[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: 7CFR1779.33]

[Page 1014-1015]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents
 
Sec. 1779.33  Interest rates.

    (a) General. Rates will be negotiated between the lender and the 
borrower. They may be either fixed or variable rates. Interest rates 
will be those rates customarily charged borrowers in similar 
circumstances in the ordinary

[[Page 1015]]

course of business and are subject to Agency review and approval.
    (b) Variable rate publication. A variable interest rate must be tied 
to a base rate published periodically in a recognized national or 
regional financial publication specifically agreed to by the lender and 
borrower. Such an agreement must be documented in the borrower or lender 
loan agreement.
    (1) Interest rate caps and incremental adjustment limitations will 
also be negotiated between the lender and the borrower. Notice of any 
interest rate change proposed by the lender should allow a sufficient 
time period for the borrower to obtain any required State or other 
regulatory approval and to implement any user rate adjustments necessary 
as a result of the interest rate change. The intervals between interest 
rate adjustments will be specified in the loan agreement (but not more 
often than quarterly).
    (2) The lender must incorporate within the variable rate note, the 
provision for adjustment of payments coincident with an interest rate 
adjustment. This will ensure the outstanding principal balance is 
properly amortized within the prescribed loan maturity and eliminate the 
possibility of a balloon payment at the end of the loan.
    (c) Changes. Any change in the interest rate between the date of 
issuance of the Conditional Commitment for Guarantee and before the 
issuance of the Loan Note Guarantee must be approved by the Agency. 
Approval of such change will be shown as an amendment to the Conditional 
Commitment for Guarantee.
    (d) Different rates on guaranteed and unguaranteed portion of the 
loan. It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree, and:
    (1) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans for similar purposes to borrowers under 
similar circumstances; and
    (2) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion. This requirement does not apply 
when the unguaranteed rate is variable and the guaranteed portion is 
fixed.
    (e) Multi-rates. When multi-rates are used, the lender will provide 
the Agency with the overall effective interest rate for the entire loan. 
Multi-rate loans may be either fixed, variable, or a combination of 
fixed and variable.