« PreviousContinue »
(2) Provide guidelines which motivate sequent to the action, will be at least as association boards to fulfill their re well secured as it was prior to the action. sponsibility on a sound basis,
(c) The bank shall incorporate in the (3) Define criteria for the selection of district's credit manual a sufficient numborrowers for any special lending au ber of basic repayment plans consistent thorized, and
with sound lending as are necessary to (4) Establish requirements for bank adequately serve the borrowers in its dissupervisory procedures which will give trict. Adaptations within these plans will direction, guidance and control to asso be permissible to tailor loans to the inciation programs. Bank policies author dividual borrower's credit needs. izing special lending programs shall be subject to Farm Credit Administration
8 614.4190 Federal intermediate credit
banks. approval. (39 FR 29584, Aug. 16, 1974)
(a) Loans made by a Federal inter
mediate credit bank in participation with 8 614.4170 Borrower liability.
a production credit association or another All primary borrowers shall normally Federal intermediate credit bank, shall be be fully liable for loans obtained from made under terms and conditions prethe Farm Credit System. Where accept scribed in § 614.4200 for production credit able to the bank or association when the associations. primary borrower includes two or more (b) Direct loans to production credit persons as joint borrowers, the liability associations. The bank may make direct requirement may be met by each bor loans to production credit associations rower assuming liability for a specified either in lieu of discounting acceptable percentage of the loan provided the ag paper or in conjunction with a direct loan gregate liability covers 100 percent of the program which encompasses the disloan and credit conditions support such counting function. Except with the apaction. Where personal guaranty is re proval of the Farm Credit Administraquired from persons other than the pri tion, the total of all direct loans and loans mary borrower, such guarantor shall discounted shall not at any time exceed normally be fully liable unless the pri the limitations outlined herein. Direct mary borrower or other guarantors pro loans will normally be secured by pledge vide adequate financial strength to result of loans and all other assets of the proin a sound loan even though the per duction credit association; except that sonal liability of an individual guarantor where loans to members are discounted may be limited.
separately, direct loans may be unse
cured in whole or in part, at the discreSubpart F-Loan Terms and
tion of the bank. The amount loaned on Conditions
an unsecured basis shall at all times be
consistent with sound financial and $ 614.4180 Federal land banks.
credit practices. (a) Farm loans may be made for not (c) Direct loan limitation. The total less than 5 years nor more than 40 years. credit extended to a production credit asThe basis of approval shall set out the
sociation under & direct loan and by disterms and conditions under which a loan
counting loans may not at any time exis approved. When necessary to assuro ceed the total of that portion of the proper understanding, provide needed total loans, including participations purcontrols and protect the lender, a formal
chased from other lenders, considered written loan agreement shall be devel
acceptable and problem (as defined by oped between the borrower and the bank.
loan classification standards set forth in (b) The outstanding loan balance on $ 614.4051(a) (4)) in accordance with any farm loan shall not at any time dur
the percentage as classified in the bank's ing the life of the loan exceed an amount most recent credit review, or such pergreater than 85 percent of the appraised centages as may equitably represent the value established by the most recent ap same percentages on a current basis, such praisal report on the primary real estate alternate procedure to be subject to consecurity. This shall not, however, prohibit currence of the Farm Credit Administraprotecting the security position by ad. tion, the total of investments under Com. vancing taxes, advancing insurance modity Credit Corporation programs, premiums, rescheduling loan payments, notes insured or guaranteed by Farmers granting partial releases, or other loan Home Administration, and in farmers' servicing actions when the loan, sub notes to cooperatives and dealers, etc.;
and capital and surplus less the total of (4) Before any special intermediatethe amount invested in the Federal term loans shall be made, the district intermediate credit bank and any por board shall adopt a policy, and the Fedtion of capital and surplus invested in eral intermediate credit bank and the loans to members, and any estimated Federal land bank of the district shall losses not protected by reserves.
develop procedures regulating the making (d) General Financing Agreement. of such loans, all of which shall be subFederal intermediate credit banks shall ject to approval of the Farm Credit Adrequire execution of a General Financing ministration. Such policies and proceAgreement, in form approved by the dures shall include but are not limited Farm Credit Administration, as a con to the following. dition to making direct loans to produc (i) Provisions for cooperation between tion credit associations and other financ production credit associations and Feding institutions. Direct loans and ad eral land bank associations in the convances to other financing institutions will sideration of any loans bordering on the be evidenced by a separate promissory long-term mortgage category. note. Direct loans and advances to pro (ii) Procedures to be followed in credit duction credit associations may be evi reviews whereby loans of this type, made denced by a separate promissory note or during the period covered by the review, as provdied in the General Financing will be reviewed and commented upon as Agreement.
to compliance with policy and pro(37 FR 11424, June 7, 1972, as amended at cedures. 38 FR 6377, Mar. 9, 1973; 39 FR 29585, (iii) Provisions for adequate reportAug. 16, 1974)
ing on loans of this type to enable timely $ 614.4200 Production credit associa supervision by the bank. tions.
(d) The basis of approval shall set out
the terms and conditions under which (a) Operating loans will usually be made with maturities coinciding with
a loan is approved and shall be clearly the purpose of the loan and the normal
communicated to the borrower prior to marketing seasons for the enterprises
disbursement of approved funds. When being financed.
necessary to assure proper understand(b) Intermediate-terms loans may be
ing, provide needed controls and protect made with maturities not to exceed 7
the lender, a formal written loan agreeyears from the date of initial disburse
ment shall be developed between the
borrower and the association or bank. ment, under policies established by the bank board and procedures prescribed
[37 FR 11424, June 7, 1972, as amended at
38 FR 27837, Oct. 9, 1973; 39 FR 29585, by the bank.
Aug. 16, 1974) (c) Special intermediate-term loans, exclusive of loans to nonfarm rural resi 614.4210 Banks for cooperatives. dents, and farm-related businesses, may
(a) Seasonal loans shall be primarily be made with maximum maturity not to
for financing current assets and shall exceed 7 years realizing, however, when
normally be repaid within 18 months. establishing repayment that forbearance
Term loans shall be for financing nonor extension may be necessary under the
current assets or working capital and following circumstances.
should generally be made on an amor(1) When specific capital items are tized basis. being inanced, such as new equipment, (b) The basis of loan approval by & new or remodeled buildings, or facilities
bank shall set out the terms and condiwith a useful life and value, after nor
tions under which a loan is approved. mal depreciation and obsolescence, which
To assure proper communication and exceeds the term of the loan at all times.
understanding, provide needed controls, (2) When real estate mortgage credit is unavailable, not acceptable to the ap
and protect the lender, a loan agreement
shall be executed between the borrower plicant, or impractical for reasons such as cost or delay in availability.
and the bank. (3) When earnings' history, repayment Subpart G-Security Requirements record and net earnings projections satisfactorily support the loan and provide as
§ 614.4220 General. surance for final repayment within three Primary real estate shall be valued on additional years if forbearance or exten the basis of appraised value and primary sion is granted.
chattel security or additional security
shall be valued on the basis of recovery The appraised value shall be based on value.
& comparison to similar areas where (a) Appraised value. Appraised value mineral influence is minimal. shall be the basis for valuing primary (b) Market value. Market value is the real estate and is the reasonably sup- amount which a property will bring if a ported market value except in the fol- reasonable time is allowed to find a purlowing circumstances.
chas and if both seller and prospective (1). Property in areas of population buyer are informed, neither being under pressure when the principal basis of abnormal pressure. value is from land uses such as com- (1) The above definition contemplates mercial, industrial, residential or recrea- the consummation of a sale and the tional development or speculation on passing of full title from seller to buyer, such uses in the future. These may be under the following conditions. adjacent to urban areas but could also be (i) Buyer and seller are free of undue some distance from the population center, stimulus and are motivated by no more along or near bodies of water, in or near than the reactions of typical owners. mountain ski developments, in dude (ii) Both parties are well-informed ranch areas, and similar situations. The or well-advised and act prudently, each appraised value of such properties shall for what he considers his own best be adjusted downward to assure that interest. loans based thereon are consistent with (iii) A reasonable time is allowed to the objective to make primarily agricul- test the market. tural loans.
(iv) Payment is made in cash or in (2) Timberland shall be valued at accordance with financing terms genermarket value when not affected by the ally available in the community for this other exceptions of this section; how- type of property. ever, the timber stumpage, which when (2) There is a difference between severed is a commodity and fluctuates market price and market value. Market widely in price, shall be valued on the value represents the rationale of buyers basis of its normal como lity price. collectively within the area while market
(3) Properties on which long-term price indicates what an individual propplantings such as citrus groves, orchards, erty may have sold for. nuts, vineyards, cranberries, etc., where (c) Recovery value. Recovery value there is evidence of abrupt fluctuation in applicable to both chattels and real market value due primarily to changes in estate is the amount, less estimated the supply and price of the particular maintenance, selling costs, all prior liens commodity. In these cases, a 5-year mov- and encumbrances, at the date of ining average of market value shall be spection or appraisal, which the lender used.
should be able to realize from sale of (4) Property where reliance for earn- property on reasonable terms. It is a ings and value is placed on leases or use modification of present market value as permits and where there is a question determined by a loan analyst or apabout the continued availability of the praiser and lies between present market lease or permit for the term of loan con- value and a forced sale value. Condition templated. The fee owned land shall be of the loan and of the farming operation, appraised at market value and the lease and the circumstances under which reor permit contribution to value shall be covery would likely be attempted will on a basis which will maintain standards need to be recognized in determining consistent with other real estate lending. such value. It should be predicated on
(5) Properties in areas where there is the basis of the active effort to dispose evidence of imminent serious problems of the property when related to a workresulting from a depleting water supply, out loan situation. Values based on sedeteriorating water quality, or lack of curity in appraisal or inspection reports drainage, except where these problems should clearly define the basis on which are already reflected in the market value the value was established. or can be appropriately protected against in the loan term and repayment sched
$ 614.4230 Federal land banks. ule. These shall be appraised in such (a) Primary security for a Federal manner as to eliminate undue lending land bank loan shall consist of a first risks in the particular circumstances. lien on interest in real estate. The real
(6) Property in areas where mineral estate interest must be mortgagable invalue or speculation on such value exists. terest under deeds or leases which rea
sonably may be considered adequate to proceeds therefrom will be applied in afford the security of a first lien upon the that order. rights and interests on which the loan (c) Direct loans to other financing inis predicated. Collateral closely aligned stitutions shall be secured in accordance with, an integral part of, and normally with regulations contained in § 614.4600. sold with real estate may be included in
8 614.4250 Production credit associathe appraised value of the security upon
tions. which a loan is based. Appraised value shall be determined within approved (a) Both secured and unsecured loans standards and shall include in the may be made in accordance with proevaluation either farm land, eligible farm cedures prescribed by the bank. Normally, related businesses, or eligible rural resi primary security taken will consist of first dences whichever is appropriate for the
liens on personal property and crops. type of loan being made.
While it is not intended that associations (b) Additional security may be re
will ordinarily make first lien real estate quired to supplement primary real estate mortgage loans to farmers, real estate security. The value of such additional or other security may be taken when security shall be considered only for col deemed necessary for the protection of lateral protection and may not be in the association making short- and cluded in the value of the security upon
intermediate-term loans for eligible purwhich the loan is based. Recovery value poses. Before taking a real estate mortshall be the basis for measuring the col gage, the association shall consider lateral worth of additional security. whether all or a portion of the credit
(c) Personal property used in farming needs might be met more satisfactorily by operations and considered as collateral a real estate mortgage loan such as may for short- and intermediate-term credit be obtained through a Federal land bank will normally not be included as addi association, in accordance with district tional security. Before taking such per
board policies established under sonal property as additional security, the $ 616.6020. Federal land bank and Federal land
(b) Recovery value shall be the basis bank associations shall consider whether for measuring the collateral worth of all or a portion of the credit needs might security. However, the value of interest be met more satisfactorily by a short in real estate which constitutes primary or intermediate-term loan such as may security shall be the appraised value as be obtained through a production credit determined within approved appraisal association in accordance with district standards. board policies under $616.6020 of this
$ 614.4260 Banks for cooperatives. chapter.
Banks for cooperatives are authorized $ 614.4240 Federal intermediate credit
to make both secured and unsecured banks.
loans. (a) Participation loans. Loans made (a) Term loans may be secured or unby a Federal intermediate credit bank in secured depending on the purpose, reparticipation with a production credit payment period, and other credit factors. association or another Federal inter However, as a general practice loans mediate credit bank shall adhere to the scheduled for repayment over an exsame security requirements as prescribed tended period should be secured. in $ 614.4250 for production credit (b) Regular seasonal loans may be seassociations.
cured or unsecured. (b) Direct loans to production credit (c) Seasonal loans made to finance associations. Securities and other obliga commodities and qualifying for special tions pledged to the bank by a production interest rate (where applicable) and credit association pursuant to a general lending limit consideration shall be sepledge and direct loan agreement, shall cured. Loans secured by a chattel mortbe held by the bank as collateral for gage, factor's lien, security agreement, or direct loans made by the bank against security other than warehouse receipts such securities, as general collateral to or other title documents shall not exceed secure all paper discounted for the asso 65 percent of the net value of unhedged ciation, and as security for all other or 85 percent of the net value of hedged obligations of the association to the commodities and the borrower must have bank. In the event it is necessary for a sufficient working capital to keep the loan bank to realize on such collateral the properly margined. Loans secured by
warehouse receipts or other title docu- the bank shall provide the custodian ments shall not exceed 75 percent of the written instructions outlining procedures unhedged net value of the commodity and practices to be followed in the accepor 90 percent of the hedged net value tance, handling, and release of all related and the borrower must have sufficient documents. The custodian shall be adeworking capital to keep the loan prop- quately bonded. The bank shall provide erly margined.
for periodic review of custodial activities (1) “Commodities" shall consist of by bank officials and shall establish that goods and merchandise except for live activities of the custodian are subject to animals which are transportable; can be review and audit by the Farm Credit accurately classified by standards of Administration. quality and quantity; and enjoy broad (37 F.R. 11424, June 7, 1972, as amended at regional, national, or international mar- 37 FR 28493, Dec. 27, 1972; 39 FR 29585, kets within which similar items are reg- Aug. 16, 1974) ularly traded and the value thereof read
$ 614.4261 Security and appraisal standily and regularly determined.
ards—bank for cooperatives. (2) A hedge will be considered valid if it is an enforceable contract with a Written security and appraisal standreliable third party and includes point of
ards shall be prepared and employed, delivery, time or period of delivery, qual
where applicable, by each bank for coopity, quantity, and price as specifications
eratives and approved by the Farm binding on the purchaser. Seller options
Credit Administration adopted standards will not generally invalidate the hedge should recognize that properties securing classification unless of the nature to in
bank for cooperatives loans frequently validate the entire contract. If options
are of the nature to which normal valuare provided the purchaser under the
ation standards do not apply. Much of contract, the hedge value of the contract the collateral securing bank for cowill be the worse combination of options.
operatives loans is in the form of spe(3) The Commodity Credit Corpora
cialized assets for which individual tion's (CCC) general offer to purchase
judgments of potential values under may be accepted as a valid hedge if the various circumstances ranging from conditions listed below for individual
going concern to salvage values will need commodities exist, loan advance, expira
to be made. tion, and maturity dates conform with
Subpart H-interest Rates and CCC established availability, and maturity dates and loan agreement restric
Charges tions insure compliance with CCC $ 614.4270 Policy. quality and crop year standards.
In setting rates and charges, it shall (i) Rice, soybeans, dry beans, honey.
be the objective to provide the types of Borrower must possess a current letter
credit needed by eligible borrowers at the recognizing it as CCC approved cooperative marketing association and pledged
lowest reasonable cost on a sound busicommodity must not have been pre
ness basis, taking into account the cost of viously financed by CCC.
money, necessary reserves and expenses, (ii) Cotton. Borrower must have en
capital requirements, and services protered into a current Form G agreement
vided to borrowers and members. with CCC and pledged cotton must not 8 614.4280 Interest rates. have been previously financed by CCC.
Loans (and discounts) made by each (iii) Peanuts. Borrower must be
bank shall bear interest at a rate or rates eligible to offer commodity to CCC and
as may be determined by the bank board be a current member and signer of an
with the approval of the Farm Credit area peanut marketing agreement.
Administration. Requests to Farm Credit (4) Trust receipts, negotiable bills of
Administration for interest rate plans or lading, shipping documents, drafts and acceptances may be accepted in such
Interest rate adjustments shall include
justification for the plan or change. amounts and for such periods as reasonable prudence permits as necessary
$ 614.4290 Interest on past due loans to allow the orderly marketing, han- Provisions may be made in the apdling, or processing of the commodities. proved interest rate programs of banks
(5) Documents required in conjunction and production credit associations for with these loans may be held by a cus- the collection of interest at a higher rate todian selected by the bank. In such cases after maturity of a loan or installment