§ 614.4351 Federal land bank.

The lending limit is 20 percent of the capital and surplus of the lending bank. § 614.4352 Federal intermediate credit banks.

A Federal intermediate credit bank as a maker in participation with a production credit association or other Federal intermediate credit bank, shall have a limit of 20 percent of its capital and surplus.

§ 614.4353 Production credit associations.

Production credit associations shall have a lending limit (including participations) of 50 percent of the capital and surplus of the lending association. A lending limit of 100 percent of the capital and surplus of the lending association shall apply whenever an approved loss-sharing agreement is in force. [38 FR 27837, Oct. 9,1973]

§ 614.4354 Banks for cooperatives.

(a) District banks: Loans outstanding at any one time to any one borrower, exclusive of participations sold to others, shall be limited to the following percentages of the net worth of a district bank as of the end of the preceding fiscal year or at an interim date determined by the Farm Credit Administration as a result of material changes in a bank's net worth.

(1) Basic lending limit.

(i) Term loans: 25 percent.

(ii) Seasonal loans exclusive of seasonal loans qualifying under § 614.4260 (c): 35 percent.

(iii) Seasonal loans qualifying under 614.4260 (c): 50 percent.

(iv) The sum of term and seasonal loans exclusive of seasonal loan qualifying under § 614.4260 (c): 35 percent.

(v) The sum of term and seasonal loans including seasonal loans qualifying under § 614.4260(c): 50 percent.

(2) Loans to an eligible borrower secured by notes of individuals or business entities which are current and carry a full recourse endorsement or unconditional guarantee by the borrower, if the bank determines the financial condition, repayment capacity, and other factors of the original maker reasonably justify the credit granted by the endorser, qualify for the basic lending limits provided in subparagraph (1) of this paragraph which may be applied for each original note-maker provided the follow

ing listed documents fully support such a determination and are in the files of the bank:

(i) A credit report supporting the bank's finding that the financial condition, repayment capacity, and other factors of the maker of the securities being pledged justify the credit extended by the bank and/or endorser.

(ii) A certification by a bank officer designated for that purpose by the loan or executive committee that the financial responsibility of the original notemaker has been evaluated by the loan committee and the bank is relying primarily on each such maker for the payment of the obligation.

(iii) Other credit information normally required of a borrower for the purposes of making and administering a loan.

(3) Loans made within the established lending limits that become excessive because of a subsequent decrease in the bank's net worth shall be reduced to the lending limit in an orderly manner over a reasonable period.

(b) Total system: Loans outstanding at any one time to any one borrower from one or more district banks and the Central Bank for Cooperatives, exclusive of participations sold to institution (s)

other than banks for cooperatives, shall not exceed the percentages specified in paragraph (a) (1) of this section applied to the consolidated net worth of the 13 banks for cooperatives as determined by Farm Credit Administration. Loans made within previously established limits that become excessive because of changes in lending limits prescribed herein may be held and liquidated in accordance with terms individually specified by the Farm Credit Administration. (c) Central Bank for Cooperatives: (1) Direct loans outstanding at any one time to any one borrower as defined by these regulations, exclusive of participations sold to others, shall not exceed the lending limit percentages prescribed in paragraph (a)(1) of this section for district banks.

(2) Participations in loans at any onetime to any one borrower as defined by these regulations, exclusive of participations resold to institutions other than banks for cooperatives shall not exceed amounts greater than the lending limit described in paragraph (b) of this section less amounts held by the district banks.

(d) Determination for purchases of participations from other banks for cooperatives. A district bank for cooperatives shall determine lending limits for the purpose of purchasing participations in loans of another bank for cooperatives as follows:

(1) Determine its balance sheet net worth total as of the close of the preceding fiscal year or at any interim date determined by the Farm Credit Administration as a result of material changes in the bank's net worth.

(2) Subtract the amount of any investments in the purchasing bank owned by the originating bank for cooperatives on the same date.

(3) Apply the lending limit percentages outlined in paragraph (a)(1) of this section.

(4) The resulting total equals the amount of a loan to any one borrower which a district bank for cooperatives may purchase from another bank for cooperatives.

(e) The term "one borrower" is defined as a parent and all subsidiary corporations including other closely related organizations similarly controlled by management or directorate, and through investment if in a consolidated balance sheet more than 50 percent of the net worth of the subsidiary or affiliate would be eliminated, and/or if a borrower owns a majority of the voting stock of an affiliated corporation: Provided, however, That any such subsidiary organization may be excluded from this definition if it is determined, subject to prior approval by the Farm Credit Administration, that conditions exist warranting a conclusion that there is in fact a separate borrower.

(f) In unusual situations the Farm Credit Administration may prescribe special written lending limits. [37 F.R. 28493, Dec. 27, 1972]

§ 614.4360 Computation of obligation for lending limit determination.

(a) Participation loans shall be included in the computation by a bank or association only to the extent of the amount of participation which that bank or association holds.

(b) The obligation of an individual shall be the total unpaid principal of indebtedness to the bank or association for which the individual is liable as a direct borrower, as a result of being guarantor, endorser or maker on loans to other individuals or legal entities, or

as a result of drafts, accounts, contracts or purchases owned.

(c) The obligations of a legal entity shall be the total unpaid principal of indebtedness to the bank or association for which the entity is obligated as a direct borrower as a result of being guarantor, endorser, or maker on loans to individuals or other legal entities or as a result of drafts, accounts, contracts, or purchases owed unless the lending bank or association can after a thorough credit evaluation of the principal maker of the endorsed or guaranteed obligation certify in writing that such original maker can reasonably be depended upon for repayment of the guaranteed or endorsed obligation.

Subpart L-Rural Housing Loans § 614.4370 General policy.

Loans to rural residents shall be made on a sound basis and in no event shall exceed 85 percent of the appraised value of the real estate. The foregoing shall not prohibit protecting the security position by advancing taxes or insurance premiums. When the rural residence is a mobile home, the appraised value shall include interest in land and the mobile home. In establishing lending policies all Farm Credit institutions shall give consideration to lending practices and terms used by other responsible lenders in the

(a) Rural residence lending in a district may be implemented only with the approval of the district board. The implementation at the association level is within the discretion of the association board.

(b) When rural housing loans have been approved by the district boards and individual association boards, each district board shall prescribe a policy which will assure that rural residence loan service is made available to eligible borrowers of these associations.

(c) No Federal land bank may at any time have rural residence loans in an amount exceeding 15 percent of the total of all loans outstanding. No production credit association may have outstanding rural residence loans in an amount exceeding 15 percent of its total loans outstanding at the end of the preceding fiscal year without prior approval by the Federal intermediate credit bank of the district, nor shall the aggregate of such loans exceed 15 percent of the cutstand

ing loans of all associations in the district at the end of the bank's preceding fiscal year.

(d) Whenever any Federal land bank association or production credit association exceeds 15 percent of its total loan volume in rural residence loans, the respective bank board shall require the bank to make periodic reviews to assure that farmers' credit needs are being adequately served in accordance with objectives of the Act.

(e) Should circumstances arise which curtail loan funds for the System, then loan funds for agriculture shall receive priority to the exclusion of funds for rural housing loans.

§ 614.4390 Appraisal of security.

(a) Appraisal standards and procedures for rural residences shall be established by the banks subject to approval by the district board and the Farm Credit Administration. In setting appraisal standards, consideration shall be given to location, community standards, home advantages, employment opportunities, transportation facilities available and future outlook for the area. Such valuation of the property shall reflect accurately the current market value.

(b) A procedure for classifying security and area shall be a basic part of the appraisal process.

(c) The same appraisal standards, and forms and procedures shall be used by both Federal land bank associations and production credit associations.

[37 FR 11424, June 7, 1972, as amended at 38 FR 6377, Mar. 9, 1973]

§ 614.4400

Security requirements.

When financing nonfarm rural housing, the primary security shall be a first lien on the rural residence being constructed, purchased, or refinanced. Loans for repairs and improvements usually will be secured by a real estate lien or such other security as is determined to be necessary to protect the lender.

$ 614.4410 Loan terms and conditions.

The banks, subject to the approval of the district boards and the Farm Credit Administration, shall establish policies for making and servicing of rural residence loans according to the following guidelines:

(a) Loans on rural residences shall be amortized and loan terms shall not ex

ceed 30 years when made by a Federal land bank and 7 years when made by a production credit association. To qualify for a rural housing loan from a production credit association, an applicant shall conclusively demonstrate his ability to repay such a loan within a 7-year maturity. No final balloon or renewal payment plan will be permitted which will have the effect of extending the maturity beyond 7 years or 30 years for production credit associations and Federal land banks respectively.

(b) Monthly payment plans shall be required on all such loans unless there is a justifiable reason for a different type of repayment plan.

(c) Loan servicing policies shall encourage the orderly retirement of each rural residence loan as scheduled, and procedures for handling the delinquency of such loans shall recognize the inherent differences between agricultural and rural residence lending.

§ 614.4420 Loan closing requirements.

Uniform rules and regulations regarding the closing of rural residence loans shall be prescribed by the supervising banks. In developing such rules and regulations, consideration should be given to any legal or other requirements necessary to assure that the interests of both the borrower and lender are fully protected. Consideration should be given to provisions for payment of taxes and insurance, establishment of fee schedules, inspection procedures, disbursement and insurance, disbursement of trust funds, construction loan agreements, surety bonds for contractors and compliance with local health, environmental, zoning and code requirements.

§ 614.4430 Identification of rural housing loans.

The district board shall adopt a policy and the banks shall issue procedures, subject to approval of the Farm Credit Administration, which identify all loans made under the rural housing authorization. This identification should be made in such a manner as to provide for an analysis of rural housing lending costs, loss experience, delinquencies and contributions to earnings for purposes of guidance in establishing interest rates and the determination of dividends as well as to clearly delineate security requirements between farms and rural residences.

(a) In making such identification, the distinction between a rural residence and a farm shall be on the basis of the capacity of the security to produce agricultural income. The agricultural operation, if any, on a rural residence security will be considered to be in a range from no production to the growing of produce for home use with occasional token cash sales. A farm will be considered to be a property which has the capacity to produce farm products for sale on a sustained basis.

(b) Any loan made on security so identified as a rural residence shall be included in the 15 percent limitation.

(c) Provided, however, That housing loans for homes used in farming operations or immediate family needs to farmers and ranchers may be identified as farm loans if the borrower meets the requirements of § 613.3020(g)(1) of this chapter.

[37 FR 11424, June 7, 1972, as amended at 38 FR 6377, Mar. 9, 1973]

Subpart M-Notice of Action and Appeals

§ 614.4440 Notice of action on loan application.

Every applicant for a loan from the Farm Credit System is entitled to a prompt notice of action on his application and, if the loan is denied or reduced, the reason for such action.

§ 614.4441 Applicant's right to appeal.

An applicant who has reason to believe he was denied credit or was offered credit in a reduced amount because the lender failed to take into account facts pertinent to his application, or misinterpreted or failed to properly apply the rules and regulations governing his application shall be entitled to an informal hearing. That informal hearing shall be in person before the loan committee, or officer, or employee thereof authorized to act on that application. The applicant must make the request for such a hearing in writing within 30 days of notice of the original action. Promptly after such a hearing he shall be notified of the decision reached and the reasons therefor.

§ 614.4442 Records.

Associations or banks shall maintain a complete file of all such written requests for hearing, along with all other written inquiries from applicants or borrowers concerning credit denials.

Subpart N Loan Approval Requirements

§ 614.4450

General requirements.

Authority for loan approval is primarily vested in the Farm Credit banks and associations. However, to provide proper supervision of the System's lending functions, the Act vests in the Farm Credit Administration the authority to prescribe the loans which can be made only with the prior approval of the Farm Credit Administration or the respective banks. Prior loan ap proval limits shall be established on an individual bank basis according to the adequacy and administration of policies and procedures relating to credit extension. Consideration shall also be given to performance in making proper credit analysis and decisions and compliance with Farm Credit law and regulations. For the Federal land banks and Federal intermediate credit banks particular consideration shall be given to policies and procedures and bank performance relating to delegation of loan-making authority to associations, credit reviews and association supervision.

[38 FR 27837, Oct. 9, 1973]

§ 614.4460 Loan approval responsibility.

Approval of the following loans is the responsibility of each district board of directors. The responsibility may be discharged by prior approval of such loans by the appropriate bank board, establishment of a policy under which such loans are to be submitted to the Farm Credit Administration for prior approval, or establishment of a policy under which the authority to approve such loans is delegated to bank management (except paragraphs (d) and (e) of this section which cannot be delegated to management). If the approval of such loans is to be delegated to bank management, the loans are to be submitted promptly for post review by the bank board and the Farm Credit Administration and a report disclosing all material facts relating to the credit relationship involved shall be submitted annually by bank management to the district board with a copy to the Farm Credit Administration for post review.

(a) Loans to a member of the Federal Farm Credit Board.

(b) Loans to a member of the district board.

(c) Loans to a cooperative of which a member of the district bank or Central

Bank board of directors or a member of the Federal Farm Credit Board is a member of the board of directors, an officer, or employee.

(d) Loans to the President of Farm Credit bank.

(e) Loans to employees of the Farm Credit Administration.

(f) Loans where directors, officers or employees designated above

(1) are to receive proceeds of the loan in excess of an amount prescribed by an appropriate bank board and approved by the Farm Credit Administration, or

(2) are stockholders or owners of equity in a legal entity to which the loan is to be made wherein they have a significant personal or beneficial interest in the loan proceeds thereof or the security.

(3) are endorsers, guarantors or comakers in excess of an amount prescribed by an appropriate bank board and approved by the Farm Credit Administration.

[38 FR 27837, Oct. 9, 1973, as amended at 39 FR 29585, Aug. 16, 1974]

The following loans shall be subject to prior approval of the district bank.

(a) Loans to a member of an association board.

(b) Loans to an officer or employee of a Farm Credit bank or an employee of an association.

(c) Loans to any borrower where the directors or employees designated above

(1) are to receive proceeds of the loan in excess of amount prescribed by the appropriate bank board and approved by the Farm Credit Administration, or

(2) are stockholders or owners of equity in a legal entity to which a loan is to be made wherein they have a significant personal or beneficial interest in the loan, the proceeds thereof or the security.

(3) are endorsers, guarantors or comakers in excess of an amount prescribed by an appropriate bank board and approved by the Farm Credit Administration.

(d) Any loan which will result in any one borrower being obligated, as defined in § 614.4360, in excess of an amount established by the district bank under its policies for delegation of authority to associations.

[38 FR 27838, Oct. 10, 1973, as amended at 39 FR 29585, Aug. 16, 1974]

The banks and associations that are primary lenders shall be responsible for the servicing of the loans which they make. The boards of directors shall direct the banks and associations to adopt loan servicing policies and procedures to assure that loans will be serviced fairly and equitably for the borrower while minimizing the risk for the lender. Procedures shall include specific plans which help preserve the quality of sound loans and which help correct credit deficiencies as they develop.

(a) The Federal land bank shall provide guidelines for the servicing of loans by the Federal land bank associations. The servicing may be accomplished either under the direct supervision of the banks or under delegated authority.

(b) The Federal intermediate credit bank shall provide guidelines for the production credit associations to use in establishing their loan servicing policies and procedures plus any limitations requiring approval of the bank. Bank policies shall govern the servicing of loans in which the bank is a direct maker via participation with a production credit association.

(c) The bank for cooperatives policies shall govern the servicing of loans made by the bank separately, in participation with other banks for cooperatives or other lenders.

(d) In the development of the bank and association policies and procedures, the following criteria shall be included.

(1) Term loans. The objective shall be to provide borrowers with prompt and efficient service with respect to justifiable actions in such areas as: Personal liability, partial release of security, insurance requirements or adjustments, loan division or transfers, conditional payments, extensions, deferments or reamortizations. Procedures shall provide for adequate inspections, reanalysis, reappraisal, controls on payment of insurance and taxes (and for payment when necessary), and prompt exercise of legal options to preserve the lender's collateral position or guard against loss. The policy shall provide a means of forbearance for cases when the borrower is cooperative, making an honest effort to meet the conditions of the loan contract and is capable of working out of the debt burden.