12 C.F.R. Subpart B—Collateral
Title 12 - Banks and Banking
Source: 54 FR 1159, Jan. 12, 1989, unless otherwise noted.
(a) Cost means the actual amount paid for any asset. (b) Market value means the price at which a willing seller would sell to a willing buyer, neither under any compulsion to buy or sell. (c) Unpaid balance means total principal and accrued interest owed. (d) Secured interbank loan means a loan from one Farm Credit System bank to another Farm Credit System bank, secured by assets of the borrowing Farm Credit System bank. (a) Each bank shall have on hand at the time of issuance of any notes, bonds, debentures, or other similar obligations, and at all times thereafter maintain, free from any lien or other pledge, assets consisting of notes and other obligations representing loans made under the authority of the Act, real or personal property acquired in connection with loans made under the Act, obligations of the United States or any agency thereof direct or fully guaranteed, other bank assets (including marketable securities) approved by the Farm Credit Administration, cash, or cash equivalents approved by the Farm Credit Administration, in an aggregate value equal to the total amount of notes, bonds, debentures, or other similar obligations outstanding for which the bank is primarily liable. (b) The collateral value of eligible investments (as defined in §615.5140) shall be the lower of cost or market value. (c)(1) Except as otherwise provided in this paragraph, the collateral value of notes and other obligations representing loans made under the authority of any Farm Credit Act shall be the unpaid balance of such loans adjusted for any allowance for loan losses (except as provided for in §615.5090). (2) The collateral value of loans in process of liquidation or foreclosure, judgments, and sales contracts shall be the unpaid balance of such loans, judgments, and contracts adjusted for any allowance for losses. (3) The collateral value of loans which have been restructured by any action, such as an extension, deferment, or partial release, shall be the new unpaid balance of the loans adjusted for any allowance for losses. (4) The collateral value of property acquired in the liquidation of loans shall be the book value of such property adjusted for any allowance for losses. (5) Collateral shall not include the amount of any loan that exceeds the maximum amount authorized under the Act or part 614 of these regulations. (6) Collateral may include the collateral value of secured interbank loans, computed as provided in §615.5050(c)(1), provided that the assets securing the loan could serve as collateral supporting the issuance of obligations under §615.5050(a). In computing its eligible collateral, the borrowing bank shall not count the assets securing such loan. (d) Each bank shall have procedures which will ensure that the bank is in compliance with the statutory requirements for maintenance of collateral. Such procedures shall include provisions for: (1) Adequate safekeeping facilities; (2) Methods to determine that debt instruments meet all requirements of law and regulations; (3) A report signed by an authorized bank officer at each regular meeting of the board of directors certifying the eligibility and the adequacy of collateral. Items to be reported will include but not be limited to the total amount of eligible collateral, amount of ineligible loans, amount of deductions, and the amount of excess collateral; and (4) Written procedures and practices to ensure that there will be a high degree of accuracy in protecting and accounting for the collateral. (a) An attorney lien certification need not be obtained at the time a note is accepted as collateral if the counsel for the bank or association has determined, in writing, that the bank or association procedures provide sufficient safeguards to ensure that a real estate mortgage loan, within the meaning of section 1.7(a) of the Act, made by the bank or association will be secured by a first lien or its equivalent on the borrower's interest in the primary real estate security. However, the note shall be withdrawn from collateral upon the expiration of 1 year from the date of the loan closing, unless, before the end of such period: (1) An attorney has certified that the bank or association has a first lien or its equivalent from a security standpoint in the primary real estate security for the loan; or (2) The bank or association has obtained a title insurance policy insuring that it has a first lien or its equivalent from a security standpoint in the primary real estate security for the loan, and all of the following requirements are satisfied: (i) The final policy was issued by a title insurance company that has been licensed to issue such policies by the appropriate state insurance regulatory body or bodies, has not been barred or suspended, and has been approved by the lending institution; (ii) The standard form on which the final policy was issued has been approved by the counsel for the lending institution; (iii) The final policy was issued for an amount at least equal to the balance outstanding on the real estate mortgage loan or, if separate policies are issued to insure separate tracts, the minimum amount insured by each policy shall bear the same ratio to the outstanding balance of the loan that the appraised value of the tract insured by that policy bears to the appraised value of all the real estate security for the loan; and (iv) Personnel meeting written standards of training and experience in real estate title matters prescribed by the counsel for the lending institution certified in writing that: (A) They reviewed the final policy and that the policy complies with standards prescribed by such counsel; and (B) The final policy insures that a first lien or its equivalent from a security standpoint has been obtained on the primary real estate security for the loan. (b) A loan participation agreement to which a System bank or association is a participant and involving a loan originated by another lender shall constitute an obligation meeting the collateral requirements of §615.5050(a). [54 FR 1159, Jan. 12, 1989, as amended at 59 FR 3787, Jan. 27, 1994] When the bank or Farm Credit Administration determines that a loan did not conform to the requirements of the law or regulations at the time the loan was closed, such loan shall be withdrawn from collateral until the cause of ineligibility is remedied. When a loan has been classified as a loss loan, the bank shall adjust the collateral value of the loan accordingly.
Title 12: Banks and Banking
PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
Subpart B—Collateral
§ 615.5045 Definitions.
§ 615.5050 Collateral requirements.
§ 615.5060 Special collateral requirement.
§ 615.5090 Reduction in carrying value of collateral.
