614.4325—Purchase and sale of interests in loans.
(1)
Interests in loans means ownership interests in the principal amount, interest payments, or any aspect of a loan transaction and transactions involving a pool of loans, including servicing rights.
(2)
Lead lender means a lending institution having a direct contractual relationship with a borrower to advance funds, which institution sells or assigns an interest or interests in such loan to one or more other lenders.
(3)
Loan means any extension of credit or similar financial assistance of the type authorized under the Act, such as guarantees, letters of credit, and other similar transactions.
(4)
Participating institution means an institution that purchases a participation interest in a loan originated by another lender.
(i)
Retains some risk of loss from the transferred asset for any cause except the seller's breach of usual and customary warranties or representations designed to protect the purchaser against fraud or misrepresentation; or
(A)
Default on the payment of principal or interest on the loan by the borrower or guarantor or any other deficiencies in the obligor's performance;
(C)
Any contractual relationship between the seller and purchaser incident to the transfer that, by its terms, could continue even after final payment, default, or other termination of the assets transferred; or
(6)
Subordinated participation interest means an interest in a loan that bears the first risk of loss, including the retention of such an interest when a loan is sold to a pooler certified by the Federal Agricultural Mortgage Corporation pursuant to title VIII of the Act, or an interest in a pool of subordinated participation interests purchased to satisfy the requirements of title VIII of the Act with respect to a loan sold to such a certified pooler.
(b) Authority to purchase and sell interests in loans.
Loans and interests in loans may only be sold in accordance with each institution's lending authorities, as set forth in subpart A of this part. No Farm Credit System institution may purchase from an institution that is not a Farm Credit System institution any interest in a loan, except for the purpose of pooling and securitizing such loans under title VIII of the Act, unless such an interest is a participation interest that qualifies under the institution's lending authority, as set forth in subpart A of this part, and meets the requirements of § 614.4330 of this subpart.
(c) Policies.
Each Farm Credit System institution that is authorized to sell or purchase interests in loans under subpart A of this part shall exercise that authority in accordance with a policy adopted by its board of directors that addresses the following matters:
(2)
The types of loans in which the institution may purchase or sell an interest and the types of interests which may be purchased or sold;
(4)
Such limitations on the aggregate principal amount of interests in loans that the institution may purchase from a single institution as are necessary to diversify risk, and such limitations on the aggregate amount the institution may purchase from all institutions as are necessary to assure that service to the territory is not impeded;
(5)
Provision for the identification and reporting of loans in which interests are sold or purchased;
(6)
Requirements for providing and securing in a timely manner adequate credit and other information needed to make an independent credit judgment; and
(7)
Any limitations or conditions to which sales or purchases are subject that the board deems appropriate, including arbitration.
(d) Purchase and sale agreements.
Agreements to purchase or sell an interest in a loan shall, at a minimum:
(2)
Provide for the transfer of credit and other borrower information on a timely and continuing basis;
(5)
Set forth the rights and obligations of the parties and the terms and conditions of the sale; and
(6)
Contain any terms necessary for the appropriate administration of the loan and the protection of the interests of the Farm Credit System institution.
(e) Independent credit judgment.
Each institution that purchases an interest in a loan shall make a judgment on the creditworthiness of the borrower that is independent of the originating or lead lender and any intermediary seller or broker prior to the purchase of the interest and prior to any servicing action that alters the terms of the original agreement, which judgment shall not be delegated to any person(s) not employed by the institution. A Farm Credit System institution that purchases a loan or any interest therein may use information, such as appraisals or collateral inspections, furnished by the originating or lead lender, or any intermediary seller or broker; however, the purchasing Farm Credit System institution shall independently evaluate such information when exercising its independent credit judgment. No employee who performed a real estate appraisal on any collateral supporting a loan shall participate in the decision to purchase that loan. The independent credit judgment shall be documented by a credit analysis that considers factors set forth in the loan underwriting standards adopted pursuant to § 614.4150 of this part and is independent of the originating institution and any intermediary seller or broker. The credit analysis shall consider such credit and other borrower information as would be required by a prudent lender and shall include an evaluation of the capacity and reliability of the servicer. Boards of directors of jointly managed institutions shall adopt procedures to ensure that the interests of their respective shareholders are protected in participation between such institutions.
(f) Limitations.
The aggregate principal amount of interests in loans purchased from a single lead lender and the aggregate principal amount of interests in loans purchased from other institutions shall not exceed the limits set in the institution's policy.
(g) Sales with recourse.
When a loan or interest in a loan is sold with recourse, it shall be accorded the following treatment:
(1)
The loan shall be considered, to the extent of the recourse, an extension of credit by the purchaser to the seller, as well as an extension of credit from the seller to the borrower(s), for the purpose of determining whether credit extensions to a borrower are within the lending limits established in subpart J of this part.
(2)
The amount of the loan subject to the recourse agreement shall be considered a loan sold with recourse for the purpose of computing permanent capital ratios.
(h) Transactions through agents.
Transactions pertaining to purchases of loans, including the judgement on creditworthiness, may be performed through an agent, provided that:
(1)
The institution establishes the necessary criteria in a written agency agreement that outlines, at a minimum, the scope of the agency relationship and obligates the agent to comply with the institution's underwriting standards;
(2)
The institution periodically reviews the agency relationship to determine if the agent's actions are in the best interest of the institution;
(ii)
The association may, in its discretion, require the bank to purchase from the association any interest in a loan that the association determines does not comply with the terms of the agency agreement or the association's loan underwriting standards.