others in making any loan on the security of real estate located within its normal lending territory and purchase from or sell to others participation interests in such loans.

(b) Loans with participation by local approved lenders on real estate located outside normal lending territory—(1) Joint originations; purchase of a participation interest. Subject to the provisions of this section, any insured institution may, to the extent that it has legal power to do so, and subject to the provisions of § 563.10, participate with only an approved lender or lenders (as defined in § 563.9) in the making of any loan secured by a first lien on improved real estate located outside such institution's normal lending territory but within any State (as defined in § 563.9) of the United States, and may purchase a participation interest in any such loan owned by only an approved lender or lenders if:

(i) The loan is an insured loan or a guaranteed loan; or

(ii) (a) The loan is serviced by or through a local approved lender and (b) at the close of the participation transaction, such local approved lender has an interest in such loan of at least 10 percent of the outstanding balance of such loan.

(2) Scheduled items limitation. (i) No insured institution may, pursuant to paragraph (b) (1) (ii) of this section enter into a participation with, or purchase a participation interest from, any insured institution which had at the close of its most recent semiannual period a ratio of scheduled items (other than assets acquired in a merger instituted for supervisory reasons) to specified assets in excess of 4 percent, unless the prior approval of the Corporation has been obtained as provided in subdivision (ii) of this subparagraph.

(ii) An insured institution having scheduled items (other than assets acquired in a merger instituted for supervisory reasons) in excess of 4 percent of its specified assets may request Corporation approval for other insured institutions to participate with it in the making of loans or to purchase from it participation interests in loans pursuant to paragraph (b)(1)(ii) of this section. Such request by the insured institution for Corporation approval shall be filed with the Supervisory Agent (as defined

in § 563.9) for the district in which the principal office of the institution is located with a copy to the Director, Office of Examinations and Supervision, 101 320 First Street NW., Washington, D.C. 20552.

(3) Maintenance of requirements as to local approved lender. An insured institution may maintain a participation interest in a loan jointly originated or purchased pursuant to paragraph (b) (1) (ii) of this section, only if the requirements of that subdivision regarding ownership and servicing by or through a local approved lender continue to be met. If any of such requirements ceases to be met, the insured institution and such loan shall comply with the limitations and requirements of § 563.9 or, if they do not so comply, such loan shall be disposed of within 90 days from the date that any of the requirements under said paragraph (b) (1) (ii) of this section ceased to be met, unless the insured institution has obtained, prior to the expiration of such 90-day period, the written approval of the Corporation to maintain such investment for such longer period as the Corporation may provide.

(4) Percentage of assets limitation. No insured institution shall engage in a participation transaction pursuant to this paragraph (b), except a transaction involving an insured loan or guaranteed loan, if, as a result of such transaction, the aggregate amount of its investment in participation interests in loans secured by first liens on real estate located outside its normal lending territory would exceed 40 percent of its assets exclusive of insured loans or guaranteed loans and exclusive of investments made under paragraph (e) of § 563.9.

(5) Definitions. As used in this section, the term "local approved lender" means that any office of the approved lender (as defined in § 563.9) is located within 100 miles of the real estate securing the loan being serviced, or that such real estate is located either within the normal lending territory, or within 100 miles of any office, of the insured institution servicing such loan.

[38 FR 9156, Apr. 11, 1973]

§ 563.9-2 Sale of interests in loans on real estate located outside normal lending territory.

Except as provided in the next sentence, any insured institution may, to the

39-057-7528

extent that has legal power to do so, sell loans or participation interests in loans upon the security of real estate located outside its normal lending territory. No insured institution, having at the close of its most recent semiannual period a ratio of scheduled items (other than assets acquired in a merger instituted for supervisory reasons) to specified assets in excess of 4 percent, shall participate in the making of any loan with, or sell any loan or participation interest therein to any other insured institution if such loan is secured by real estate located outside such other insured institution's normal lending territory unless, and to the extent that, such insured institution having such ratio has received Corporation approval pursuant to 563.9 (f) or § 563.9-1(b) (2) and otherwise has legal power to do so. [38 FR 9156, Apr. 11, 1973]

§ 563.9-3 Loans to one borrower.

(a) Definition of terms. For the purposes of this section the term "one borrower" means (1) any person or entity that is, or that upon the making of a loan will become, obligor on a loan on the security of real estate, (2) nominees of such obligor, (3) all persons, trusts, partnerships, syndicates, and corporations of which such obligor is a nominee or a beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock, and (4) if such obligor is a trust, partnership, syndicate, or corporation, all trusts, partnerships, syndicates, and corporations of which any beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock, is also a beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock of such obligor; and the term "total balances of all outstanding loans" means the original amounts loaned by an insured institution plus any additional advances and interest due and unpaid less repayments and participating interests sold and exclusive of any loan on the security of real estate the title to which has been conveyed to a bona fide purchaser of such real estate.

(b) Limitations. No insured institution shall have outstanding any loan on

the security of real estate to one borrower, as defined in paragraph (a) ɗ this section, if the sum of (1) the amount of such loan and (2) the total balances of all outstanding loans on the security of real estate owed to such institution and its service corporation affiliates by such borrower exceeds an amount equal to 10 percent of such institution's withdrawable accounts or an amount equal to such institution's net worth, whichever amount is less: Provided, That, notwithstanding any other limitation of this sentence, any such loan may be made if the sum of subparagraphs (1) and (2) of this paragraph does not exceed $100,000 or if such loan is secured by a first lien on low-rent housing.

(c) Determination by institution; maintenance of records. If an insured institution or service corporation affiliate thereof makes a loan to any one borrower, as defined in paragraph (a) of this section, in an amount which, when added to the total balances of all outstanding loans on the security of real estate owed to such institution and its service corporation affiliates by such borrower, exceeds $100,000, the records of such institution or its service corporation affiliate with respect to such loan shall include documentation showing that such loan was made within the limitations of paragraph (b) of this section; for the purpose of such doucmentation such institution or service corporation affiliate may require, and may ac cept in good faith, a certification by the borrower identifying the persons, entities, and interests described in the definition of one borrower in paragraph (a) of this section.

[28 F.R. 1629, Feb. 21, 1963, as amended at 38 FR 26110, Sept. 18, 1973]

§ 563.9-4 Mortgage transactions with the Federal Home Loan Mortgage Corporation.

Without regard to any other provision of this part, any insured institution, to the extent it has legal power to do so, may enter into and perform and carry out any mortgage transaction with the Federal Home Loan Mortgage Corporation specified in subsection (a) of section 305 of the Federal Home Loan Mortgage Corporation Act. For the purposes of this section, the term "mortgage" shall have

(a) An insured institution whose net worth exceeds 5 per centum of its withdrawable accounts may, to the extent that it has legal authority to do so, invest in, lend to, or commit itself to lend to any state housing corporation incorporated in the State in which such insured institution has its principal office: Provided, That the aggregate outstanding direct investment in equity securities made by such institution under this section shall not exceed one-fourth of one per centum of its assets as of the time of such investment, and the aggregate outstanding investment in loans and loan commitments made by such institution under this section shall not exceed 5 per centum of its net worth as of the time of such investment.

(b) Each state housing corporation in which an insured institution invests under the authority of this section shall agree, before accepting any such investment (including any loan or loan commitment), to make available at any time to the Corporation such information as the Corporation may consider to be necessary to insure that investments are properly made under this section. [39 FR 15026, Apr. 30, 1974]

§ 563.9-6 Flood disaster protection.

(a) General. This section implements, in part, the provisions of subsections (b) and (c) of section 102 and subsection (b) of section 202 of the Flood Disaster Protection Act of 1973 (Pub. L. 93-234) and subsection (a) of section 816 of the Housing and Community Development Act of 1974 (Pub. L. 93-383). The provisions of this section do not apply retroactively to any loan or commitment related thereto. As used in this section, the term "loan" includes an installment sale contract.

(b) Flood insurance-(1) Requirement. Notwithstanding any provision of this subchapter other than this section, an insured institution shall not make (including purchase, except as provided in paragraph (e) of this section), increase, extend, or renew after March 1,

1974, any loan (other than a loan closed after March 1, 1974, as to which there was outstanding at the close of March 1, 1974, a commitment to make such loan) secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or to the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, as amended, whichever is less.

(2) Exception. Notwithstanding the provisions of paragraph (b)(1) of this section, flood insurance is not required by this paragraph (b) on any Stateowned property that is covered under an adequate State policy of self-insurance satisfactory to the Secretary of Housing and Urban Development. Subsection (c) of section 102 of the Flood Disaster Protection Act of 1973, the first sentence of which is implemented by the first sentence of this subparagraph (2), provides, in part, that such Secretary shall publish and periodically revise the list of States to which that subsection applies.

(c) Community participation in insurance program. On and after July 1, 1975, an insured institution shall not make (including purchase, except as provided in paragraph (e) of this section), increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards, unless the community in which such area is situated is then participating in the national flood insurance.

(d) Records of compliance. Each insured institution shall maintain in connection with all loans secured by improved real estate or a mobile home sufficient records to indicate the method

used by such institution to determine whether or not such loans fall within the provisions of this section.

(e) Purchase of loans. The provisions of this section do not prohibit the purchase after March 1, 1974, of a loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, without compliance with the flood insurance requirements in paragraphs (b) and (c) of this section, if:

(1) As to a loan closed before March 2, 1974, such loan has not been increased, extended, or renewed after March 1, 1974;

(2) As to a loan closed after March 1, 1974, such loan was closed pursuant to a commitment, outstanding at the close of March 1, 1974, to make such loan and such loan has not been increased, extended, or renewed.

(f) Service corporation loans. The provisions of this section do not apply to loans of a service corporation (defined in § 561.26 of this subchapter) even though one or more insured institutions own all or part of the capital stock of such corporation.

(g) Loans of savings and loan holding companies. The provisions of this section do not apply to loans of a savings and loan holding company (defined in § 583.11 of this chapter) although such provisions may apply to certain loans of an insured institution which is controlled by such holding company.

(h) Notice of hazard. After September 21, 1974, an insured institution shall, as a condition of making (including purchasing), increasing, extending, or renewing any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards, mail or deliver as soon as feasible but not less than 10 days in advance of closing of the transaction (or not later than the insured institution's commitment, if any, if the period between commitment and closing is less than 10 days) a written

notice to the borrower that the property securing the loan is in an area so identified. In lieu of the notification required in this section, an insured institution may obtain satisfactory written assurances from a seller or lessor that such seller or lessor has notified the borrower, prior to the execution of any agreement for sale or lease, that the property securing the loan is in an area so identified. An insured institution shall require the borrower, prior to closing, to provide the insured institution with a written acknowledgment that the borrower realizes that the property securing the loan or upon which the mobile home is or will be located is in an area so identified.

[39 FR 5753, Feb. 14, 1974, as amended at 39 FR 33789 Sept. 20, 1974 [

§ 563.9-7 Loans in excess of 90 percent

of value.

(a) An insured institution which is authorized to make loans, other than insured loans or guaranteed loans, on the security of "single-family dwellings" (as defined in § 541.10 of this chapter) in excess of 90 percent of value of such real estate may do so only if:

(1) The association establishes and maintains a specific reserve with respect to such loan equal to one percent of the unpaid principal balance thereof until the unpaid principal balance has been reduced to an amount not in excess of 90 percent of the value or purchase price of the real estate security, whichever is less, determined at the time the loan was made; or

(2) As long as the unpaid balance of such a loan is in excess of an amount equal to 90 percent of the value or purchase price of the real estate security, whichever is less, determined at the time the loan was made, that portion of the unpaid balance of such loan which is in excess of an amount equal to 80 percent of such value or purchase price of the real estate security is guaranteed or insured by a mortgage insurance company which has been determined to be a "qualified private insurer" by the Federal Home Loan Mortgage Corporation.

(b) This section does not apply to single-family-dwelling loans to facilitate the sale of real estate owned described in § 561.15(d) of this subchapter. [39 FR 22137, June 20, 1974]

563.10 Appraisal requirements.

Except as provided in paragraph (f) of this section, no insured institution shall make any investment in loans pursuant to § 563.9 or § 563.9-1 unless the ollowing requirements are met:

(a) An insured institution which makes a whole loan pursuant to § 563.9 shall obtain a signed report of appraisal of the real estate security for the loan by an appraiser who meets the requirements of paragraph (d) of this section. Such institution shall also comply with the provisions of § 563.17-1(c)(1).

(b) An insured institution which purchases a whole loan as provided in § 563.9 from an approved lender (as defined in that section) other than an insured institution shall obtain a signed report of appraisal, or a copy thereof, of the real estate security for the loan by an appraiser who meets the requirements of paragraph (d) of this section. Such an appraisal made at the time the loan was made may be used to satisfy the requirements of this paragraph.

(c) An insured institution which participates in the making of a loan with an approved lender or lenders (as defined in § 563.9), or which purchases a participation interest in a loan from an approved lender or lenders other than an insured institution, pursuant to § 563.9 or § 563.9-1 shall obtain a signed report of appraisal, or a copy thereof, of the real estate security for the loan by an appraiser who meets the requirements of paragraph (d) of this section. In the case of a purchase of a participation interest, such an appraisal made at the time the loan was made may be used to satisfy the requirements of this paragraph.

(d) An appraiser making a signed report of appraisal as provided in this section shall have no interest, direct or indirect, in the real estate security for the loan or in any loan on the security of such real estate, and shall not receive compensation which is affected in any way by the approval or declining of the loan.

(e) The signed report of appraisal or certification of the valuation required to be obtained pursuant to this section shall be approved in writing by the board of directors or the loan committee of the insured institution prior to making the

investment in the loan, and such report or certification shall be kept in the records of the insured institution.

(f) The requirements of this section shall not apply to any loan upon the security of improved real estate, which is insured, or at least 20 percent guaranteed, or as to which the mortgagee is insured, or as to which a commitment for any such insurance or guaranty has been made under the provisions of the Servicemen's Readjustment Act of 1944, or chapter 37 of title 38, United States Code, as now or hereafter amended, or the provisions of the National Housing Act, as now or hereafter amended. However, in the case of such insured or guaranteed loans, the insured institution shall obtain a certification, or a copy thereof, of the valuation assigned to the real estate security by the appraiser accepted by the insuring or guaranteeing agency and furnished to the institution by such agency. In the case of a purchase of a participation interest, a certification of the valuation so accepted and so furnished at the time the loan was made may be used to satisfy the requirements of this paragraph.

[38 FR 9156, Apr. 11, 1973]

§ 563.11 Federal insurance reserve; establishment of and earmarking to.

(a) Establishment of account. Each insured institution shall set up a Federal insurance reserve account which shall be used solely for the purpose of absorbing losses. No insured institution may pay dividends or interest on savings accounts from its Federal insurance reserve account. Any insured State-chartered institution, by specific and appropriate corporate action, may permanently designate as part of its Federal insurance reserve account all of any reserve account which under the provisions of State law is established for the sole purpose of absorbing losses. Evidence of such action shall be filed promptly with the Corporation.

(b) Earmarking of net worth accounts. Any insured institution, by specific and appropriate corporate action, and with the prior written approval of the Corporation, may earmark as part of its Federal insurance reserve account (1) any portion of any other reserve account which, by such corporate action, is made subject to charges for losses only, or (2)