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achieve the purposes for which the loan is made.

(c) In order to satisfy condition number (b)(2) of this section, an applicant must provide documentary evidence that loan funds for the project in question have been denied by at least two other lending sources.

NOTE: Intermediaries need not comply with this requirement when applying for funds for the purpose of relending to sub-recipients. Potential sub-recipients applying to intermediaries must, however, provide such documentation.

(d) Where guarantees, rather than direct loans are made, the Department will guarantee up to 80% of the total amount of a loan to a qualified applicant.

(e) Loans or guarantees made by the Department and/or intermediaries for the purpose of purchasing land and buildings may not be for a period in excess of twenty-five years; those made for the purpose of purchasing machinery and equipment may not be for a period which exceeds the useful life of such items; those made for working capital may not be for a period in excess of five years.

(1) The terms of loan repayment will be those stipulated in the loan agreement and/or promissory note, as agreed to and executed by the Department and borrowers.

(8) Applicants proposing projects that will result in new employment op portunities must assure the Depart ment that a majority of the new employees will be low-income rural residents.

points below the rate established by the Secretary of the Treasury, but not less than 5 percent, whichever is higher.

(b) Interest rates charged by intermediaries to the ultimately intended borrowers shall be those negotiated between the intermediary and the borrower. Intermediaries are encouraged to make loans to such borrowers at the lowest possible rate, taking into account the cost of the loan funds to the intermediary and the cost of administering the loan portfolio.

(c) Interest on loans, premiums earned on guarantees, investment or interest income, service fees and other authorized financing charges received by intermediaries operating relending programs may be used to pay for: (1) The costs of administering the RDLF relending program, (2) the provision of technical assistance to borrowers and (3) the absorption of bad debts associated with RDLF loans. No administrative costs may be claimed without the express written approval of the Department. Proposed budgets to cover the administrative costs of intermediaries must be submitted annually for review and approval by the Department. All proceeds in excess of those needed to cover authorized expenses, as described above, must revolve back into the RDLF and be available for relending to eligible applicants. Any such excess proceeds shall be returned to the Secretary at the end of the loan period or upon repayment of the loan, whichever occurs first. 8 1076.50–9 Security.

(a) As a Credit Factor. The availability of collateral security normally shall be considered as an important factor in making loans or guarantees. The types and amount of collateral security required should be governed by the relative strengths and weaknesses of other credit factors. However, the taking of collateral as security should be considered in each loan making or guarantee transaction. Collateral security should be sufficient to provide the lender reasonable protection from loss in the case of adversity, but such security or lack thereof should not be used as the primary basis for deciding whether to extend credit.

$1076.50-8 Interest on loans; allowable

costs. (a) Loans made by the Secretary pursuant to this subpart shall bear interest at a rate determined by the Secretary of the Treasury taking into con sideration the average market yield on outstanding Treasury obligations of comparable maturity, plus such additional charges, if any, toward covering other costs of the program as the Secretary of Health and Human Services may determine to be consistent with its purposes, except that for the five years following the date on which the funds are awarded to the borrower, the rate of interest shall be 4 percentage

(b) Security interests. Security inter- (c) Any interest or income earned as ests which may be taken by the lender a result of such deposits shall be used or guarantor include but are not lim by the borrower only for purposes anited to liens on real or personal prop thorized by the statute, these regulaerty, including leasehold interests, as tions and officially approved loan signments of income and accounts re- agreement. ceivable, and liens on inventory or pro

(d) Intermediaries operating ceeds of inventory sales as well as mar relending programs must maintain sep ketable securities and cash collateral arate ledgers and segregated accounts accounts.

for RDLF funds at all times. (c) Motor vehicles. Liens ordinarily (e) Reporting requirements shall be should be taken on licensed motor ve

those delineated in the loan agreement hicles or boats purchased hereunder in

between the Department and a bororder to be able to transfer title easily

rower and such subsequent communicashould the lender need to declare a de

tions as the Department deems approfault or repossess the property.

priate. Intermediaries must document (d) Additional security. The lender or

periodically the extent to which inguarantor may require collateral secu

creased employment, income and ownrity or additional security at any time

ership opportunities are provided to during the term of a loan or guarantee

low-income rural residents for each if after review and monitoring an as

loan made by such intermediary.

(f) No intermediary may make a loan sessment indicates the need for such

to a borrower who has applied for or resecurity.

ceived a loan from another (e) Insurance on property secured. Or

intermediary unless the Department dinarily, hazard insurance up to the

provides prior written approval for amount of the loan or the replacement

such loan. value of the property secured (whichever is less) will be taken naming the $1076.50–11 Liquidation; default. lendor as beneficiary. Such insurance

(a) Should the Secretary determine includes fire and extended coverage, public liability, property damage, and

that it is necessary or desirable to take

action to protect or further the interother appropriate types of hazard in

ests of the Department in connection surance.

with any default or breach of condi(1) Appraisals. Real property serving

tions under any loan or guarantee as collateral security will be appraised

made hereunder, the Secretary may: by a qualified appraiser. For all other

(1) Declare that the loan is immetypes of property, a valuation shall be

diately due and payable. made using any recognized, standard

(2) Assign or sell at public or private technique (including standard ref

sale, or otherwise dispose of for cash or erence manuals), and this valuation

credit, in his/her discretion and upon shall be described in the loan file.

such terms and conditions as he/she

shall determine to be reasonable, any 8 1076.50–10 Post award requirements.

evidence of debt, contract, claim, per(a) Borrowers receiving loans under sonal or real property or security asthis program shall be governed by signed to or held by the Secretary in these regulations, the loan agreement, connection with financial assistance the approved work program and any extended hereunder. special conditions which the depart (3) Adjust interest rates, use fixed or ment may impose in awarding a loan. variable rates, grant moratoriums on

(b) Unless otherwise specifically repayment of principal and interest, agreed to in writing by the Department collect or compromise any obligations loan proceeds and any interest thereon held by him her and take such actions not immediately needed or disbursed in respect to such loans and guarantees by the borrower should be deposited in as are necessary or appropriate, conan interest bearing account or time de- sistent with the purpose of the Proposit in a bank or other financial insti- gram and this subpart. tution which can be fully covered by a (b) Intermediaries shall report to the form of federal deposit insurance.

Department whenever a loan recipient is more than 90 days in arrears in the Subpart 1076.60-Community Derepayment of principal or interest.

velopment Credit Union Loan (c) Failure by a borrower to comply

Program with the provisions of these regulations and/or loan agreement shall constitute grounds for a declaration of de

AUTHORITY: Pub. L. 97–35, Secs. 623, 633, 681, fault and the demand for immediate 95 Stat. 494, 498, 42 U.S.C. 9812, 9822, 9910. and full repayment of the loan.

SOURCE: 48 FR 53561, Nov. 28, 1983, unless (d) Failure by an intermediary to otherwise noted. comply with the provisions of these regulations or to relend funds in ac

$1076.60_1 Applicability. cordance with an approved work plan or loan agreement shall constitute

CDCU Revolving Loan Fund monies grounds for a declaration of default and

obligated prior to the effective date of the demand for immediate and full re

this regulation are governed by 12 CFR

705.1 through 705.12. Funds obligated payment of the loan. (e) Failure of a lender making a guar

after the effective date of this regulaanteed loan under this program to

tion are governed by this subpart. comply with the provisions of these

8 1076.60–2 Purpose and scope. regulations or guarantee agreement or to disburse and service a loan in ac

The purpose of this subpart is to imcordance with the authorization ap

plement the Community Development proving the loan shall release the De

Credit Union (CDCU) Loan Program partment from obligation to purchase under the direct administration of the its share of the guaranteed loan.

Office of Community Services (OCS) of

the Department of Health and Human 8 1076.50-12 Conflict of interest.

Services (HHS). Legislative changes in No intermediary shall relend or guar

1981 resulted in the assumption by HHS antee funds to or for the benefit of:

of federal administrative responsibility (a) Any person who is a board mem

for the CDCU program as authorized by ber, employee, agent or consultant of

sections 623, 633, and 681 of the Omnisuch intermediary organization with bus Budget Reconciliation Act of 1981 out specific prior written approval (Pub. L. 97–35). from the Department, given with full knowledge of the relationship involved,

81076.60_3 Definitions.

(a) Community Development Credit (b) Any organization which has on its Union. For the purpose of this regulagoverning board or as agent, consult- tion, a Community Development Credit ant or employee, a person who is also a Union (CDCU) is a credit union charboard member, employee, agent or con tered in accordance with 88 1076.60-6 sultant of the intermediary without and 1076.60–7 of this subpart or an existspecific prior written approval from ing credit union which has as a basic the Department, given with full knowl purpose the stimulation of economic edge of the relationship involved.

development activities and community

revitalization efforts aimed at benefit§ 1076.50-13 Application procedures. ting the community it serves, a major

(a) Applications for participation in ity of which must be low-income resithis program will be accepted only pur dents; and which has submitted an apsuant to the terms of these regulations plication and has been selected for parand under the conditions set out in a ticipation in the CDCU program in acnotice of the availability of funds pub- cordance with the provisions of this lished in the FEDERAL REGISTER.

regulation. (b) Following publication of a notice (b) Loans. For the purposes of this of availability of funds applicants may regulation, a loan from OCS to a CDCU obtain forms and instructions regard- may mean a loan to or a non-membering application procedures by writing ship deposit in a credit union selected to: Office of Community Services, and qualified for participation in this Rural Development Loan Fund, 1200 program, provided such deposits are 19th Street, NW., Washington, DC 20506. permitted by the appropriate state reg


ulatory authority, if the credit union is (b) Activities aimed at providing state-chartered.

member services such as financial

counseling; and g 1076.604 Purpose of program.

(c) Activities aimed at increasing the The CDCU Loan Program is intended membership and the capitalization to support community based credit base such as: unions in their efforts to:

(1) Membership drives; (a) Stimulate economic development (2) Campaigns to encourage members activities in the community they serv- to increase their share deposits ice which result in increased income, through systematic savings, utilizing ownership, and employment opportuni such methods as payroll deductions alties for low-income residents;

lotments, etc. (b) To stimulate community revital- (3) Activities aimed at getting busiization efforts which result in im nesses and other organizations serving proved community facilities, housing, the community to maintain share detransportation, etc., and

posits or contribute financially in (c) To provide needed financial and other ways to projects supported by related services to residents of their the credit union. communities.

8 1076.60–7 Application for chartering. $ 1076.605 Eligible applicants.

Applications for chartering of new The CDCU Loan Program is available credit unions, to enable participation to existing credit unions and organiza in the CDCU Loan Program, should be tions proposing to form a credit union, submitted to the appropriate Regional which meet the requirements of this Office of the National Credit Union Adregulation.

ministration or a state credit union

regulatory agency. $ 1076.606 Program activities. In order to meet the objectives of the

8 1076.608 CDCU field of membership. CDCU Loan Program, an applicant se- (a) A CDCU must serve a total comlected for participation must provide a munity which is comprised primarily variety of financial and related serv- of low income residents. Therefore, the ices designed to meet the particular CDCU's field of membership should corneeds of the low income community respond geographically to the desserved. These activities may include, ignated program area described in an but are not limited to, the following: application, and may include employ

(a) Activities aimed at supporting ees who regularly work in the area, and stimulating economic development businesses located within the area, and and revitalization efforts within the the residents of the area. low income community, such as:

(b) In particular cases, the commu(1) Efforts to improve housing condi- nity served may include a number of tions and increase home ownership contiguous neighborhoods constituting through a variety of mechanisms in a target area. A target area is defined cluding self-help and co-op housing de- as that area designated by the Ecovelopment projects, assistance in se- nomic Development Administration or curing and leveraging mortgages, site another Federal agency or by a State development and construction financ- or local government agency for special ing;

assistance to low-income residents (2) Efforts to increase employment such as special impact areas, enterprise opportunities by aiding existing busi- zones, etc. nesses and promoting the establish- (c) A typical CDCU field of member-ment of new businesses. Applicants are ship may read as follows: Persons who encouraged to use funds available reside or work in that part of Small through the CDCU Loan Program to Town, Any State, designated (e.g. by serve as a catalyst to attract and stim the Economic Development ulate the investment of capital from Adminstration) as the “Special Impact other private and public sources to pro Area." (SIA), bounded on the north by mote economic development activities Baker Avenue, on the east by Interwithin the community;

state 85, on the south by First Street,

ind on the west by Grand Road; employees of this credit union and memvers of their immediate families; orgaizations of such persons; individual roprietorships, partnerships, or corlorations located within the above SIA nd actively engaged in a business ractice within the community; and inorporated or unincorporated associaions located in the above SIA.

(d) An existing credit union may lect to participate in the CDCU Loan Program upon a majority vote of its oard of directors and upon approval of ts application for participation. Any redit union field of membership hange to conform with a target area s previously described, must be ap sroved by the credit union's board of lirectors and the appropriate State or Federal regulatory agency in accordance with established procedures.

1076.60–9 Community Development

Committee. Each CDCU shall have a Community Development Committee. The responibilities of the Community Developnent Committee fall into two inter'elated categories: coordination (liaijon) and identification of community needs.

(a) Coordination. The Community Development Committee must establish and maintain liaison with all government agencies and others having developmental projects in the community. This liaison will insure a united effort at redeveloping the community with a minimum of duplication.

(b) Community Needs Plan. Within 90 days after a credit union has been notified by the Director of OCS of approval of its participation in the CDCU Loan Program, the Community Development Committee of that credit union will prepare and present to the CDCU'S board of directors a CDCU Community Needs Plan. This plan will set forth the coordination contacts established and the details of these initiatives. The plan will also contain, in priority sequence, a list of community needs which the credit union proposes to fulfill. The credit union's board of directors will make the decisions on what services can be provided and when. (Approved by the Office of Management and Budget under control number 0990-0123)

$1076.60-10 Loans to CDCU's.

(a) The Director of OCS will make loans to approved CDCUs in accordance with these regulations and the provisions of a notice of availability of funds published in the FEDERAL REGISTER.

(b) Amount of Loans. The amount of a loan will be based on financial need and a demonstrated capability of an applicant CDCU to provide financial and related services to the Community as set forth in its application. Existing credit unions selected for participation will be eligible to receive up to $200,000 in loans and new credit unions up to $100,000 in loans. The funds will be released to the participating credit union when the requirements of these regulations and associated notice of availability of funds are met.

(c) Matching Requirements. Loan monies made available must be matched by the participating credit union by increasing its member share deposits by one dollar for every two dollars provided by OCS. Participating credit unions must meet this match requirement within one year of the approval of the loan application and must maintain the increase in the total amount of member share deposits for the duration of the loan.

(1) Drawdown of the funds to participating credit unions may be made in a maximum of two payments only. Upon approval of its loan application, and before it meets its match requirement, a participating credit union may receive 50% of the loan committed. The remainder of the funds committed will be available to the participating credit union only after it has documented that it has met the match requirement for the total amount of the loan commitment.

(2) Failure of a participating credit union to generate the required match within one year of the approval of the loan will result in the reduction of the loan proportionate to the amount of match actually generated. Payment of any additional funds initially approved will be limited as appropriate to reflect the revised amount of loan approved, and any funds already advanced to the participating credit union in excess of the revised amount of loan approved must be returned immediately to OCS. Failure to return such funds to OCS

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