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Federal Register / Vol. 86, No. 242 / Tuesday, December 21, 2021 / Rules and Regulations
D If, at any time, the Agency determines that an intermediarys operation of revolving lines of credit is causing excessive risk of loss for the intermediary or the government, the Agency may terminate the intermediarys authority to use the IRP
revolving loan fund for revolving lines of credit. Such termination will be by written notice and will prevent the intermediary from approving any new lines of credit or extending any existing revolving lines of credit beyond the effective date of termination contained in the notice.
xv Aquaculture and hydroponics, as defined in this subpart.
xvi Commercial fishing.
xvii Commercial nurseries engaged in the production of ornamental plants and trees and other nursery products such as bulbs, flowers, shrubbery, flower and vegetable seeds, sod, and the growing of plants from seed to the transplant stage.
xviii Forestry, which includes businesses primarily engaged in the commercial operation of timber tracts, tree farms, and forest nurseries and related activities such as reforestation.
xix Value-added production.
xx Housing, only when related to community development projects and, limited to working capital, equipment, pre-business development costs, and other such business purposes. Agency IRP loan funds may be used to assist a housing project planner, a housing project builder, a construction subcontractor indirect soft costs such as architectural, engineering and legal fees, or for any other business-related aspect of a housing project that is separate from the sale and/or purchase transaction involved in transferring ownership of a single or multi-family dwelling. While the proceeds from a sale might be used by an ultimate recipient to repay an Agency IRP loan, an Agency IRP loan cannot be used to finance a residential housing purchase.
Agency IRP loans may not be used to assist in the purchase of residential housing single, multiple dwelling, etc.
as financial assistance moves outside of community development when the financial assistance a mortgage loan is requested for a purchase.
c Participations. 1 Loans made to eligible ultimate recipients by eligible intermediaries in cooperation with banks and other organizations through loan participation agreements shall be considered an eligible loan to an ultimate recipient for the purposes of this program. Loan participations are allowed in the IRP program, subject to the provisions of this regulation, with the intent to assist intermediaries in the
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management of their revolving loan fund, to meet the needs of larger ultimate recipient projects, and to promote cooperation in community projects where multiple lenders may be involved. In a participation, the lead originating bank retains a partial interest in the loan, holds all loan documentation in its own name, services the loan, and deals directly with the customer for the benefit of all participants. All loan participants share in the credit risk of the associated loan up to the amount of their participation.
2 Loan participant buyers are able to compensate for low loan demand or invest in large loans without servicing burdens and origination costs. Lenders selling loan participations can accommodate a larger credit while mitigating some of the risk by reducing their credit exposure.
3i Participation agreements between the lead lender and buying participants are executed with each transaction and must address, among other items:
A The obligation of the lead lender to furnish timely credit information and to provide notification of material changes in the borrowers status;
B Requirements that the lead lender consult with participants and obtain their consent prior to modifying any loan, guaranty, or security agreements and before taking any action on defaulted loans; and C The specific rights and remedies available to the lead and participating lenders upon default of the borrower.
ii A Master open ended participation agreement between the intermediary and any lender is not allowed. All loans made through use of participation agreements must be to eligible ultimate recipients and for eligible purposes. The ultimate recipients, lead lender and all participating lenders must agree to be bound by the applicable requirements of this regulation.
4 Participation in loans where 50
percent or more of the loan funds are used to refinance a lead lenders existing loans to the borrower are ineligible. The Agency does not consider take out or terming out a construction loan as refinancing.
5 No more than 50 percent of an intermediarys loan funds may be used to purchase loans from any individual lender or affiliation of lenders, to prevent an exclusive relationship with a lender or lender holding company.
Likewise, 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. An exception to these limits
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may be requested by the intermediary and is subject to review by the Agency of the intermediarys lending portfolio, credit quality and overall use of loan participations.
4274.321

Ineligible loan purposes.

a Agency IRP loans. The intermediary cannot use Agency IRP
loan funds to pay for its administrative costs and expenses.
b IRP revolving loan fund loans. IRP
revolving loan fund loans cannot be used for any of the purposes identified in paragraphs b1 through 13 of this section.
1 Assistance in excess of what is needed to accomplish the purpose of the ultimate recipients project.
2 Distribution, payment, or loans to the owner, partners, shareholders, or beneficiaries of the ultimate recipient or members of their families when such persons will retain any portion of their equity, or control, in the ultimate recipient. This is not intended to prevent the sale of a business among immediate family members as long as the selling immediate family member does not retain an ownership interest and the price paid is deemed to be reasonable. This type of transaction is not an arms length transaction and reasonableness of the price paid will be based upon an appraisal acceptable to the Agency.
3 Charitable institutions and fraternal organizations that would not have revenue from sales, fees, or stable revenue source to support their operation and repay the loan.
4 Assistance to Federal government employees, active-duty military personnel, employees of the intermediary, or any organization for which such persons are directors or officers or have 20 percent or more ownership.
5 A loan to an ultimate recipient that has an application pending with or a loan outstanding from another intermediary involving an IRP revolving loan fund if the total Agency IRP loans would exceed the limits established in 4274.331c.
6 Agricultural production. For the purposes of this program, Agricultural production does not include those activities specifically listed as eligible uses of IRP revolving loan fund loans in 4274.320b15 through 19.
7 The transfer of ownership unless the loan will keep the business from closing, prevent the loss of employment opportunities in the area, or provide expanded job opportunities.
8 Community antenna television services or facilities.
9 Any illegal activity.

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