OneRD Guaranteed Loan Regulation
| Published date | 10 December 2021 |
| Citation | 86 FR 70349 |
| Record Number | 2021-26160 |
| Section | Rules and Regulations |
| Court | Rural Business-cooperative Service,Rural Utilities Service |
Federal Register, Volume 86 Issue 235 (Friday, December 10, 2021)
[Federal Register Volume 86, Number 235 (Friday, December 10, 2021)]
[Rules and Regulations]
[Pages 70349-70358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26160]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 86, No. 235 / Friday, December 10, 2021 /
Rules and Regulations
[[Page 70349]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
Rural Housing Service
Rural Business-Cooperative Service
7 CFR Part 5001
[Docket No. RUS-19-Agency-0030]
RIN 0572-AC56
OneRD Guaranteed Loan Regulation
AGENCY: Rural Business-Cooperative Service, Rural Housing Service,
Rural Utilities Service, USDA.
ACTION: Final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: Rural Development's Rural Business-Cooperative Service, Rural
Housing Service, and Rural Utilities Service, agencies of the United
States Department of Agriculture (USDA), are publishing this final rule
for the oneRD Guarantee Loan Program (oneRD). The intent of this rule
is to make necessary revisions to the policy and procedures which will
strengthen oversight and management of the growing Community Facilities
(CF), Water and Waste Disposal (WWD), Business and Industry (B&I), and
Rural Energy for America (REAP) guarantee portfolios. This action is
part of a continuing effort by the Agency to improve customer service
for its lenders and create a more efficient work process for its staff.
DATES:
Effective date: This final rule is effective December 10, 2021.
Comment date: Comments are due February 8, 2022.
ADDRESSES: You may submit comments, identified by docket number RUS-19-
Agency-0030 and Regulatory Information Number (RIN) number 0572-AC56
through https://www.regulations.gov.
Instructions: All submissions received must include the Agency name
and docket number or RIN for this rulemaking. All comments received
will be posted without change to https://www.regulations.gov, including
any personal information provided.
Docket: For access to the docket to read background documents or
comments received, go to https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Thomas P. Dickson, Regulations
Management Division, Rural Development Innovation Center, U.S.
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522,
Washington, DC 20250; telephone 202-690-4492; email
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Rural Housing Service (RHS), the Rural Business-Cooperative
Service (RBCS), and the Rural Utilities Service (RUS), agencies of the
USDA Rural Development mission area, hereinafter collectively referred
to as the Agency, published a final rule with comment on July 14, 2020
(85 FR 42494) that created a unified guaranteed loan platform for
enhanced delivery of four existing guaranteed loan programs: Community
Facilities (CF) administered by RHS; Water and Waste Disposal (WWD)
administered by RUS; and Business and Industry (B&I) and Rural Energy
for America (REAP) administered by RBCS. The final rule was effective
on October 1, 2020, and Rural Development began operating under the new
guarantee loan platform on that date.
Collectively, Rural Development's guaranteed loan programs work to
assist in building and maintaining sustainable rural communities.
Through the public comment period and monthly office hours with lenders
and staff, the Agency has solicited feedback on the requirements and
policies contained in the rule implemented on October 1, 2020. The
Agency has identified areas for revision or clarification that are
amended with this final rule with comment. This oneRD final rule with
comment incorporates revisions intended to simplify, clarify, improve,
expand, and enhance the delivery of the four guaranteed loan programs.
II. Summary of Comments and Responses
Through the public comment period and monthly office hours with
lenders and staff, the Agency has solicited feedback on the
requirements and policies contained in the rule implemented on October
1, 2020. The Agency has identified needed revisions and clarification
based on the comments received.
Rural Development received 87 comments from 24 commenters on the
final rule with comment issued on July 14, 2020. Five commenters were
private citizens, 10 commentors were anonymous and 9 comments were from
lenders.
The following discusses each comment and the Agency's response,
organized by section with the comment paragraph and then Agency
response paragraph. Sections with multiple comments will continue the
comment/response paragraph pairing format until all comments for that
section are addressed.
Section 5001.3 Definitions
Comment: Four commenters requested additional definitions to be
included in the regulation.
Agency Response: The Agency has reviewed the request and has
determined the additional definitions would not add additional clarity
to the regulation. However during our review it came to our attention
that the definition of affiliate needed some additional clarification
and two definitions needed updating to conform with changes made to
those definitions in 7 CFR 4280. Additionally, due to the COVID
pandemic the Agency has extended the timeline some businesses need for
start-up; this has highlighted a potential loophole in the regulation
and definitions for new businesses and existing businesses. We thought
the 12-month timeline to be adequate for full ramp-up, but we are
seeing issues with this, thus we made technical revisions to the
definition of Existing business as well as New business as enumerated
in Section III, Summary of Changes.
Section 5001.104 WWD Projects and Requirements
Agency Comment: The Agency has identified a revision needed to
improve consistency and clarity of Section 5001.104; this revision is
included in
[[Page 70350]]
Section III, Summary of Changes to Rule.
Section 5001.105 Eligible B&I Projects and Requirements
Comment: The Agency received several comments that the OneRD rule
language is much stricter for project eligibility than what the
existing Business and Industry regulation, 7 CFR 4279, had been.
Agency Response: Upon evaluation, it was not the Agency's intention
to further restrict project eligibility. Several clarifications have
been identified and are included in Section III, Summary of Changes to
Rule.
Comment: Several comments were received on the revised equity
requirements under 7 CFR 5001.105(d). The commenters believed the
equity requirement for new businesses has increased from 20% to 25% of
the total eligible project costs under Table 1 to 5001.105(d). They
believe this additional 5% makes it even more difficult for new
businesses to open in rural America. They recommended that the equity
requirements for new businesses be 20% regardless if calculated as
balance sheet equity or as a percentage of the total eligible project
costs.
Agency Response: The Agency believes that there may have been some
confusion over the requirement--it's 25% of project cost OR 20% balance
sheet equity at loan closing. In fact, there are 3 other options
available to meet the equity requirements. This issue has been
addressed with Lenders during monthly office hours the Agency held for
lenders. Therefore, the Agency believes the issue has been resolved and
no regulatory amendments are needed.
Section 5001.115 Ineligible Projects--General
Comment: Several commenters requested that 7 CFR 5001.115(a) ``any
investment or arbitrage'' be removed as an ineligible purpose as it
seems to be excluding. They believe that excluding arbitrage from
program eligibility, in its strictest sense, would leave many
businesses, that it would seem the Agency would want to promote
ineligible for program assistance.
Agency Response: The Agency does not agree. The intent of the
provision is to prevent borrowing money to buy stock and holding such
stock for future increases in value, therefore the regulation will not
be amended.
Comment: Seven comments were received in reference to 7 CFR
5001.115(n) which states ``owner-occupied housing or self-storage
facilities'' are ineligible. The commentors felt that the intent is for
the owner to have control over the facility, which the owner(s) would
if determining who can and cannot be a lessee. Self-storage facilities
provide construction jobs, permanent jobs, and increase the tax base in
rural communities.
Agency Response: The Agency agrees with the comments in part and is
therefore amending 5001.115(n) to clarify when owner occupied housing
is considered eligible and removed the ineligibility of self-storage
facilities.
Section 5001.121 Eligible Uses of Loan Funds
Agency Comment: The Agency issued a final rule with comment on
September 15, 2020, after the publication of the OneRD Guarantee
regulation on July 1, 2020, promulgating Special Authority to Enable
Funding of Broadband and Smart Utility Facilities Across Select Rural
Development Programs (Smart Utility). A cross reference to 7 CFR 1980,
subpart M has been added to the opening paragraph of Section 5001.121
as discussed in Section III, Summary of Changes to Rule.
Section 5001.126 Borrower Eligibility
Agency Comment: The Agency revised 7 CFR 4280 to remove references
to the guarantee loan program and cross referencing to 7 CFR 5001. In
the process of this revision, it was determined that 7 CFR 5001.126(e)
needed to be amended to add ``New Users'' to conform with the revisions
to 7 CFR 4280.
Section 5001.130 Lender Eligibility Requirements
Agency Comment: The Office of Management and Budget promulgated
revisions to 7 CFR 25, ``Universal Identifier and System for Award
Management'' on August 13, 2020, after the publication of the OneRD
regulation on July 14, 2020. Therefore, a cross reference to 7 CFR 25
is needed in 5001.130 which requires an awardee of Federal financial
assistance be registered in and maintain an active account in the
System for Award Management (SAM). Section 5001.130(a) is amended to
include the new requirements for lenders to be registered in and
maintain an account in SAM in accordance with 7 CFR 25.200.
Section 5001.202 Lender's Credit Evaluation
Comment: The Agency Received a couple of comments on the need for
the Lender to discuss the feasibility study, as well as other
applicable studies and reports in the credit presentation pursuant to
Sec. 5001.202(b)(5) and submit such supporting documentation when
applicable. However, the commenter felt that it appeared that the
Agency will have its own policy. The commenter felt it is incumbent on
the Agency to disclose its feasibility study policy to Lenders.
Agency Response: The Agency agrees with the comment and therefore
is amending 7 CFR 5001.202(b)(2) to further clarify when feasibility
studies are required.
Section 5001.204 Personal, Partnership, and Corporate Guarantees
Agency Comment: The Agency has identified a revision needed to
improve consistency and clarity of Section 5001.204; this revision is
included in Section III, Summary of Changes to Rule.
Section 5001.205 General Project Monitoring Requirements
Comment: Six lenders commented that they are happy to see that the
Agency is allowing Loan Note Guarantees (LNG) prior to construction,
however they feel the adoption of the current procurement process and
standards to regulate construction loan guarantees is not in the
borrower, lender or government's interest. They believe the adoption of
the federal process would be an injurious and crippling barrier to
entry into the LNG prior to construction, defeating the whole purpose
of this rule. They stated all lenders have a construction policy in
place to mitigate risk and by adding the requirements to mirror the
USDA construction disbursement only increases the burden for the lender
and urged us to reconsider this approach.
Agency Response: The Agency agrees with the comments that the
lenders have the capacity and experience to manage this issue and
therefore is amending Section 5001.205(e)(2)(ii) to allow the lender
the flexibility when it documents the loan to include provisions to
disburse funds and monitor progress of the construction project.
Section 5001.207 Environmental Responsibilities
Comment: The Agency received five comments pertaining to the
Council for Environmental Quality (CEQ) publication in the Federal
Register on July 16, 2020. The commenters requested the Agency to
comply with newly published CEQ requirements.
Agency Response: The Agency is in the process of reviewing the new
requirements and has determined not to make any changes to OneRD at
this
[[Page 70351]]
time. However, any appropriate conforming changes necessitated from
updates to 7 CFR 1970, Environmental Policies and Procedures'' will be
made to 7 CFR 5001 to ensure compliance with CEQ's regulations.
Section 5001.303 Applications for Loan Guarantee
Comment: The Agency received three comments seeking some clarity
and guidance on the need to now submit draft loan agreements. The
commenters stated that one of the attractive features of the Agency
guaranteed programs is the fact that lenders use their own debt and
security instruments to document the loan. The way Section 5001.303 is
currently written, the Agency is forcing lenders to modify their
existing systems to meet the requirements.
Agency Comment: Based on the comments received, the Agency has
identified several revisions to improve the clarity of Section 5001.303
and these revisions are included in Section III, Summary of Changes to
Rule.
Section 5001.304 Specific Application Requirements for CF Projects
Agency Comment: The Agency has identified revisions needed to
improve consistency and clarity of Section 5001.304; these revisions
are included in Section III, Summary of Changes to Rule.
Section 5001.318 B&I Project Priority Point System
Comments: The Agency received a comment in reference to giving
priority points to a loan which offers a decreased guarantee percentage
on a B&I project. They pointed out that this would be giving priority
points to a guaranteed loan for violating the rule.
Agency Response: The Agency agrees, it was not the intention to
allow priority points be given to a guaranteed loan that decreases the
guarantee percentage for the loan. Since OneRD sets the guaranteed
percentage on an annual basis and does not allow for any deviations of
the set guaranteed percentage, the Agency will no longer grant priority
points for a guaranteed loan that decreases the maximum allowable
guaranteed percentage. Therefore, 7 CFR 5001.318(c)(3) has been
removed.
Section 5001.401 Interest Rate Provisions
Agency Comment: The Agency has identified a technical correction
needed to improve clarity of Section 5001.401; this revision is
included in Section III, Summary of Changes to Rule.
Section 5001.407 Percentage of Loan Guarantee
Comments: Nine commenters requested the Community Facility Program
provide for a 90% guarantee as they believe that being capped at 80% in
addition to the possibility of raising fees will discourage wide-spread
lender participation in a market of non-profit borrowers who in many
cases are providing critical services to the rural community.
Agency Response: While the Agency understands the concerns, no
changes in the regulation are being made, however the Agency continues
to do everything it can and will continue to review the fees and
guarantee percentages on an annual basis to ensure there are no
negative impacts on program participation.
Section 5001.408 Participation or Assignment of Guaranteed Loan
Comments: Since publication of the OneRD rule, the Agency has
received feedback from lenders on the requirement to charge a minimum
50 basis point lender's servicing fee in Section 5001.408(b) when
selling to a holder or participating to another lender.
Agency Response: Based on the concerns we have heard during monthly
lender office hours or through direct lender contact with program
staff, the Agency has reviewed this policy and determined to remove
this requirement and allow lenders to determine their own interest rate
spreads when assigning to a holder or participating to another lender.
Section 5001.451 Conditional Commitment
Comments: The Agency received two comments regarding the lender
requesting an extension of a conditional commitment based on the
following statement in the regulation ``no major changes have been made
in the lender's loan conditions and requirements and no material
adverse changes in the borrower or the borrower's financial condition
have occurred since issuance of the conditional commitment.'' The
concern is what constitutes a ``major'' change to request a change. It
was suggested that the word ``major'' be defined or to remove the word
``major'' to avoid confusion.
Agency Response: The Agency agrees with the comments and is
revising the sentence to remove this language as changes are not
included in an extension of a conditional commitment.
Section 5001.452 Loan Closing and Conditions Precedent to Issuance of
Loan Note Guarantee
Comment: Four comments were received on loan closing and the
conditions precedent to issuance of the Loan Note Guarantee. There was
a concern with Section 5001.452 as it seems to limit the presentation
of note sale assignment documents to USDA with or immediately after the
guaranteed loan closing. Many lenders may choose to hold a loan for a
period, then, based on the financial goals of the lender, sell the
guaranteed portion of the loan at any point during the life of the
loan.
Agency Response: The Agency concurs with the comments and is
removing the text ``any secondary market assignment documents,'' as
these documents are not required immediately after loan closing and may
be submitted at any time subsequently.
Comment: Several comments were also received in reference to the
requirement to obtain a title opinion or title insurance showing the
borrower has good and marketable title to the real property and other
collateral and all mortgages or other lien defects, restrictions, or
encumbrances, if any. In most cases the guaranteed loan is closed based
on a title commitment, which includes gap coverage until the issuance
of a title insurance policy. Title companies can take weeks after a
loan closing to issue title insurance policies. This requirement would
leave the lender unable to fund the loan for weeks after a closing and
filing of security instruments, as they await the receipt of the title
insurance policy.
Agency Response: The Agency believes that this is a reasonable
request, therefore the revisions have been made to Sec.
5001.452(b)(8)(iii)(L)(2) and a new Sec. 5001.452(b)(8)(iii)(L)(3) has
been added to provide clarity.
Section 5001.453 Issuance of the Loan Note Guarantee
Comment: The Agency received a comment for clarification for the
requirement of issuing a certificate of incumbency. The commenter
stated some secondary market holders require the certificate of
incumbency and signature and some do not require the certificate of
incumbency and signature. Therefore, the certificate of incumbency and
signature form should be eliminated. In lieu of the form, a certificate
of incumbency and signature block should be included on the relevant
forms, i.e., lender's agreement, loan note guarantee, and assignment
[[Page 70352]]
guarantee agreement to be completed when the form is originally
prepared.
Agency Response: The Agency reviewed this request and determined
that since some lenders require this form and some do not, we did not
want to add this requirement to the ``relevant'' forms and leave as a
stand-alone form that lenders may or may not complete based on their
process.
Section 5001.454 Guarantee Fee
Comment: Two commenters had an issue with 7 CFR 5001.454(c) and the
additional 0.50 percent guarantee fee for issuing the loan note
guarantee prior to construction which may not be passed on to the
borrower. The commenters stated rather than invite potential conflict
with the lender, why not just accept that the fee is 0.50 percent
higher for construction loans. It is a benefit to the borrower as well
as to the lender. The borrower is likely not to have its project
financed unless the lender obtains the guarantee during construction.
Agency Response: The Agency agrees with the lender's comment that
not allowing the lender to pass the fee on to the borrower may have
unintended consequences. Issuing the guarantee prior to construction
completion (enabling the borrower to avoid cost of construction
financing) is a significant benefit to the borrower, therefore the
Agency has removed this restriction.
Section 5001.513 Interest Rate Changes
Comments: Some commenters requested consideration be given to
allowing a borrower to switch to a fixed interest rate even if it is
higher than the variable rate in effect on the loan.
Agency response: The Agency reviewed this and has determined that
if the borrower is requesting the rate change whether to a lower or a
higher fixed rate, the Agency has removed the restriction of only
allowing a rate change to a lower interest rate.
III. Summary of Changes to Rule
1. The definition of ``affiliate'' is updated to further clarify
what constitutes an affiliate.
2. The definition of ``energy efficiency improvement'' is updated
to conform with 7 CFR 4280.
3. The definition of ``existing business'' is updated to further
define what it means for an existing business to be in operation.
4. The definition of ``new business'' is updated to further define
what it means for a new business to be in operation.
5. The definition of ``final loss claim'' is updated to correct an
incorrect site reference.
6. The definition of ``power purchase agreement'' is updated to
conform with 7 CFR 4280.
Section 5001.8 Approvals, Regulations, and Forms
Paragraph (a) is revised to clarify what constitutes an electronic
signature.
Paragraph (d) is revised to update the website address where this
regulation and forms referenced can be found.
Paragraph (e) is revised to clarify what constitutes an electronic
signature for the Lender.
7 CFR 5001.104 Exception Authority
Paragraph (c) is revised to clarify when a utility project that is
serving both rural and non-rural areas is eligible for a loan
guarantee.
7 CFR 5001.105 Eligible B&I Projects and Requirements
1. The introductory paragraph is revised to clarify that the list
of eligible projects is not an exhaustive list of the types of projects
that will be considered as eligible B&I projects.
2. Paragraph (b)(1) is updated to clarify that a B&I guaranteed
loan may be used for the purchase and development of land, buildings,
or infrastructure for public or private commercial enterprises.
3. Paragraph (b)(8) is revised to clarify exclusion of owner-
occupied housing in the B&I guarantee program.
4. Paragraphs (b)(9) and (b)(10) are combined and edited to clarify
when B&I funds may be utilized to fund a CF project.
5. A new paragraph (b)(10) is added to clarify when B&I funds may
be used for the development and construction of broadband and
telecommunication systems, including modification of existing systems,
that are not otherwise eligible under RUS, existing RUS borrowers, or
if funding is not available in the eligible RUS program, subject to the
public notice filing requirements of 7 CFR 1738.106(a) and the
additional reporting requirements of 7 CFR 1738.107.
6. Paragraph (d)(1)(i) is revised to clarify the length of time the
minimum balance sheet equity must be maintained.
7. Paragraph (d)(1)(ii) is revised to clarify the length of time
the minimum balance sheet equity must be maintained.
8. Paragraph (d)(2)(i) is revised to clarify the length of time the
minimum balance sheet equity must be maintained.
9. Paragraph (d)(2)(ii) is revised to clarify the length of time
the minimum balance sheet equity must be maintained.
10. Paragraph (d)(3)(i) is revised to align it with Section
105(d)(2)(i).
11. Paragraph (d)(3)(ii) is revised to align it with Section
105(d)(2)(ii).
12. Paragraph (d)(4)(i) is revised to align it with Section
105(d)(2)(i).
13. Paragraph (d)(4)(ii) is revised to align it with Section
105(d)(2)(ii).
14. Paragraph (d)(5)(ii) is revised by removing the requirement for
historical financial statements for personal loan guarantors, as this
was added in error.
7 CFR 5001.115 Ineligible Projects-General
Paragraph (n) is amended to clarify when owner occupied housing is
considered eligible and removed paragraph (s) the ineligibility of
self-storage facilities.
7 CFR 5001.121 Eligible Uses of Loan Funds
(1) The introductory paragraph is updated to allow a recipient of a
loan guarantee to use up to 10 percent of project funds to construct,
improve, or acquire broadband infrastructure related to the project
financed, to conform with the requirements of 7 CFR part 1980, subpart
M.
(2) Paragraph 7 CFR 5001.121 (c)(6) is amended to revise the
reference to a preliminary review.
7 CFR 5001.126 Borrower Eligibility
Paragraph (e) is amended to add a new subparagraph (3) End users,
to conform with 7 CFR 4280. This revision brings consistency to REAP on
the analysis of the eligibility of the applicant controlling interest
of an end-user.
7 CFR 5001.130 Lender Eligibility Requirements
Paragraph (a) is amended to include new requirements for lenders to
be registered in and maintain an account in the System for Award
Management (SAM) to conform with 2 CFR 25.
7 CFR 5001.141 New Market Tax Credits
Paragraph (a)(2) is amended to revise an incorrect section
reference.
7 CFR 5001.202 Lender's Credit Evaluation
Paragraph (b)(5) is amended to clarify where to find the specific
program requirements for supporting documentation.
[[Page 70353]]
5001.204 Personal, Partnership, and Corporate Guarantees
Paragraph (b) is amended to remove the reference to the Federal
Credit Reform Act of 1990.
7 CFR 5001.205 General Project Monitoring Requirements
1. Paragraph (e)(2) is amended to provide clarity and consistency
with Sec. 5001.454(c).
2. Paragraph (e)(2)(ii) is amended to provide Lenders the
opportunity to provide project monitoring under specific criteria.
3. Paragraph (f)(4) is amended to remove the words ``and inspection
reports'' as this is covered in (f)(5).
7 CFR 5001.303 Applications for Loan Guarantee
1. Paragraph (b)(4)(ii) is amended to remove the words ``and any
guarantor(s)'' as this requirement was unintentional and not required
in previous B&I and REAP regulations.
2. Paragraph (b)(5) is renumbered to Sec. 5001.303(c)(1) to
improve flow and readability.
3. Paragraph (b)(5)(i) through (xiii) was moved to Sec. 5001.451
and renumbered as (b)(3)(i) through (xiii) to improve flow and
readability.
7 CFR 5001.304 Specific Application Requirements for CF Projects
1. Paragraph (a)(1) is revised to provide consistency with the B&I
program.
2. Paragraph (b) is amended to add a new (4) to coincide with B&I's
requirements for feasibility studies.
7 CFR 5001.318 B&I Project Priority Point System
1. The introductory paragraph in Sec. 5001.318 is amended to
correct the total maximum points allowed to 100. This is being done as
the points total changed with the removal of Sec. 5001.318(c)(3).
2. Paragraph (c)(3) is removed as it gives priority points to
decreasing the guarantee percentage which violates the policy in the
regulation and paragraph (c)(4) becomes (c)(3).
7 CFR 5001.401 Interest Rate Provisions
Paragraph (d) is amended to clarify when a request for an interest
rate change is to be made.
7 CFR 5001.402 Term Length, Loan Schedule, and Repayment
Paragraph (b)(3) is amended to clarify that the repayment schedule
must be in consideration of the borrower's cash flow as provided in
Sec. 5001.402(b).
7 CFR 5001.408 Participation or Assignment of Guaranteed Loan
Paragraph (b) is amended by removing the requirement of the lender
to maintain a minimum servicing fee of 50 basis points from any holder.
This will allow the lenders to determine their own interest rate
spreads when selling to a holder or participating to another lender.
7 CFR 5001.451 Conditional Commitment
1. Paragraphs (b)(5)(i) through (xiii) have been moved from Sec.
5001.303 to paragraphs (b)(3)(i) through (xiii) of Sec. 5001.451 which
will improve flow and readability.
2. The third sentence in paragraph (e) is amended to remove the
text ``major changes have been made in the lender's loan conditions and
requirements and no.'' This requirement is not needed to consider an
extension of the conditional commitment; therefore, it has been
removed.
7 CFR 5001.452 Loan Closing and Conditions Precedent to Issuance of
Loan Note Guarantee
1. Paragraph (b) is amended by deleting the text, ``any secondary
market assignment documents.'' Such documents are not required
immediately after loan closing and may be submitted at any time
subsequently.
2. Paragraph (b)(8)(iii)(L)(2) is amended by adding that a
commitment for title insurance or title commitment, when including gap
coverage, is acceptable and to clarify that a title opinion or title
commitment is not required for anything other than real estate.
7 CFR 5001.454 Guarantee Fee
Paragraph (c) is amended by removing the restriction of the lender
not being able to pass the additional .50 percent on to the borrower
when issuing the loan note guarantee prior to construction.
7 CFR 5001.513 Interest Rate Changes
Paragraph (e) is amended to allow variable rate changes to be
changed to fixed rates whether the fixed rate is higher or lower at the
request of the borrower, agreement of the holder, if any, and Agency
concurrence.
Subpart G--Delegations and Loan Approval Authorities
Sections 5001.601 through 5001.603 are added to define basic
information on delegation and loan approval authorities for the
programs within the OneRD regulation.
IV. Executive Orders and Acts
Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches to maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
This final rule has been determined to be not significant for
purposes of Executive Order (E.O.) 12866 and therefore has not been
reviewed by the Office of Management and Budget (OMB).
National Environmental Policy Act
In accordance with the National Environmental Policy Act of 1969,
Public Law 91-190, this final rule has been reviewed in accordance with
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency
has determined that (i) this action meets the criteria established in 7
CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii)
the action is not ``connected'' to other actions with potentially
significant impacts, is not considered a ``cumulative action'' and is
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined
that the action does not have a significant effect on the human
environment, and therefore neither an Environmental Assessment nor an
Environmental Impact Statement is required.
Executive Order 12988, Civil Justice Reform
This final rule has been reviewed under Executive Order 12988
(Civil Justice Reform). The Agency has determined that this rule meets
the applicable standards provided in section 3 of the Executive Order.
In addition, all State and local laws and regulations that conflict
with this rule will be preempted. No retroactive effect will be given
to this rule.
Executive Order 13132, Federalism
The policies contained in this final rule do not have a substantial
direct effect on States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct
[[Page 70354]]
compliance costs on state and local governments. Therefore,
consultation with the states is not required.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-602) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act (``APA'') or any other statute. The APA
exempts from notice and comment requirements rules ``relating to agency
management or personnel or to public property, loans, grants, benefits,
or contracts'' (5 U.S.C. 553(a)(2)), so therefore an analysis has not
been prepared for this rule.
Executive Order 12372, Intergovernmental Consultation
This final rule is excluded from the scope of Executive Order 12372
(Intergovernmental Consultation), which may require a consultation with
State and local officials. See the final rule related notice entitled,
``Department Programs and Activities Excluded from Executive Order
12372'' (50 FR 47034).
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This executive order imposes requirements on the Agency. The Agency
has determined that the rule does not have a substantial direct effect
on one or more Indian tribe(s) or on either the relationship or the
distribution of powers and responsibilities between the Federal
Government and Indian tribes. Thus, this rule is not subject to the
requirements of Executive Order 13175. If tribal leaders are interested
in consulting with the Agency on this rule, they are encouraged to
contact USDA's Office of Tribal Relations or the Agency's Native
American Coordinator at: [email protected] to request such a consultation.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance (CFDA) numbers assigned
to the 4 programs within this rule are: 10.766 for Community Facility
Programs, 10.760 for Water and Waste Disposal Programs, 10.768 for
Business and Industry Programs and 10.868 for Rural Energy for America
Program. The Catalog is available on the internet at https://beta.sam.gov. The SAM.gov website also contains a PDF file version of
the Catalog that, when printed, has the same layout as the printed
document that the Government Printing Office (GPO) provides. GPO prints
and sells the CFDA to interested buyers. For information about
purchasing the CFDA from GPO, call the Superintendent of Documents at
202-512-1800 or toll free at 866-512-1800, or access GPO's online
bookstore at http://bookstore.gpo.gov.
Paperwork Reduction Act and Recordkeeping Requirements
This rule contains no new reporting or recordkeeping burdens under
OMB control number 0572-0166 that would require approval under the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act of 2002, which requires Government agencies in general to provide
the public the option of submitting information or transacting business
electronically to the maximum extent possible.
Civil Rights Impact Analysis
Rural Development has reviewed this rule in accordance with USDA
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any
major civil rights impacts the rule might have on program participants
on the basis of age, race, color, national origin, sex, disability, or
marital or familial status. Based on the review and analysis of the
rule and all available data, issuance of this Final Rule is not likely
to negatively impact low and moderate-income populations, minority
populations, women, Indian tribes or persons with disability, by virtue
of their age, race, color, national origin, sex, disability, or marital
or familial status.
USDA Non-Discrimination Statement
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
agencies, offices, and employees, and institutions participating in or
administering USDA Programs are prohibited from discriminating based on
race, color, national origin, religion, sex, gender identity (including
gender expression), sexual orientation, disability, age, marital
status, family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or funded by USDA
(not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large print,
audiotape, American Sign Language, etc.) should contact the responsible
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or
contact USDA through the Federal Relay Service at (800) 877-8339.
Additionally, program information may be made available in languages
other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and
at any USDA office or write a letter addressed to USDA and provide in
the letter all of the information requested in the form. To request a
copy of the complaint form, call (866) 632-9992. Submit your completed
form or letter to USDA by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
20250-9410; or
(2) email: [email protected].
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 5001
Business and industry, Community facility, Energy efficiency
improvement, Loan programs, Renewable energy, Rural areas, Rural
development, Water and waste disposal.
For the reasons set forth in the preamble, under the authority at 5
U.S.C. 301 and 7 U.S.C. 1989, Chapter L of title 7 of the Code of
Federal Regulations is amended as follows:
PART 5001--GUARANTEED LOANS
0
1. The authority citation for part 5001 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a);
and 7 U.S.C. 8107.
Subpart A--General Provisions
0
2. Amend Sec. 5001.3 by:
0
A. Removing the definition ``Affiliates'';
0
B. Adding the definition ``Affiliate'';
0
C. Revising the definition ``Energy efficiency improvement (EEI)'';
0
D. Revising the first sentence in the definition ``Existing business'';
0
E. Revising the definition ``Final loss claim'';
0
F. Revising the definition ``New business''; and
0
G. Revising the definition ``Power purchase agreement''.
The addition and revisions read as follows:
[[Page 70355]]
Sec. 5001.3 Definitions.
* * * * *
Affiliate means a person where one of the following circumstances
exists:
(1) The person controls or has the power to control another person,
or a third party or parties' controls or has the power to control both.
Factors such as ownership, management, current and previous
relationships with or ties to another person, and contractual
relationships, shall be considered in determining whether affiliation
exists. It does not matter whether control is actually exercised, so
long as the power to control exists. Entities owned and controlled by
Indian Tribes, Alaskan Native Corporations (ANCs), Native Hawaiian
Organizations (NHOs), Community Development Corporations (CDCs), or
wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs, are not
considered to be affiliated with other entities owned by these entities
solely because of their common ownership or common management.
(2) There is a family relationship and identical or substantially
identical business or economic interests amongst persons (such as where
the immediate family operate entities in the same or similar industry
in the same geographic area); however, a person may rebut such
determination with evidence showing that the business or economic
interests are not identical or substantially identical.
* * * * *
Energy efficiency improvement (EEI) means improvements to or
replacement of an existing building or systems, or equipment owned by
the borrower, that reduces measurable energy consumption on an annual
basis.
* * * * *
Existing business means a business that has been in operation for
at least one full year and has achieved full operational capacity or
stable operations as determined by the Administrator. * * *
* * * * *
Final loss claim means the Agency's payment of a final settlement
amount with the lender after the collateral is liquidated or after
settlement and compromise actions have been completed and as further
set forth in Sec. 5001.521(e).
* * * * *
New business means a business that has been in operation for less
than one full year and a business that has been in operation for at
least one full year and has not achieved full operational capacity or
stable operations as determined by the Administrator, including a new
enterprise or new affiliate of an existing business moving or expanding
into a new location involving new market or labor areas.
* * * * *
Power purchase agreement means the terms and conditions governing
the sale and transportation of power produced by the borrower to
another party.
* * * * *
0
3. Amend Sec. 5001.8 by revising paragraph (a) and adding paragraph
(e) to read as follows:
Sec. 5001.8 Approvals, regulations, and forms.
(a) When Agency approval or concurrence is required, it must be in
writing and must be obtained prior to any action taken for which
approval or concurrence is required. Written communication from an
authorized Agency official, including any written communication
approving, concurring, or otherwise communicating an Agency decision on
a matter when such decision is required, may be transmitted via an
electronic Agency system in accordance with Electronic Signatures in
Global and National Commerce Act (ESIGN) of 2000 (114 Stat. 464) (E-
Sign Act).
* * * * *
(e) 7 CFR part 5001 does not prohibit or consent to electronic
signatures. Rural Development will accept electronic signatures from
Lenders for origination, loan closing, and servicing documents in
accordance with the E-Sign Act unless otherwise prohibited by law or
program. Lenders may use electronic signatures for electronic
promissory notes (eNotes), deeds of trust and other documents relevant
to the loan transaction, providing that the lender perfects and
maintains a first lien position, an enforceable promissory note, and
meets all other agency requirements including the following:
(1) Lenders may submit forms to Rural Development electronically
using USDA's Service Center Agencies Online Services website.
Registration is limited to individuals and each individual authorized
by the Lender must register and upon registration may electronically
sign and submit certain forms on behalf of the Lender.
(2) Lenders who choose to accept electronic signatures from
borrowers must ensure that such signatures meet the standards and
requirements set forth in the E-Sign Act, as well as all other
applicable federal and state regulations and guidelines. Lenders are
charged with the same responsibility of due diligence with
electronically signed documents as they are with paper documents. If
any electronically signed document is deemed unenforceable and is
connected to any fraud, misrepresentation or negligent servicing, the
lender bears the risk that any loss claim submitted in relation to the
unenforceable document will be denied or reduced in accordance with
applicable regulations. Any loss attributed to a lender's failure to
collect on the promissory note or enforce the security instrument
because of its electronic signature will be treated as negligent
servicing under 7 CFR 5001 servicing regulations. Failure to comply
with any Federal statute or regulation could result in the denial of a
loan guarantee or claim, withdrawal of lending authority and/or
debarment from Federal programs.
Subpart B--Eligibility Provisions
0
4. Amend Sec. 5001.104 by revising paragraph (c) to read as follows:
Sec. 5001.104 Eligible WWD projects and requirements.
* * * * *
(c) Project location. The project must be located in a rural area
as defined in Sec. 5001.3 of this part, except that utility projects
serving both rural and non-rural areas are eligible for a loan
guarantee regardless of project location. For utility service projects
serving both rural and non-rural areas, the Agency will guarantee only
the portion of the project necessary to provide the essential services
to rural areas. The part of the facility located in a non-rural area
must be necessary to provide the essential services to rural areas.
* * * * *
0
5. Amend Sec. 5001.105 by:
0
A. Revising the introductory text;
0
B. Revising paragraph (b)(1), (8), (9) and (10);
0
C. Revising paragraph (d)(1)(i) and (ii);
0
D. Revising paragraph (d)(2)(i) and (ii);
0
E. Revising paragraph (d)(3)(i) and (ii);
0
F. Revising paragraph (d)(4)(i) and (ii); and
0
G. Revising paragraph (d)(5)(ii)
The revisions read as follows:
Sec. 5001.105 Eligible B&I projects and requirements.
For a B&I project to be eligible for a loan guarantee under this
part, it must meet the criteria specified in Sec. 5001.102, be for a
borrower eligible to submit an application for the project in
accordance with Sec. 5001.126, and the uses of loan funds include, but
are not limited to, the following:
* * * * *
(b) * * *
(1) Purchase and development of land, buildings, or infrastructure
for
[[Page 70356]]
public or private commercial enterprises or industrial properties,
including expansion or modernization.
* * * * *
(8) Tourist and recreation facilities, including hotels, motels,
bed and breakfast establishments, and resort trailer parks and
campgrounds operated as a public or private commercial enterprise.
Owner-occupied housing, such as bed and breakfasts, hotels and motels
are only allowed when the pro rata value of a direct owner's living
quarters, based on square footage, is deducted from the use of loan
proceeds.
(9) Educational or training facilities including other CF projects
when not eligible for financing through Rural Housing Service or
Community Facilities programs.
(10) Development and construction of broadband and
telecommunication systems, including modification of existing systems,
that are not otherwise eligible for funding in the RUS program or if
funding is unavailable in the RUS program, subject to the Public Notice
Filing requirements of 7 CFR 1738.106(a) and the additional reporting
requirements of 7 CFR 1738.107.
* * * * *
(d) * * *
(1) * * *
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to
1, at loan closing;
(ii) A 10 percent or more of total eligible project costs, borrower
investment of equity or other funds into the project including grants
or subordinated debt when subject to a standstill agreement for the
life of the loan;
* * * * *
(2) * * *
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1
at loan closing; or
(ii) Borrower investment of equity or other funds (including
subordinated debt when subject to a standstill agreement for the life
of the loan and grants) into the project in an amount of 10 percent or
more of total eligible project cost;
(3) * * *
(i) A minimum of 25 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-equity ratio of 3 to 1, at
guaranteed loan closing; or
(ii) Borrower investment of equity or other funds (including
subordinated debt when subject to a standstill agreement for the life
of the loan and grants) into the project in an amount of 25 percent or
more of total eligible project cost;
(4) * * *
(i) A minimum of 20 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-equity ratio of 4 to 1, at
guaranteed loan closing, or;
(ii) Borrower investment of equity or other funds (including
subordinated debt when subject to a standstill agreement for the life
of the loan and grants) into the project in an amount of 25 percent or
more of total eligible project cost;
(5) * * *
(ii) Reductions. The Agency may reduce the minimum equity
requirement for an existing business when personal or corporate
guarantees are obtained in accordance with Sec. 5001.204 of this part;
and all pro forma statements indicate the business to be financed meets
or exceeds the median quartile (as identified in the Risk Management
Association's Annual Statement Studies or similar publication) for the
current ratio, quick ratio, debt-to-worth ratio, and debt service
coverage ratio.
* * * * *
0
6. Amend Sec. 5001.115 by revising paragraph (n) to read as follows:
Sec. 5001.115 Ineligible projects--general.
* * * * *
(n) Except as provided in Sec. 5001.105(b)(8), owner-occupied
housing.
* * * * *
Sec. 5001.115 [Amended]
0
7. Amend Sec. 5001.115 by removing paragraph (s).
0
8. Amend Sec. 5001.121 by revising the introductory paragraph and
paragraph (c)(6) to read as follows:
Sec. 5001.121 Eligible uses of loan funds.
Guaranteed loan funds can only be used for the items specified in
this section. In addition, RD may allow a recipient of a loan guarantee
under this Part to use up to 10 percent of project funds to construct,
improve, or acquire broadband infrastructure related to the project
financed, subject to the requirements of 7 CFR part 1980, subpart M.
* * * * *
(c) * * *
(6) Takeout of interim financing: Guaranteeing a loan that provides
for permanent, long-term financing after project completion to pay off
a lender's interim loan will not be treated as debt refinancing
provided that the lender submits a complete request for preliminary
eligibility review or complete application that proposes such interim
financing prior to closing the interim loan. The borrower must take no
action until the conclusion of the environmental review process prior
to any action that would have an adverse effect on the environment or
limit the choices of any reasonable alternatives to be considered by
the Agency.
0
9. Amend Sec. 5001.126 by redesignating paragraphs (e)(3) through (4)
as paragraphs (e)(4) through (5) and adding a new (e)(3) to read as
follows:
Sec. 5001.126 Borrower eligibility.
* * * * *
(3) End users. If the controlling interest in the applicant entity
is otherwise eligible as an applicant and a legal transaction between
two parties for the sale of energy in an open market is being proposed,
the Agency will not consider the energy end-users as part of the
analysis of the eligibility of the applicant. However, if the proposed
end-user would be an ineligible applicant, such as an entity which is
residential in nature or a non-profit entity, and the REAP applicant
entity is a newly formed special-purpose entity with substantially the
same ownership as the proposed end-user, then the REAP applicant entity
is not eligible.
0
10. Amend Sec. 5001.130 by adding paragraph (a)(6) to read as follows:
Sec. 5001.130 Lender eligibility requirements.
* * * * *
(a) * * *
(6) Be registered in and maintain an account in the System for
Award Management (SAM) in accordance with 2 CFR 25.200.
* * * * *
0
11. Amend Sec. 5001.141 by revising paragraph (a)(2) to read as
follows:
Sec. 5001.141 New markets tax credits.
* * * * *
(a) * * *
(2) The provisions of Sec. 5001.127(f) notwithstanding, a lender
that is a CDE or sub-CDE may have an ownership interest in the borrower
provided that each condition specified in paragraphs (a)(2)(i) through
(iii) of this section is met.
* * * * *
Subpart C--Origination Provisions
0
12. Amend Sec. 5001.202 by revising paragraph (b)(5) to read as
follows:
[[Page 70357]]
Sec. 5001.202 Lender's credit evaluation.
* * * * *
(b) * * *
(5) Conditions. This factor refers to the general business
environment, including the regulatory environment affecting the
business or industry, and status of the Borrower's industry.
Consideration will be given to items listed below and, when applicable,
the lender should submit supporting documentation (e.g., feasibility
study, market study, preliminary architectural or engineering reports,
etc.) in accordance with Sec. Sec. 5001.304 through 5001.307:
* * * * *
0
13. Amend Sec. 5001.204 by revising paragraph (b) to read as follows:
Sec. 5001.204 Personal, partnership, and corporate guarantees.
* * * * *
(b) When warranted by an Agency assessment of potential financial
risk, the Agency may require the following:
* * * * *
0
14. Amend Sec. 5001.205 by revising paragraphs (e)(2) introductory
text, (e)(2)(ii) and (f)(4) to read as follows:
Sec. 5001.205 General project monitoring requirements.
* * * * *
(e) * * *
(2) Issuance of loan note guarantee prior to completion of the
project's construction. Except for projects utilizing non-proven
technologies, the lender may request that the loan note guarantee be
issued prior to completion of a project's construction. The lender's
request will be considered by the Agency, who may require credit risk
mitigation. An additional fee for issuance of the loan note guarantee
prior to completion of the project's construction will be assessed in
accordance with Sec. 5001.454(c) in subpart E. The lender must verify
and include evidence of the following in its request:
* * * * *
(ii) The borrower and lender have entered into a contract with an
independent disbursement and monitoring firm with a construction
monitoring plan acceptable to and approved by the Agency or, the lender
documents that they have the capacity and experience to disburse funds
and provides a monitoring plan acceptable to the Agency;
* * * * *
(f) * * *
(4) Status of construction; and
* * * * *
Subpart D--Guarantee Application Provisions
0
15. Amend Sec. 5001.303 by:
0
A. Revising paragraph (b)(4)(ii);
0
B. Redesignating paragraphs (c)(1) through (18) as paragraphs (c)(2)
through (19).
0
C. Redesignating (b)(5) introductory text as paragraph (c)(1);
0
D. Removing paragraphs (b)(5)(i) through (xiii);
0
E. Redesignating paragraphs (b)(6) and (7) as paragraphs (b)(5) and
(6);
0
F. Revising the newly redesignated paragraph (c)(1).
The revisions read as follows:
Sec. 5001.303 Applications for loan guarantee
* * * * *
(b) * * *
(4) * * *
(ii) Agency-acceptable historical balance sheet, income statements,
and cash flow statements of the borrower for the lesser of the last
three fiscal years or all years of operation; and
(c) * * *
(1) For all applications of $600,000 or greater, a draft loan
agreement for the guaranteed loan.
* * * * *
0
16. Amend Sec. 5001.304 by revising paragraph (a)(1) and adding
paragraph (a)(4) to read as follows:
Sec. 5001.304 Specific application requirements for CF projects.
* * * * *
(a) * * *
(1) Guaranteed loans of $25 million or less to existing community
facilities;
* * * * *
(4) The Agency may require a Feasibility Study when the lender's
analysis, borrower's business plan, or project information is not
sufficient to determine the technical feasibility, market feasibility,
or economic viability of the project.
(i) For guaranteed loans greater than $1,000,000.00 to a new entity
or an entity conducting a new activity, a feasibility study prepared by
an independent qualified consultant acceptable to the Agency is
required. The scope of the feasibility study will be determined by the
Agency and is dependent on the complexity of the project and the
borrower.
(ii) For loans of $1,000,000.00 or less to new and existing
entities, the Agency may require a feasibility study when the lender's
analysis or other borrower information is not sufficient to determine
the technical feasibility or economic viability of the project, or if
the project will significantly affect the operations of a borrower who
is an existing entity and its historic cash flow.
* * * * *
0
17. Amend Sec. 5001.318 by:
0
(a) Revising the introductory paragraph;
0
(b) Revising the introductory text of paragraph (c);
0
(c) Removing paragraph (c)(3); and
0
(d) Redesignating paragraph (c)(4) as paragraph (c)(3).
The revision reads as follows:
Sec. 5001.318 B&I project priority point system.
This section applies to B&I projects seeking a loan guarantee. When
applications on hand have the same priority score, the Agency will give
preference to applications involving guaranteed loans from veterans. To
receive veteran points, a veteran or veterans must own 20 percent or
more interest in the borrower and the borrower must sign a
certification in its application to indicate that the borrower has
veteran status. A maximum of 100 points can be awarded.
* * * * *
(c) Guaranteed loan features. An application is eligible to receive
points under each of the categories identified in paragraphs (c)(1)
through (3) of this section as follows:
* * * * *
Subpart E--Loan and Guarantee Provisions
0
18. Amend Sec. 5001.401 by revising paragraph (d) to read as follows:
Sec. 5001.401 Interest rate provisions.
* * * * *
(d) Interest rate changes. Any change in the base rate or fixed
interest rate between issuance of the conditional commitment and loan
closing must be approved by the Agency. Approval of such a change must
be shown as an amendment to the conditional commitment and must be
reflected on the guaranteed loan closing report form.
0
19. Amend Sec. 5001.402 by revising paragraph (b)(3) to read as
follows:
Sec. 5001.402 Term length, loan schedule, and repayment.
* * * * *
(b) * * *
(3) If the promissory note provides for an interest-only period,
interest must be paid at least annually starting on a date that is no
more than one year from the date of the promissory note. Scheduling of
the first payment of principal and interest will be subject to
consideration of whether the facility is operational and generates
adequate income.
[[Page 70358]]
However, the scheduling of the first full principal and interest
payment must commence not more than 3 years from the date of the
promissory note and be paid at least annually thereafter.
* * * * *
0
20. Amend Sec. 5001.408 by revising paragraph (b) to read as follows:
Sec. 5001.408 Participation or assignment of guaranteed loan.
* * * * *
(b) Lender's servicing fee to holder. The assignment guarantee
agreement must clearly state the guarantee portion of loan as a
percentage and corresponding dollar amount of the guaranteed portion of
the guaranteed loan it represents and the lender's servicing fee. The
lender cannot charge the Agency a servicing fee and servicing fees are
not eligible expenses for loss claim.
* * * * *
0
21. Amend Sec. 5001.451 by revising (b)(3) and (e) to read as follows:
Sec. 5001.451 Conditional commitment.
* * * * *
(b) * * *
(3) Loan agreement requirements to include:
(i) Repayment terms and amortization provisions of the guaranteed
loan;
(ii) Description of real property collateral, list of other
collateral and identification of the lender's lien priority in the
collateral;
(iii) A list of persons and entities guaranteeing payment of the
guaranteed loan and their percentage of guarantee;
(iv) Requirement as to the type and frequency of the financial
statements to be required for the duration of the guaranteed loan
(guarantor statements must be updated at least annually);
(v) Prohibition against borrower assuming liabilities or
obligations of others;
(vi) Limitations on borrower dividend payments and compensation of
officers, owners and members of borrower;
(vii) Limitations on the purchase and sale of equipment other fixed
assets and real estate;
(viii) Restrictions on mergers, consolidations, or sales of the
business, project, or guarantee loan collateral without the concurrence
of the lender;
(ix) Limitations on significant management changes without the
concurrence of the lender;
(x) Maximum debt-to-net worth ratio, when required by the lender or
by this part;
(xi) Minimum debt service coverage ratio, when required by the
lender or by this part;
(xii) Requirements imposed by the Agency in its conditional
commitment;
(xiii) Agency environmental requirements; and
(xiii) Requirement for the lender and the Agency to have reasonable
access to the project and financial records including access for
periodic inspections of the project and financial records by a
representative of the lender or the Agency; and
(xiv) Requirement for the borrower to provide the lender and the
Agency performance information during the term of the guaranteed loan.
* * * * *
(e) Modification, and expiration of conditional commitment. The
conditional commitment issued by the Agency will be effective for a
period of one year or sufficient time to complete the guaranteed loan
project prior to loan closing. The lender must submit a written request
to the Agency to extend the conditional commitment at least 30 days
prior to its expiration date and obtain Agency approval for the
extension. The Agency will consider this request only if no material
adverse changes in the borrower or the borrower's financial condition
have occurred since issuance of the conditional commitment. If a
conditional commitment expires, the Agency will notify the lender in
writing and may de-obligate the funds. Any additions or modifications
to conditions stated in the original conditional commitment must be
agreed upon between the lender, the borrower, and the Agency.
0
22. Amend Sec. 5001.452 by revising paragraphs (b) introductory text
and (b)(8)(iii)(L)(2) and adding paragraph (b)(8)(iii)(L)(3) to read as
follows:
Sec. 5001.452 Loan closing and conditions precedent to issuance of
loan note guarantee.
* * * * *
(b) Simultaneously with or immediately after the guaranteed loan
closing, the lender must provide to the Agency the guarantee fee, and
the following forms and documents:
* * * * *
(8) * * *
(iii) * * *
(L) * * *
(2) A title opinion or title insurance showing the borrower has
good and marketable title to the real property and other collateral and
fully addressing all existing mortgages or other lien defects,
restrictions or encumbrances. In those cases where there is adequate
gap coverage, a title commitment may be acceptable.
* * * * *
0
23. Amend Sec. 5001.454 by revising paragraph (c) to read as follows:
Sec. 5001.454 Guarantee fee.
* * * * *
(c) Loan note guarantee prior to completion. If the loan note
guarantee is issued prior to completion of the project's construction
under Sec. 5001.205(e)(2), an additional guarantee fee of 0.50 percent
will be added.
* * * * *
Subpart F--Servicing Provisions
0
24. Amend Sec. 5001.513 by revising paragraph (e) to read as follows:
Sec. 5001.513 Interest rate changes.
* * * * *
(e) Variable rate to fixed rate change. Variable rates can be
changed to a fixed rate at the request of the borrower, agreement of
the holder, if any, and Agency concurrence.
* * * * *
Justin Maxson,
Deputy Under Secretary, Rural Development.
[FR Doc. 2021-26160 Filed 12-9-21; 8:45 am]
BILLING CODE 3410-15-P
