[Code of Federal Regulations]

[Title 7, Volume 7]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 7CFR762.124]



[Page 141-142]

 

                          TITLE 7--AGRICULTURE

 

       CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE

 

PART 762_GUARANTEED FARM LOANS--Table of Contents

 

Sec. 762.124  Interest rates, terms, charges, and fees.



    (a) Interest rates. (1) The interest rate on a guaranteed loan or 

line of credit may be fixed or variable as agreed upon between the 

borrower and the lender. The lender may charge different rates on the 

guaranteed and the non-guaranteed portions of the note. The guaranteed 

portion may be fixed while the unguaranteed portion may be variable, or 

vice versa. If both portions are variable, different bases may be used.

    (2) If a variable rate is used, it must be tied to a rate 

specifically agreed to between the lender and borrower in the loan 

instruments. Variable rates may change according to the normal practices 

of the lender for its average farm customers, but the frequency of 

change must be specified in the loan or line of credit instrument.

    (3) Neither the interest rate on the guaranteed portion nor the 

unguaranteed portion may exceed the rate the lender charges its average 

agricultural loan customer. At the request of the Agency, the lender 

must provide evidence of the rate charged the average agricultural loan 

customer. This evidence may consist of average yield data, or documented 

administrative differential rate schedule formulas used by the lender.

    (4) Interest must be charged only on the actual amount of funds 

advanced and for the actual time the funds are outstanding. Interest on 

protective advances made by the lender to protect the security will be 

charged at the note rate but limited to paragraph (a)(3) of this 

section.

    (5) The lender and borrower may collectively obtain a temporary 

reduction in the interest rate through the interest assistance program 

in accordance with Sec. 762.150.



[[Page 142]]



    (b) OL terms. (1) Loan funds or advances on a line of credit used to 

pay annual operating expenses will be repaid when the income from the 

year's operation is received, except when the borrower is establishing a 

new enterprise, developing a farm, purchasing feed while feed crops are 

being established, or recovering from disaster or economic reverses.

    (2) The final maturity date for each loan cannot exceed 7 years from 

the date of the promissory note or line of credit agreement. Advances 

for purposes other than for annual operating expenses will be scheduled 

for repayment over the minimum period necessary considering the loan 

applicant's ability to repay and the useful life of the security, but 

not in excess of 7 years.

    (3) All advances on a line of credit must be made within 5 years 

from the date of the Loan Guarantee.

    (c) FO terms. Each loan must be scheduled for repayment over a 

period not to exceed 40 years from the date of the note or such shorter 

period as may be necessary to assure that the loan will be adequately 

secured, taking into account the probable depreciation of the security.

    (d) Balloon installments under loan note guarantee. Balloon payment 

terms are permitted on FO or OL subject to the following:

    (1) Extended repayment schedules may include equal, unequal, or 

balloon installments if needed on any guaranteed loan to establish a new 

enterprise, develop a farm, or recover from a disaster or an economical 

reversal.

    (2) Loans with balloon installments must have adequate collateral at 

the time the balloon installment comes due. Crops, livestock other than 

breeding livestock, or livestock products produced are not sufficient 

collateral for securing such a loan.

    (3) The borrower must be projected to be able to refinance the 

remaining debt at the time the balloon payment comes due based on the 

expected financial condition of the operation, the depreciated value of 

the collateral, and the principal balance on the loan.

    (e) Charges and Fees. (1) The lender may charge the loan applicant 

and borrower fees for the loan provided they are no greater than those 

charged to unguaranteed customers for similar transactions. Similar 

transactions are those involving the same type of loan requested (for 

example, operating loans or farm real estate loans).

    (2) Late payment charges (including default interest charges) are 

not covered by the guarantee. These charges may not be added to the 

principal and interest due under any guaranteed note or line of credit. 

However, late payment charges may be made outside of the guarantee if 

they are routinely made by the lender in similar types of loan 

transactions.

    (3) Lenders may not charge a loan origination and servicing fee 

greater than 1 percent of the loan amount for the life of the loan when 

a guaranteed loan is made in conjunction with a down payment FO for 

beginning farmers under part 1943, subpart A, of this title.