12 C.F.R. Subpart H—Loan Purchases and Sales
Title 12 - Banks and Banking
Source: 57 FR 38247, Aug. 24, 1992, unless otherwise noted.
(a) Definitions. For the purposes of this subpart, the following definitions shall apply: (1) Interests in loans means ownership interests in the principal amount, interest payments, or any aspect of a loan transaction and transactions involving a pool of loans, including servicing rights. (2) Lead lender means a lending institution having a direct contractual relationship with a borrower to advance funds, which institution sells or assigns an interest or interests in such loan to one or more other lenders. (3) Loan means any extension of credit or similar financial assistance of the type authorized under the Act, such as guarantees, letters of credit, and other similar transactions. (4) Participating institution means an institution that purchases a participation interest in a loan originated by another lender. (5) Sale with recourse means a sale of a loan or an interest in a loan in which the seller: (i) Retains some risk of loss from the transferred asset for any cause except the seller's breach of usual and customary warranties or representations designed to protect the purchaser against fraud or misrepresentation; or (ii) Has an obligation to make payments of principal or interest to any party resulting from: (A) Default on the payment of principal or interest on the loan by the borrower or guarantor or any other deficiencies in the obligor's performance; (B) Changes in the market value of the assets after transfer; (C) Any contractual relationship between the seller and purchaser incident to the transfer that, by its terms, could continue even after final payment, default, or other termination of the assets transferred; or (D) Any other cause, except the retention at servicing rights alone shall not constitute recourse. (6) Subordinated participation interest means an interest in a loan that bears the first risk of loss, including the retention of such an interest when a loan is sold to a pooler certified by the Federal Agricultural Mortgage Corporation pursuant to title VIII of the Act, or an interest in a pool of subordinated participation interests purchased to satisfy the requirements of title VIII of the Act with respect to a loan sold to such a certified pooler. (b) Authority to purchase and sell interests in loans. Loans and interests in loans may only be sold in accordance with each institution's lending authorities, as set forth in subpart A of this part. No Farm Credit System institution may purchase from an institution that is not a Farm Credit System institution any interest in a loan, except for the purpose of pooling and securitizing such loans under title VIII of the Act, unless such an interest is a participation interest that qualifies under the institution's lending authority, as set forth in subpart A of this part, and meets the requirements of §614.4330 of this subpart. (c) Policies. Each Farm Credit System institution that is authorized to sell or purchase interests in loans under subpart A of this part shall exercise that authority in accordance with a policy adopted by its board of directors that addresses the following matters: (1) The types of purchasers to which the institution is authorized to sell interests in loans; (2) The types of loans in which the institution may purchase or sell an interest and the types of interests which may be purchased or sold; (3) The underwriting standards to be applied in the purchase of interests in loans: (4) Such limitations on the aggregate principal amount of interests in loans that the institution may purchase from a single institution as are necessary to diversify risk, and such limitations on the aggregate amount the institution may purchase from all institutions as are necessary to assure that service to the territory is not impeded; (5) Provision for the identification and reporting of loans in which interests are sold or purchased; (6) Requirements for providing and securing in a timely manner adequate credit and other information needed to make an independent credit judgment; and (7) Any limitations or conditions to which sales or purchases are subject that the board deems appropriate, including arbitration. (d) Purchase and sale agreements. Agreements to purchase or sell an interest in a loan shall, at a minimum: (1) Identify the particular loan(s) to be covered by the agreement; (2) Provide for the transfer of credit and other borrower information on a timely and continuing basis; (3) Provide for sharing, dividing, or assigning collateral; (4) Identify the nature of the interest(s) sold or purchased; (5) Set forth the rights and obligations of the parties and the terms and conditions of the sale; and (6) Contain any terms necessary for the appropriate administration of the loan and the protection of the interests of the Farm Credit System institution. (e) Independent credit judgment. Each institution that purchases an interest in a loan shall make a judgment on the creditworthiness of the borrower that is independent of the originating or lead lender and any intermediary seller or broker prior to the purchase of the interest and prior to any servicing action that alters the terms of the original agreement, which judgment shall not be delegated to any person(s) not employed by the institution. A Farm Credit System institution that purchases a loan or any interest therein may use information, such as appraisals or collateral inspections, furnished by the originating or lead lender, or any intermediary seller or broker; however, the purchasing Farm Credit System institution shall independently evaluate such information when exercising its independent credit judgment. No employee who performed a real estate appraisal on any collateral supporting a loan shall participate in the decision to purchase that loan. The independent credit judgment shall be documented by a credit analysis that considers factors set forth in the loan underwriting standards adopted pursuant to §614.4150 of this part and is independent of the originating institution and any intermediary seller or broker. The credit analysis shall consider such credit and other borrower information as would be required by a prudent lender and shall include an evaluation of the capacity and reliability of the servicer. Boards of directors of jointly managed institutions shall adopt procedures to ensure that the interests of their respective shareholders are protected in participation between such institutions. (f) Limitations. The aggregate principal amount of interests in loans purchased from a single lead lender and the aggregate principal amount of interests in loans purchased from other institutions shall not exceed the limits set in the institution's policy. (g) Sales with recourse. When a loan or interest in a loan is sold with recourse, it shall be accorded the following treatment: (1) The loan shall be considered, to the extent of the recourse, an extension of credit by the purchaser to the seller, as well as an extension of credit from the seller to the borrower(s), for the purpose of determining whether credit extensions to a borrower are within the lending limits established in subpart J of this part. (2) The amount of the loan subject to the recourse agreement shall be considered a loan sold with recourse for the purpose of computing permanent capital ratios. (h) Transactions through agents. Transactions pertaining to purchases of loans, including the judgement on creditworthiness, may be performed through an agent, provided that: (1) The institution establishes the necessary criteria in a written agency agreement that outlines, at a minimum, the scope of the agency relationship and obligates the agent to comply with the institution's underwriting standards; (2) The institution periodically reviews the agency relationship to determine if the agent's actions are in the best interest of the institution; (3) The agent must be independent of the seller or intermediate broker in the transaction; and (4) If an association's funding bank serves as its agent, the agency agreement must provide that: (i) The association can terminate the agreement upon no more than 60 days notice to the bank; (ii) The association may, in its discretion, require the bank to purchase from the association any interest in a loan that the association determines does not comply with the terms of the agency agreement or the association's loan underwriting standards. [57 FR 38247, Aug. 24, 1992, as amended at 58 FR 40321, July 28, 1993; 62 FR 51015, Sept. 30, 1997; 64 FR 34517, June 28, 1999; 67 FR 1285, Jan. 10, 2002] Agreements to purchase or sell a participation interest shall be subject to the provisions of §614.4325 of this subpart, and, in addition, shall satisfy the requirements of this section. (a) Participation agreements. Agreements to purchase or sell a participation interest in a loan shall, in addition to meeting the requirements of §614.4325(d) of this subpart, at a minimum: (1) Define the duties and responsibilities of the participating institution and the lead lender, and/or the servicing institution, if different from the lead lender. (2) Provide for loan servicing and monitoring of the servicer; (3) Set forth authorization and conditions for action in the event of borrower distress or default; (4) Provide for sharing of risk; (5) Set forth conditions for the offering and acceptance of the loan participation and termination of the agreement; (6) Provide for sharing of fees, interest charges, and costs between participating institutions; (7) Provide for a method of resolution of disagreements arising under the agreement between two or more institutions; (8) Specify whether the contract is assignable by either party; and (9) Provide for the issuance of certificates evidencing a participation interest in a loan. (b) Intrasystem participations. Loans participated between or among Farm Credit System institutions shall meet the borrower eligibility, membership, loan term, loan amount, loan security, and stock purchase requirements of the originating lender. [57 FR 38247, Aug. 24, 1992, as amended at 67 FR 1285, Jan. 10, 2002] (a) In general. Except as provided in paragraph (b) of this section, a borrower shall meet the minimum borrower stock purchase requirements as a condition of obtaining a loan. (b) Loans designated for sale into a secondary market. (1) An institution's bylaws may provide that the institution's minimum borrower stock purchase requirements do not apply if a loan is designated, at the time it is made, for sale into a secondary market. (2) If a loan designated for sale under paragraph (b)(1) of this section is not sold into a secondary market during the 180–day period that begins on the date of designation, the institution's minimum borrower stock purchase requirements shall apply. (c) Retirement of borrower stock—(1) In general. Borrower stock may be retired only if the institution meets the minimum permanent capital requirements imposed by the FCA pursuant to the Act or regulations and, except as provided in paragraph (c)(2) of this section, in accordance with the following: (i) Borrower stock may be retired if the entire loan is sold without recourse, provided that when the loan is sold without recourse to another Farm Credit System institution, the borrower may elect to hold stock in either the selling or purchasing institution. (ii) Borrower stock may not be retired when the entire loan is sold with recourse. (iii) When an interest in a loan is sold without recourse, a proportionate amount of borrower stock may be retired, but in no event may stock be retired below the institution's minimum stock purchase requirements for the interest retained. (iv) If an institution repurchases a loan on which the stock has been retired, the borrower shall be required to repurchase stock in the amount of the minimum stock purchase requirement. (2) Loans sold into a secondary market. An institution's bylaws may provide that all outstanding voting stock held by a borrower with respect to a loan shall be retired when the loan is sold into a secondary market. (d) Applicability. In the case of a loan sold into a secondary market under title VIII of the Act, paragraphs (b)(1) and (c)(2) of this section apply regardless of whether the institution retains a subordinated participation interest in a loan or pool of loans or contributes to a cash reserve. [62 FR 63646, Dec. 2, 1997] When a loan or an interest in a loan other than a participation interest is sold with servicing rights, the disclosure shall be made to the borrower in accordance with this section: (a) The selling institution shall disclose to the borrower at least 10 days prior to the borrower's next payment date; (1) The name, address, and telephone number of the purchasing institution; (2) The name and address of the party to whom payment is to be made; (3) A description of the impact of the sale on statutory borrower rights after the sale; (4) Any terms in the agreement that would permit a purchaser to change the terms or conditions of the loan. (b) A Farm Credit System institution that purchases a loan or a non-participation interest therein shall not take any servicing action that adversely affects the borrower until it ensures that disclosure has been made to the borrower of: (1) The name, address, and telephone number of the purchasing institution; and (2) The address where the payment should be sent.
Title 12: Banks and Banking
PART 614—LOAN POLICIES AND OPERATIONS
Subpart H—Loan Purchases and Sales
§ 614.4325 Purchase and sale of interests in loans.
§ 614.4330 Loan participations.
§ 614.4335 Borrower stock requirements.
§ 614.4337 Disclosure to borrowers.
