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.

(f) 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.

(g) Applicants proposing projects that will result in new employment opportunities must assure the Department that a majority of the new employees will be low-income rural residents.

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 consideration 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

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

er.

(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.

§ 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.

(b) Security interests. Security interests which may be taken by the lender or guarantor include but are not limited to liens on real or personal property, including leasehold interests, assignments of income and accounts receivable, and liens on inventory or proceeds of inventory sales as well as marketable securities and cash collateral accounts.

(c) Motor vehicles. Liens ordinarily should be taken on licensed motor vehicles or boats purchased hereunder in order to be able to transfer title easily should the lender need to declare a default or repossess the property.

(d) Additional security. The lender or guarantor may require collateral security or additional security at any time during the term of a loan or guarantee if after review and monitoring an assessment indicates the need for such security.

(e) Insurance on property secured. Ordinarily, hazard insurance up to the amount of the loan or the replacement value of the property secured (whichever is less) will be taken naming the lendor as beneficiary. Such insurance includes fire and extended coverage, public liability, property damage, and other appropriate types of hazard in

surance.

(f) Appraisals. Real property serving as collateral security will be appraised by a qualified appraiser. For all other types of property, a valuation shall be made using any recognized, standard technique (including standard reference manuals), and this valuation shall be described in the loan file.

§ 1076.50-10 Post award requirements.

(a) Borrowers receiving loans under this program shall be governed by these regulations, the loan agreement, the approved work program and any special conditions which the department may impose in awarding a loan.

(b) Unless otherwise specifically agreed to in writing by the Department loan proceeds and any interest thereon not immediately needed or disbursed by the borrower should be deposited in an interest bearing account or time deposit in a bank or other financial institution which can be fully covered by a form of federal deposit insurance.

(c) Any interest or income earned as a result of such deposits shall be used by the borrower only for purposes authorized by the statute, these regulations and officially approved loan agreement.

Intermediaries

(d) operating relending programs must maintain separate ledgers and segregated accounts for RDLF funds at all times.

(e) Reporting requirements shall be those delineated in the loan agreement between the Department and a borrower and such subsequent communications as the Department deems appropriate. Intermediaries must document periodically the extent to which increased employment, income and ownership opportunities are provided to low-income rural residents for each loan made by such intermediary.

(f) No intermediary may make a loan to a borrower who has applied for or received a loan from another intermediary unless the Department provides prior written approval for such loan.

§ 1076.50-11 Liquidation; default.

(a) Should the Secretary determine that it is necessary or desirable to take action to protect or further the interests of the Department in connection with any default or breach of condi-b tions under any loan or guarantee made hereunder, the Secretary may:

(1) Declare that the loan is immediately due and payable.

(2) Assign or sell at public or private sale, or otherwise dispose of for cash or credit, in his/her discretion and upon such terms and conditions as he/she shall determine to be reasonable, any evidence of debt, contract, claim, personal or real property or security assigned to or held by the Secretary in connection with financial assistance extended hereunder.

(3) Adjust interest rates, use fixed or variable rates, grant moratoriums on repayment of principal and interest, collect or compromise any obligations held by him/her and take such actions in respect to such loans and guarantees as are necessary or appropriate, consistent with the purpose of the Program and this subpart.

(b) Intermediaries shall report to the Department whenever a loan recipient

is more than 90 days in arrears in the repayment of principal or interest.

(c) Failure by a borrower to comply with the provisions of these regulations and/or loan agreement shall constitute grounds for a declaration of default and the demand for immediate and full repayment of the loan.

(d) Failure by an intermediary to comply with the provisions of these regulations or to relend funds in accordance with an approved work plan or loan agreement shall constitute grounds for a declaration of default and the demand for immediate and full repayment of the loan.

(e) Failure of a lender making a guaranteed loan under this program to comply with the provisions of these regulations or guarantee agreement or to disburse and service a loan in accordance with the authorization approving the loan shall release the Department from obligation to purchase its share of the guaranteed loan.

(b) Any organization which has on its governing board or as agent, consultant or employee, a person who is also a board member, employee, agent or consultant of the intermediary without specific prior written approval from the Department, given with full knowledge of the relationship involved.

1076.50-13 Application procedures.

(a) Applications for participation in this program will be accepted only pursuant to the terms of these regulations and under the conditions set out in a notice of the availability of funds published in the FEDERAL REGISTER.

(b) Following publication of a notice of availability of funds applicants may obtain forms and instructions regarding application procedures by writing to: Office of Community Services, Rural Development Loan Fund, 1200 19th Street, NW., Washington, DC 20506.

Subpart 1076.60-Community Development Credit Union Loan Program

AUTHORITY: Pub. L. 97-35, Secs. 623, 633, 681, 95 Stat. 494, 498, 42 U.S.C. 9812, 9822, 9910. SOURCE: 48 FR 53561, Nov. 28, 1983, unless otherwise noted.

§ 1076.60-1 Applicability.

CDCU Revolving Loan Fund monies obligated prior to the effective date of this regulation are governed by 12 CFR 705.1 through 705.12. Funds obligated after the effective date of this regulation are governed by this subpart.

§ 1076.60-2 Purpose and scope.

The purpose of this subpart is to implement the Community Development Credit Union (CDCU) Loan Program under the direct administration of the Office of Community Services (OCS) of the Department of Health and Human Services (HHS). Legislative changes in 1981 resulted in the assumption by HHS of federal administrative responsibility for the CDCU program as authorized by sections 623, 633, and 681 of the Omnibus Budget Reconciliation Act of 1981 (Pub. L. 97-35).

§ 1076.60-3 Definitions.

(a) Community Development Credit Union. For the purpose of this regulation, a Community Development Credit Union (CDCU) is a credit union chartered in accordance with §§1076.60-6 and 1076.60-7 of this subpart or an existing credit union which has as a basic purpose the stimulation of economic development activities and community revitalization efforts aimed at benefitting the community it serves, a majority of which must be low-income residents; and which has submitted an application and has been selected for participation in the CDCU program in accordance with the provisions of this regulation.

(b) Loans. For the purposes of this regulation, a loan from OCS to a CDCU may mean a loan to or a non-membership deposit in a credit union selected and qualified for participation in this program, provided such deposits are permitted by the appropriate state reg

ulatory authority, if the credit union is

state-chartered.

§ 1076.60-4 Purpose of program.

The CDCU Loan Program is intended to support community based credit unions in their efforts to:

(a) Stimulate economic development activities in the community they service which result in increased income, ownership, and employment opportunities for low-income residents;

(b) To stimulate community revitalization efforts which result in improved community facilities, housing, transportation, etc., and

(c) To provide needed financial and related services to residents of their communities.

§ 1076.60-5 Eligible applicants.

The CDCU Loan Program is available to existing credit unions and organizations proposing to form a credit union, which meet the requirements of this regulation.

§ 1076.60-6 Program activities.

In order to meet the objectives of the CDCU Loan Program, an applicant selected for participation must provide a variety of financial and related services designed to meet the particular needs of the low income community served. These activities may include, but are not limited to, the following:

(a) Activities aimed at supporting and stimulating economic development and revitalization efforts within the low income community, such as:

(1) Efforts to improve housing conditions and increase home ownership through a variety of mechanisms including self-help and co-op housing development projects, assistance in securing and leveraging mortgages, site development and construction financ

ing;

(2) Efforts to increase employment opportunities by aiding existing businesses and promoting the establishment of new businesses. Applicants are encouraged to use funds available through the CDCU Loan Program to serve as a catalyst to attract and stimulate the investment of capital from other private and public sources to promote economic development activities within the community;

(b) Activities aimed at providing member services such as financial counseling; and

(c) Activities aimed at increasing the membership and the capitalization base such as:

(1) Membership drives;

(2) Campaigns to encourage members to increase their share deposits through systematic savings, utilizing such methods as payroll deductions allotments, etc.

(3) Activities aimed at getting businesses and other organizations serving the community to maintain share deposits or contribute financially in other ways to projects supported by the credit union.

§ 1076.60-7 Application for chartering. Applications for chartering of new credit unions, to enable participation in the CDCU Loan Program, should be submitted to the appropriate Regional Office of the National Credit Union Administration or a state credit union regulatory agency.

§ 1076.60-8 CDCU field of membership. (a) A CDCU must serve a total community which is comprised primarily of low income residents. Therefore, the CDCU's field of membership should correspond geographically to the designated program area described in an application, and may include employees who regularly work in the area, businesses located within the area, and the residents of the area.

(b) In particular cases, the community served may include a number of contiguous neighborhoods constituting a target area. A target area is defined as that area designated by the Economic Development Administration or another Federal agency or by a State or local government agency for special assistance to low-income residents such as special impact areas, enterprise zones, etc.

(c) A typical CDCU field of membership may read as follows: Persons who reside or work in that part of Small Town, Any State, designated (e.g. by the Economic Development Adminstration) as the "Special Impact Area" (SIA), bounded on the north by Baker Avenue, on the east by Interstate 85, on the south by First Street,

and on the west by Grand Road; employees of this credit union and members of their immediate families; organizations of such persons; individual proprietorships, partnerships, or corporations located within the above SIA and actively engaged in a business practice within the community; and incorporated or unincorporated associations located in the above SIA.

(d) An existing credit union may elect to participate in the CDCU Loan Program upon a majority vote of its board of directors and upon approval of its application for participation. Any credit union field of membership change to conform with a target area as previously described, must be approved by the credit union's board of directors 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 responsibilities of the Community Development Committee fall into two interrelated categories: coordination (liaison) 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