[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1779.3]

[Page 1010]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents
 
Sec. 1779.3  Full faith and credit.

    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is not contestable except 
for fraud or misrepresentation (including negligent misrepresentation) 
of which the lender or holder has actual knowledge, participates in, or 
condones. A note which provides for the payment of interest on interest 
shall not be guaranteed and any Loan Note Guarantee or Assignment 
Guarantee Agreement attached to, or relating to, a note which provides 
for payment of interest on interest is void. The Loan Note Guarantee 
will not be enforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, negligent servicing, or failure 
to obtain the required security regardless of the time at which the 
Agency acquires knowledge of the foregoing. Any losses occasioned will 
not be enforceable by the lender to the extent that loan funds are used 
for purposes other than those specifically approved by the Agency in its 
Conditional Commitment for Guarantee. Negligent servicing is defined as 
the failure to perform those services which a reasonably prudent lender 
would perform in servicing its own portfolio of loans that are not 
guaranteed. The term includes not only the concept of a failure to act, 
but also not acting in a timely manner, acting in a manner contrary to 
the manner in which a reasonably prudent lender would act up to the time 
of loan maturity, or until a final loss is paid. The Loan Note Guarantee 
or Assignment Guarantee Agreement in the hands of a holder shall not 
cover interest accruing 90 days after the holder has demanded repurchase 
by the lender, nor shall the Loan Note Guarantee or Assignment Guarantee 
Agreement in the hands of a holder cover interest accruing 90 days after 
the lender or Agency has requested the holder to surrender the evidence 
of debt for repurchase.