lender must complete and
execute the Assignment Guarantee Agreement and return it to the Agency
for execution prior to holder execution. The Agency should ensure it
receives a copy of Form RD 4279-6 after holder execution. In order to
validate authenticity, holders are encouraged to consult with the Agency
Rural Development State Office where the loan was originated.
Additionally, a Certificate of Incumbency and Signature (Form 4279-7)
may be requested. The holder, with written notice to the lender and the
Agency, may reassign the unpaid guaranteed portion of the loan, in full,
sold under the Assignment Guarantee Agreement. Holders may only
reassign the entire guaranteed portion they have received and cannot
subdivide or further split the guaranteed portion of a loan or retain an
interest strip. Upon notification and completion of the Assignment
Guarantee Agreement, the assignee shall succeed to all rights and
obligations of the holder thereunder. Subsequent assignments require
notice to the lender and Agency using any format, including that used by
the Securities Industry and Financial Markets Association (formerly
known as the Bond Market Association), together with the transfer of the
original Assignment Guarantee Agreement. The Agency will neither
execute a new Assignment Guarantee Agreement to effect a subsequent
reassignment nor reissue a duplicate Assignment Guarantee Agreement
unless the original was lost, stolen, destroyed, mutilated, or defaced
in accordance with § 4279.84. The Assignment Guarantee Agreement
clearly states the percentage and corresponding amount of the guaranteed
portion it represents and the lender’s servicing fee. A servicing fee
may be charged by the lender to a holder and is calculated as a
percentage per annum of the unpaid balance of the guaranteed portion of
the loan assigned by the Assignment Guarantee Agreement. The Agency is
not and
25
(Revision 2)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.75(a) (Con.)
will not be a party to any contract between the lender and another party
where the lender sells its servicing fee. The Agency will not
acknowledge, approve, nor have any liability to any of the parties of
this contract. The Securities Industry and Financial Markets
Association (formerly known as the Bond Market Association) developed
recommended settlement procedures to effect the subsequent assignment
(sale) of the guaranteed portion of a loan from a holder to another
holder. These documents, entitled, “Transfer Documents for USDA
Government Guaranteed Loans Sold Through the Assignment Method,” are
acceptable to the Agency. Upon completion of the reassignment, the
holder or its agent will send an original, executed copy of the transfer
documents to the Agency for its records, and GLS should be updated
accordingly. Do not reissue Form RD 4279-6 to effect a subsequent
reassignment. If documents other than those developed by the Securities
Industry and Financial Markets Association are presented or the
documents appear to be improperly prepared, obtain the advice of the
National Office Program Processing Division. (Revised 04-30-20,
PN 536.)
(b) Multi-note system. Under this option, the lender may provide one
note for the unguaranteed portion of the loan and no more than 10 notes
for the guaranteed portion. All promissory notes must reflect the same
payment terms. The lender must retain its interest in the collateral
and servicing responsibilities for the guaranteed loan. When the lender
selects this option, the holder will receive one of the borrower's
executed notes and a Loan Note Guarantee. The Agency will issue a Loan
Note Guarantee for each note, including the unguaranteed note, to be
attached to each note. An Assignment Guarantee Agreement will not be
used when the multi-note option is utilized.
§ 4279.76 [Reserved]
§ 4279.77 Minimum retention.
The lender is required to hold in its own portfolio a minimum of 5
percent of the original total loan amount. The amount required to be
maintained must be of the unguaranteed portion of the loan and cannot be
participated to another. The lender may enter into no agreement that reduces
its exposure below the minimum 5 percent it is required to retain in its
portfolio. The lender may sell the remaining amount of the unguaranteed
portion of the loan only through participation.
26
(Revision 2)
RD Instruction 4279-A
§ 4279.78 Repurchase from holder.
(a) Repurchase by lender. A lender has the option to repurchase the
unpaid guaranteed portion of the loan from a holder within 30 days of
written demand by the holder when the borrower is in default not less
than 60 days on principal or interest due on the loan; or when the
lender has failed to remit to the holder its pro rata share of any
payment made by the borrower within 30 days of the lender’s receipt
thereof. The repurchase by the lender must be for an amount equal to
the unpaid guaranteed portion of principal and accrued interest less the
lender's servicing fee. The holder must concurrently send a copy of the
demand letter to the Agency. The lender must accept an assignment
without recourse from the holder upon repurchase. For those loans
closed on or after August 2, 2016, the lender or the Agency will issue
an interest termination letter to the holder(s) establishing the
termination date for interest accrual if the default is not cured. The
guarantee will not cover interest to any holder accruing after the
greater of: 90 days from the date of the most recent delinquency
effective date as reported by the lender or 30 days from the date of the
interest termination letter. The Agency must ensure the interest
termination letter is issued, whether by the lender or the Agency, 60
days from the date of the most recent delinquency effective date to
ensure that not more than 90 days of interest is paid. The lender
should issue the interest termination letter to the holder(s) and
provide the Agency with a copy. In the event the lender cannot or will
not issue the letter, the Agency will issue the letter to the holder(s)
and provide the lender with a copy (see Appendix H of RD Instruction
4287-B for a sample letter). The Agency should confirm current holder
contact information with the lender and ensure that information in GLS
is accurate. If, in the opinion of the lender, repurchase of the
guaranteed portion of the loan is necessary to adequately service the
loan, the holder must sell the guaranteed portion of the loan to the
lender for an amount equal to the unpaid principal and interest on such
portion less the lender's servicing fee. The lender must not repurchase
from the holder for arbitrage or other purposes to further its own
financial gain. Any repurchase must only be made after the lender
obtains the Agency's written approval. If the lender does not
repurchase the guaranteed portion from the holder, the Agency may, at
its option, purchase such guaranteed portion for servicing purposes.
The lender is encouraged to repurchase the loan to facilitate the
accounting of funds, resolve any loan problems, and prevent default,
where and when reasonable. The benefit to the lender is that it may
resell the guaranteed portion of the loan in order to continue
27
(Revision 2)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.78(a) (Con.)
collection of its servicing fee if the default is cured. When the
lender repurchases the guaranteed portion from the secondary market for
servicing purposes, the lender must discontinue interest accrual if
Federal or State regulators place the loan in non-accrual status if the
default is not cured within 90 days. The lender will notify the holder
and the Agency of its decision. T The Agency should meet with and
encourage the lender to repurchase the loan because the lender may have
an opportunity to sell the loan at a later date, whereas if the Agency
has to repurchase it, the loan can no longer be sold and there is an
adverse effect on the subsidy rate, which reduces supportable loan
level. (Revised 04-30-20, PN 536.)
(b) Agency repurchase. (See Appendix A for a repurchase checklist.)
(1) The lender’s servicing fee will stop on the date that interest
was last paid by the borrower when the Agency purchases the
guaranteed portion of the loan from a holder. The lender cannot
charge such servicing fee to the Agency and must apply all loan
payments and collateral proceeds received to the guaranteed and
unguaranteed portions of the loan on a pro rata basis.
(2) If the Agency repurchases 100 percent of the guaranteed portion
of the loan and becomes the holder, interest accrual on the loan
will cease, and the Agency will not continue collection of the
annual renewal fee from the lender.
(3) If the lender does not repurchase the unpaid guaranteed portion
of the loan as provided in paragraph (a) of this section, the Agency
will purchase from the holder the unpaid principal balance of the
guaranteed portion together with accrued interest to date of
repurchase, less the lender's servicing fee, within 30 days after
written demand to the Agency from the holder. For those loans
closed on or after August 2, 2016, the lender or the Agency will
issue an interest termination letter to the holder(s) establishing
the termination date for interest accrual. The guarantee will not
cover interest to any holder accruing after the greater of: 90 days
from the date of the most recent delinquency effective date as
reported by the lender or 30 days from the date of the interest
termination letter. Once the holder makes demand upon the Agency,
the request cannot be rescinded. The Agency must ensure the
interest termination letter is issued, whether by the lender or the
Agency, 60 days from the date of the most recent delinquency
effective date to ensure that not more than 90 days of interest is
paid. The lender should issue the interest termination letter to
28
(Revision 2)
RD Instruction 4279-A
§ 4279.78(b) (Con.)
the holder(s) and provide the Agency with a copy. In the event the
lender cannot or will not issue the letter, the Agency will issue
the letter to the holder(s) and provide the lender with a copy (see
Appendix H of RD Instruction 4287-B for a sample letter). The
Agency should confirm current holder contact information with the
lender and ensure that information in GLS is accurate. (Revised
06-12-17, SPECIAL PN.)
(4) When the guaranteed loan has been delinquent more than 60 days
and no holder comes forward, the Agency may issue a letter to the
holder(s) establishing the cutoff date for interest accrual.
Accrued interest to be paid the holder will be calculated from the
date interest was last paid on the loan with a cutoff date being no
more than 90 days from the date of the most recent delinquency
effective date as reported by the lender.
28A
(Added 06-12-17, SPECIAL PN)
RD Instruction 4279-A
§ 4279.78(b) (Con.)
(5) When the lender has accelerated the account and holds all or a
portion of the guaranteed loan, an estimated loss claim (loan in the
liquidation process) must be filed by the lender with the Agency
within 60 days. Accrued interest paid to the lender will be
calculated from the date interest was last paid on the loan with a
cutoff date being no more than 90 days from the most recent
delinquency effective date as reported by the lender. GLS must be
checked to ensure that the cutoff date is accurately reflected in
the system.
(6) The holder's demand to the Agency must include a copy of the
written demand made upon the lender. The holder must also include
evidence of its right to require payment from the Agency. Such
evidence must consist of either the original of the Loan Note
Guarantee (for guaranteed loans using the multi-note system)
properly endorsed to the Agency or the original of the Assignment
Guarantee Agreement (for guaranteed loans using the single-note
system) properly assigned to the Agency without recourse, including
all rights, title, and interest in the loan. When the single-note
system is utilized and the initial holder has sold its interest, the
current holder must present the original Assignment Guarantee
Agreement and an original of each Agency-approved reassignment
document in the chain of ownership, with the latest reassignment
being assigned to the Agency without recourse, including all rights,
title, and interest in the guarantee. See § 4279.75(a) for a
description of acceptable transfer documents. The holder must
include in its demand the amount due, including unpaid principal,
unpaid interest to date of demand, and interest subsequently
accruing from date of demand to proposed payment date. The Agency
will be subrogated to all rights of the holder.
(7) Upon request by the Agency, the lender must promptly furnish a
current statement certified by an appropriate authorized officer of
the lender of the unpaid principal and interest then owed by the
borrower on the loan and the amount then owed to any holder, along
with the information necessary for the Agency to determine the
appropriate amount due the holder. Any discrepancy between the
amount claimed by the holder and the information submitted by the
lender must be resolved between the lender and the holder before
payment will be approved. Such conflict will suspend the running of
the 30-day payment requirement.
29
(Revision 1)
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.78(b) (Con.)
(8) Purchase by the Agency neither changes, alters, nor modifies
any of the lender's obligations to the Agency arising from the loan
or guarantee nor does it waive any of the Agency's rights against
the lender. The Agency will have the right to set-off against the
lender all rights inuring to the Agency as the holder of the
instrument against the Agency's obligation to the lender under the
program.
(9) When the Agency purchases the guaranteed portion, the loan
cannot be sold with recourse. The purchased loans may be sold on a
nonrecourse basis only, i.e., without a Loan Note Guarantee attached
and without recourse. For additional guidance, State Offices should
contact the National Office Program Processing Division. (Revised
04-30-20, PN 536.)
(10) Upon receipt of the appropriate information, the Agency will
review the demand and, after verification, will transmit the request
to the DCFO for issuance of the appropriate payment. Upon issuance,
the DCFO will notify the office servicing the borrower and remit the
payment to the holder.
(11) GLS should be updated to reflect a default status code
indicating the borrower’s account is delinquent, if applicable.
(c) Termination of interest accrual. Termination of interest accrual,
when the guaranteed portion is held by the Agency, will be for
accounting purposes only when it is likely there will be a loss on the
loan and the lender has placed the loan in a non-accrual status. This
will cover situations including, but not limited to, bankruptcy,
cramdowns (court ordered settlement of debt), and liquidations. The
office of the DCFO will manually calculate the accrued interest in the
event a full or partial recovery becomes possible.
§§ 4279.79 - 4279.83 [Reserved]
30
(Revision 1)
RD Instruction 4279-A
§ 4279.84 Replacement of document.
(a) The Agency may issue a replacement Loan Note Guarantee or
Assignment Guarantee Agreement that was lost, stolen, destroyed,
mutilated, or defaced to the lender or holder upon receipt of an
acceptable certificate of loss and an indemnity bond. The Agency will
consult with the Regional OGC to ensure that all documents are of legal
sufficiency before the reissuance of a Loan Note Guarantee or Assignment
Guarantee Agreement, unless the Regional OGC has directed otherwise.
(b) When a Loan Note Guarantee or Assignment Guarantee Agreement is
lost, stolen, destroyed, mutilated, or defaced while in the custody of
the lender or holder, the lender must coordinate the activities of the
party who seeks the replacement documents and submit the required
documents to the Agency for processing. The requirements for
replacement are as follows:
(1) A certificate of loss, notarized and containing a jurat, which
includes:
(i) Name and address of owner;
(ii) Name and address of the lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the Loan Note Guarantee or
Assignment Guarantee Agreement, including the name of the
borrower, the Agency's case number, date of the Loan Note
Guarantee or Assignment Guarantee Agreement, face amount of
the evidence of debt purchased, date of evidence of debt,
present balance of the loan, percentage of guarantee, and, if
an Assignment Guarantee Agreement, the original named holder
and the percentage of the guaranteed portion of the loan
assigned to that holder. Any existing parts of the document
to be replaced must be attached to the certificate;
(v) A full statement of circumstances of the loss, theft,
destruction, defacement, or mutilation of the Loan Note
Guarantee or Assignment Guarantee Agreement; and
31
(08-09-16) SPECIAL PN
RD Instruction 4279-A
§ 4279.84(b)(1) (Con.)
(vi) For the holder, evidence demonstrating current ownership
of the Loan Note Guarantee and promissory note or the
Assignment Guarantee Agreement. If the present holder is not
the same as the original holder, a copy of the endorsement of
each successive holder in the chain of transfer from the
initial holder to present holder must be included. If copies
of the endorsement cannot be obtained, best available records
of transfer must be submitted to the Agency (e.g., order
confirmation, canceled checks, etc.).
(2) An indemnity bond acceptable to the Agency must accompany the
request for replacement except when the holder is the United States,
a Federal Reserve Bank, a Federal corporation, a State or territory,
or the District of Columbia. The bond must be with surety except
when the outstanding principal balance and accrued interest due the
present holder is less than $1 million, verified by the lender in
writing in a letter of certification of balance due. The surety
must be a qualified surety company holding a certificate of
authority from the Secretary of the Treasury and listed in Treasury
Department Circular 570. The indemnity bond must be kept in a
locked, fire-resistant cabinet for safekeeping.
(3) All indemnity bonds must be issued and payable to the United
States of America acting through the Agency. The bond must be in an
amount not less than the unpaid principal and interest. The bond
must hold the Agency harmless against any claim or demand that might
arise or against any damage, loss, costs, or expenses that might be
sustained or incurred by reasons of the loss or replacement of the
instruments.
(4) The Agency will not attempt to obtain, or participate in the
obtaining of, replacement notes from the borrower. The holder is
responsible for bearing the costs of note replacement if the
borrower agrees to issue a replacement instrument. Should such note
be replaced, the terms of the note cannot be changed. If the
evidence of debt has been lost, stolen, destroyed, mutilated, or
defaced, such evidence of debt must be replaced before the Agency
will replace any instruments.
(5) State Directors will review all documents when presented by the
lender to ensure all requirements are met and will contact the
Regional OGC for assistance to ensure all documents are legally
sufficient before new guarantee instruments are issued.
32
RD Instruction 4279-A
§ 4279.84(b) (Con.)
(6) If the decision is to reissue the Loan Note Guarantee or
Assignment Guarantee Agreement, the following procedure will be
followed:
(i) If the multi-note system was used, a new Loan Note
Guarantee will be prepared using the original face amounts and
amounts guaranteed (not the outstanding loan balance). At the
top of the form indicate that "This Loan Note Guarantee is
issued to replace the original dated ______, which was lost,
stolen, destroyed, defaced or mutilated.” Only execute an
original for the holder. Copies may be conformed for the
lender and the Agency file.
(ii) If the single note system was used, a new Assignment
Guarantee Agreement will be prepared using the original amount
except the current principal amount of the loan outstanding
should be inserted on the face of the document. At the top of
the form indicate that "This Assignment Guarantee Agreement is
issued to replace the original dated ________, which was lost,
stolen, destroyed, defaced, or mutilated." Only execute an
original for the holder. Copies may be conformed for the
lender and the Agency.
(iii) The lender must execute the replacement forms prior to
the Agency's execution of the same.
§§ 4279.85 - 4279.99 [Reserved]
§ 4279.100 OMB control number.
In accordance with the Paperwork Reduction Act of 1995, the information
collection requirements contained in this subpart have been submitted to the
Office of Management and Budget (OMB) under OMB Control Number 0570-0069 for
OMB approval.
oOo
33
(08-09-16) SPECIAL PN
RD Instruction 4279-A
Appendix A
Page 1
Repurchase from Holder Checklist
Original Loan
Borrower: Amount: $
GLS Assigned ID #: Tax ID #:
Borrower:
Name:
Address:
Contact Name: Email:
Phone #: Fax #:
Lender:
Name:
Address:
Contact Name: Email:
Phone #: Fax #:
Holder:
Name:
Address:
Contact Name: Email:
Phone #: Fax #:
Item Form # or Responsible Received/
Reference Party Completed
Holder requests repurchase from lender 4279.78(a) Holder
- Borrower is in default not less
than 60 days on the loan, or
lender has failed to remit
payment to holder
- Holder must concurrently provide
a copy of the demand letter to
the Agency
- If the lender purchases the
guarantee from the holder, no
Agency action is required
Lender does not repurchase the 4279.78(b)(1) Lender
guaranteed portion
(08-09-16) SPECIAL PN
RD Instruction 4279-A
Appendix A
Page 2
Holder supplies written demand for 4279.78(b)(1) Holder
repurchase to Agency (Agency will &(2)
repurchase within 30 days)
Holder’s request includes:
- Copy of written demand to lender;
- Original LNG properly endorsed to
Agency, or
- Assignment Guarantee Agreement
properly assigned to Agency;
- Principal due
- Interest due to demand date
- Interest accruing subsequent to
demand
- Account ledger statement
Agency notifies lender of holder’s 4279.78(b)(3) Agency
demand
Lender provides Agency with: 4279.78(b)(3) Lender
- Principal due
- Interest due to demand date
- Interest accruing subsequent to
demand
- Account ledger statement
Discrepancies must be resolved between 4279.78(b)(3) Holder and
Lender and Holder before Agency will Lender
repurchase
- Suspends 30 day payment
requirement
Holder issues transfer document 4279.78(b)(2) Holder
subrogating all rights to Agency
Send to DCFO: Agency
- Form RD 1980-37 (signed –
electronic signature acceptable)
- Copy of the promissory note (pages
that show rate, rate change &
basis)
- Account ledger from either the
holder or the lender
- Form RD 4279-6
- Copy of the holder’s demand letter
to the lender and Agency
- Payment instructions – ACH
(Routing & Account numbers)
- Additional documents as requested.
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