Title: FINAL ACTION--Organization; Eligibility and Scope of Financing; Loan Policies and Operations; Funding and Fiscal Affairs; Coordination--12 CFR Parts 611, 613, 614, 615, and 616
Issue Date: 04/22/1975
Agency: FCA
Federal Register Cite: 40 FR 17744
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Title 12-Banks and Banking

FARM CREDIT ADMINISTRATION

ACTION: Final action

Miscellaneous Amendments to Chapter

The Farm Credit Administration, by its Federal Farm Credit Board, took final action on amendments to its regulations and authorized their issuance effective April 9, 1975. These amendments would (1) clarify computation of compensation of district board members, (2) require minutes to be kept of meetings of the Governing Body of Farmbank Services, (3) clarify the applicability to Farmbank Services of regulations issued for Farm Credit institutions, (4) revise rural home lending program requirements and limitations, (5) clarify limitations on maximum loans, (6) clarify what may be security for Federal land bank loans, (7) clarify what may be security for production credit association loans, (8) restate criteria to be included in loan servicing policies, (9) restate requirements for insurance on shipments of valuables, (10) delete regulation dealing with reports of insured shipments of valuables, (11) authorize retirees of Farm Credit institutions to purchase Farm Credit Investment Bonds, and (12) restate coordination policies for rural home lending.

By a notice published in the FEDERAL REGISTER on February 18, 1975, interested persons were afforded the opportunity to file written comments or suggestions on the proposed amendments except (1) and (11) not later than March 17, 1975. Proposed amendments (1) and (11) were not included because they are not applicable to the public at large. All comments were considered prior to the final action on the proposed amendments by the Federal Farm Credit Board. Copies of all communications received are available for examination by interested persons in the Office of Director, Information Division, Office of Administration, Farm Credit Administration.

Chapter VI of Title 12 of the Code of Federal Regulations is amended by revising 611.1020, adding 611.1055 and 611.1150, revising 613.3040, paragraphs (a) and (b) of 614.4180, paragraph (a) of 614.4230, 614.4250, deleting Subpart L heading, 614.4370, 614.4380, 614.4390, 614.4400, 614.4410, 614.4420, and 614.4430, revising paragraph (d) of 614.4510, paragraph (a) of 615.5120, and 615.5500, deleting 615.5510, and revising 616.6030. These amendments are as follows:

PART 611-ORGANIZATION

1. Section 611.1020 is revised as follows:

611.1020 Compensation of district board members.

Directors may be compensated for attendance at board meetings and special assignments, including reasonable travel time from and to their residences. Such compensation shall not exceed $90 per day plus reasonable travel, subsistence, and other related expenses incurred in connection with such meetings and assignments. Compensation at the regular per diem rate for normal travel time to and from board meetings and special assignments, when the distance and meeting or special assignment schedule involved require travel on any portion of the day prior to or following the meeting or special assignment date, may be allowed on a full-day basis, or on a part of a full-day basis in increments of halfdays, as authorized in a policy established by the board. Travel time in excess of one full day may be permitted under unusual conditions if provided for in the policy of the board.

2. Section 611.1055 is added to read as follows:

611.1055 Minutes of Governing Body of Farmbank Services.

The Governing Body of Farmbank Services shall keep full and accurate minutes of its meetings. Two copies of the minutes of the Governing Body shall be sent to the Farm Credit Administration within 2 weeks after the meetings.

3. Section 611.1150 is added to read as follows:

611.1150 Farmbank Services.

All applicable regulations published and issued for the banks and associations of the Farm Credit System shall be observed by Farmbank Services.

PART 613-ELIGIBILITY AND SCOPE OF FINANCING

4. Section 613.3040 is revised as follows:

613.3040 Rural residents.

(a) Definitions. A rural resident is a person residing in a rural area who meets the eligibility requirements enumerated below.

(b) Eligibility. Eligibility requirements for the rural home lending program are as follows:

(1) The applicant shall become an owner-occupant of the rural residence being financed. He shall not have loans under this program on more than one rural residence at any one time and no loan shall be made to purchase or construct a rural residence for the express purpose of rental or resale.

(2) For the purposes of nonfarm home lending only, a rural area is open country which may include rural subdivisions or any city or village with a population not exceeding 2,500 persons. A rural area does not include cities, subdivisions or villages associated with a larger population center. The intent is to avoid lending in concentrated, high density, residential areas or villages which are a part of an urbanizing area surrounding or immediately adjoining an urban area of a larger population center. Rural areas may include open areas which are undeveloped for housing and still devoted to agricultural use within other political boundaries, including "towns" exceeding 2,500 persons, designated by the district board and approved by the Farm Credit Administration.

(3) Within rural areas, eligible properties include individual sites as well as sites in rural subdivisions whose design shall encourage orderly development. The bank shall establish appropriate policies subject to approval of the district board for eligible subdivisions.

(4) A rural residence is a single-family, moderate-priced dwelling used as a permanent, year-round home, with appropriate appurtenances and an appropriate site. Rural residences may include conventional housing, modular housing, or mobile homes which are related to a specific real estate site. A moderate-priced dwelling is adequate but not in excess of the living standards of persons in the middle range of income, and not inconsistent with the general quality and standards of housing existing in, or planned for, that area of the Farm Credit district. Due to the wide variations in housing costs, income levels, and area standards for housing, the value level which constitutes moderate-priced housing will vary between localities.

(c) Scope of financing. Loans may be made to owner-occupants of rural residences for the purposes of buying, building, remodeling, improving, repairing and refinancing existing indebtedness on such residences. The total amount of credit that may be extended by Farm Credit institutions for eligible purposes shall not exceed 85 percent of the appraised value of the rural residence security.

(d) Program limitations. The rural home lending program shall be operated within the following limitations:

(1) Rural home lending in a district may be implemented only with the approval of the district board. Implementation at the association level is within the discretion of the association board. Upon implementation, such loan service shall be made available to all eligible persons.

(2) No Federal land bank may at any time have outstanding 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 outstanding loans of all associations in the district at the end of the bank's preceding fiscal year.

(3) 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 the objectives of the Act.

(4) Should circumstances arise which curtail loan funds for the System, agricultural loans shall receive priority to the exclusion of rural home loans.

(e) Identification. All loans made under the rural home lending program shall be separately identified.

(1) In making such identification, a rural residence is a property which does not have the capacity to produce farm products for sale on a sustained basis, or if it has that capacity is not intended to be used in that manner.

(2) 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's agricultural operation represents more than 50 percent of his total business. Such loans are not subject to the area and price limitation of 613.3040(b) or the 15 percent limitation of 613.3040 (d).

PART 614-LOAN POLICIES AND OPERATIONS

5. Section 614.4180 (a) and (b) are revised to read as follows:

614.4180 Federal land banks.

(a) Loans may be made for not less than 5 years nor more than 40 years. The basis of approval shall set out the terms and conditions under which a loan is approved. When necessary to assure proper understanding, provide needed controls, and protect the lender, a formal written loan agreement shall be developed between the borrower and the bank.

(b) The outstanding loan balance on any loan shall not at any time during the life of the loan exceed 85 percent of the appraised value established by the most recent appraisal report on the primary real estate security. This shall not, however, prohibit protecting the security position by advancing taxes, advancing insurance premiums, rescheduling loan payments, granting partial releases, or other loan servicing actions when the loan, subsequent to the action, will be at least as well secured as it was prior to the action.
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6. Section 614.4230 (a) is revised as follows:

614.4230 Federal land banks.

(a) Primary security for a Federal land bank loan shall consist of a first lien on interest in real estate. In the case of nonfarm rural home loans, the primary security shall be a first lien on the rural residence being financed. The real estate interest must be mortgageable interest under deeds or leases which reasonably may be considered adequate to afford the security of a first lien upon the rights and interest on which the loan is predicated. Collateral closely aligned with, an integral part of, and normally sold with real estate may be included in the appraised value of the security upon which a loan is based. Appraised value shall be determined within approved standards and shall include in the evaluation either farmlands, eligible farm-related businesses, or eligible rural residences, whichever is appropriate for the type of loan being made.

7. Section 614.4250 is revised to read as follows:

614.4250 Production credit associations.

(a) Both secured and unsecured loans may be made in accordance with procedures prescribed by the bank. Normally, primary security taken will consist of first liens on personal property and crops. While it is not intended that associations will ordinarily make first lien real estate mortgage loans to farmers, real estate or other security may be taken when deemed necessary for the protection of the association in making short and intermediate-term loans for eligible purposes.

(b) The primary security for nonfarm rural home loans 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. The outstanding loan balance on any nonfarm rural home loan shall not at any time during the life of the loan exceed 85 percent of the appraised value established by the most recent appraisal report on the primary real estate security. This shall not, however, prohibit protecting the security position by advancing taxes, advancing insurance premiums, rescheduling loan payments, granting partial releases, or other loan servicing actions when the loan, subsequent to the action, will be at least as well secured as it was prior to the action.

(c) Before taking a real estate mortgage, the association shall consider whether all or a portion of the credit needs might be met more satisfactorily by a real estate mortgage loan such as may be obtained through a Federal land bank association in accordance with district board policies established under 616.6020 of this chapter.

(d) Recovery value shall be the basis for measuring the collateral worth of non-real estate security. The value of interest in real estate which constitutes primary security shall be the appraised value as determined within approved appraisal standards.

Subpart L [Reserved]

614.4370, 614.4380, 614.4390, 614. 4400, 614.4410, 614.4420, 614.4430 [Reserved]

8. Subpart L consisting of 614.4370 et seq. is reserved.

9. Section 614.4510 (d) (1) is revised as follows:

614.4510 General.
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(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. Loan servicing policies for rural home loans shall recognize the inherent differences between agricultural and rural home lending.
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PART 615-FUNDING AND FISCAL AFFAIRS

10. Section 615.5120 (a) is revised as follows:

615.5120 Purchase eligibility requirement.

(a) Limitations. Eligibility to purchase Farm Credit Investment Bonds shall be limited to members and employees of the Farm Credit banks and associations, except any bank officers, directors, and employees who are involved in setting the term or rate, to retired employees who are beneficiaries of a pension or retirement program of the Farm Credit banks or associations, and to employees and retired employees of the Farm Credit Administration except officials precluded by regulations. A member of a Farm Credit association or a bank for cooperatives need not be an active borrower to be eligible. A member of any Farm Credit institution may purchase investment bonds from any of the institutions in the district which offer the purchase program. Patrons, members, employees, or stockholders of other financing institutions discounting loans with the Federal Intermediate Credit Bank or of any legal entity which is a borrower from any Farm Credit institution as such are ineligible as they are not members of a Farm Credit institution. Stock or participation certificates shall not be sold merely to qualify a party for the purchase of Farm Credit Investment Bonds. For purposes of this section "member" means a stockholder or participation certificate holder who acquired stock or participation certificates to obtain a loan, to purchase stock for investment or to qualify for other services of the association or bank. A person who assumes a loan is not a member unless he becomes a stockholder or participation certificate holder in connection with that loan. Employee means a regular full-time employee of a Farm Credit bank or association or the Farm Credit Administration. Retired employee means a retiree who is a direct beneficiary of a pension or retirement program of a Farm Credit bank or association or the Farm Credit Administration under civil service retirement.
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11. Section 615.5500 is revised as follows

615.5500 Shipment of valuables.

Shipments of valuables including fully executed, uncanceled coupon bonds and uncanceled registered bonds which have been endorsed in such a manner or are accompanied by such detached powers of attorney or assignments as to require no further action before their negotiation by any holder could be accomplished, by the Federal land banks, the Federal land bank associations, the Federal intermediate credit banks, banks for cooperatives, and the production credit associations, when made to or by the assured or to or by others for the account of the assured, shall be covered by an insurance policy entitled open registered mail and express policy No. FCA 125. Details for implementing coverage under the open registered mail and express policy shall be issued by the Farm Credit Administration in the form of a letter of instruction.

615.5510 [Deleted]

12. Section 615.5510 is deleted.

PART 616-COORDINATION

13. Section 616.6030 is revised to read as follows:

616.6030 Rural home lending.

Coordination policies relative to rural home lending shall define the appropriate lending authorities and relationships.

(a) Federal land banks should finance the purchase or construction of rural residences where the owner requires long-term financing. Production credit association lending, while not excluding the purchase or construction of conventional homes, should emphasize remodeling and repair of permanent homes and financing mobile homes cohere the owner needs intermediate-term financing.

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

(c) Uniform procedures regarding the closing of rural home loans shall be prescribed by the supervising banks.

(Secs. 5.9, 5.18, 5.26, 85 Stat. 619, 621, 624)

W. M. HARDING,
Governor,
Farm Credit Administration.

[FR Doc.75-10472 Filed 4-21-75;8:45 am]
FEDERAL REGISTER, VOL. 40, NO. 78-TUESDAY, APRIL 22, 1975