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Federal Register / Vol. 86, No. 242 / Tuesday, December 21, 2021 / Rules and Regulations
development projects, and not for the purchase of residential housing.
Additional IRP revolving loan fund purposes were included as appropriate.
Section 4274.320c was expanded to clarify the use of loan participations as an eligible loan purpose, including provisions that must be included in a loan participation agreement between lenders while also prohibiting the use of an open-ended participation agreement between the intermediary and any lender. A provision was also added that no more than 50 percent of the total intermediary loans to ultimate recipients may be sold or participated to an individual lender or affiliation of lenders.

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Ineligible Loan Purposes 4274.321, Formerly 4274.319
Ineligible loan purposes are outlined in 4274.321 and were formerly found in the prior regulation at 4274.319. In addition to reorganization, this section now has been updated to include additional information on conflict of interest prohibitions for clarification, agricultural production was modified to reference the now eligible activities in 4274.320b15 through 19, and the Agency has increased the threshold for ineligibility due to annual gross revenue derived from gambling activities from 10 to 15 percent, as recent industry trends show an increase in revenue from gambling activities, including lease income from space or machines.
Agency IRP Loan Conditions and Terms 4274.330, Formerly 4274.320
Information about Loan Terms is now included in 4274.330, moved from the former location of 4274.320 in the previous regulation. In 4274.330b, loan closing between the intermediary and Agency was revised to require that loan closing must take place within six months of loan approval or else funds will be deobligated. The rationale for this change is that the Agency has had numerous cases where projects are not closed for years. This nonuse of funds has had a negative effect on subsidy rates for the program and does not meet the intent of the program.
In 4274.330c loan terms between the intermediary and Agency are clarified to indicate that in the fourth year after loan closing, the loan will fully amortize, and that full amortization means principal and interest payments are due based on the total outstanding amount of the loan and not just on the amount drawn down and advanced to ultimate recipients.
There has been past confusion on this issue, so the Agency is providing the necessary clarification in this update.

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All documents representing an interest in a participation loan made under 4274.320 were added at 4274.330e2 to the list of documents that must be assignable.
IRP Revolving Loan Fund Loan Conditions and Terms 4274.331, Formerly 4274.320 and 4274.325
In 4274.331a1 the Agency clarifies IRP revolving loan fund loan conditions and terms between the intermediary and ultimate recipients.
This section provides the needed clarification that interest rates are negotiated between the two parties and that rates must be the lowest rates sufficient to cover the loans proportional share of the fund debt service reserve and administrative costs.
Post Award Requirements 4274.332
Intermediaries can contract personnel for hire; however, 4274.332b2
prohibits contracting of essential activities, such as loan underwriting, or day-to-day operations.
In 4274.332b3 language was revised to use debt service reserve in lieu of bad debt reserve. The revised term clarifies that funds may be used to ensure that adequate cash is available for the annual IRP loan installments in the event that the IRP revolving loan fund has insufficient cash to make these payments. Some intermediaries interpreted bad debt reserve as available only to payoff bad debts; thus, there was needed clarification on the definition and term. Additional language was added that prohibits Agency IRP funds or funds from an encumbered source from being used to fund this account.
In 4274.332b5 language was clarified that an intermediary cannot use funds for any investments in securities, or certificates of deposit over a 30-day duration. Certificates of deposit often come with penalties for withdrawals outside of a predetermined period of time. IRP is not designed for investment of proceeds and therefore such a financial tool does not meet the intent of the program.
Loan Agreements 4274.333
In 4274.333a4i and ii the Agency addresses the provisions for late charges on the intermediary loan by the Agency. There has been a disconnect in communication with borrowers on late fee assessments and interest calculations. Language was added here to notify readers that in the event of late fees being charged, that a notice will be sent to the intermediary identifying the per diem amount until the account becomes current. Guidance further
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explains that interest will be calculated on a 365-day basis unless otherwise stated in legal documents.
Audit Opinion 4274.333, Formerly in 4274.338
In 4274.333b4iA the Agency removed the requirement for an unqualified audit opinion. Unlike an adverse opinion, the reason for the issuance of a qualified opinion generally has no impact on the fair presentation of the financial information provided;
therefore, the Agency has determined that the blanket restriction on qualified opinions was placing an undue burden on applicants.
The Disbursement Procedure 4274.333, Formerly 4274.338
Disbursement Procedures have been relocated from 4274.338 to 4274.333a5 and have been updated to include current funds disbursement procedures. The Agency believes these procedures better provide the appropriate balance between safeguarding taxpayer funds and allowing the intermediaries to operate their funds according to their standards and practices.
Applications 4274.340, Formerly 4274.343
Application requirements have been moved from 4274.343 in the prior regulation to 4274.340. This section was changed in format and layout to be consistent with other RBCS programs. In addition, necessary forms are indicated as well as an indication for where other online guidance can be found.
Additional guidance on contracted personnel was added at 4274.340a1iiA through C to reinforce that contract personnel are for interim expertise and should only be used on an as needed basis.
Processing Applications for Loans 4274.341, Formerly 4274.343
Section 4274.341 formerly 4274.343 was updated to clarify that applications are received on an ongoing basis but will compete for funds on a quarterly basis for available funds based on a priority score ranking. This section also modifies the priority scoring criteria to address current economic and community development demographics and program conditions, resulting in maximum utilization of the loan fund awards by addressing critical community and small business financing needs. The Agency is revising the scoring requirements found in this section as follows:
First. The scoring criteria, for base points, is being realigned to reduce
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