apply to any sum with respect to which liability to the mortgagor is denied by the insurer, unless and until such denial be rescinded or until final judgment of a court of competent jurisdiction that the insurer is liable to the mortgagor. In either event the mortgagor shall initiate the steps otherwise necessary under §§ 10.331-10.347 for the exercise of his option within 30 days after the establishment of the liability of the insurer to him for such loss.† (Sec. 6, 47 Stat. 14, sec. 12 "Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 "Ninth")

10.345 Endorsement of loss proceeds on mortgage or note. The land bank shall not endorse upon a mortgage or the note secured thereby, or request the farm loan registrar to endorse in case the mortgage is pledged with him, any sum received by the land bank on account of loss covered by insurance until it has been determined in accordance with §§ 10.331-10.347 that such sum should be applied as a credit upon the indebtedness of the mortgagor secured by the mortgage. (Sec. 6, 47 Stat. 14, sec. 12 "Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 "Ninth")

10.346 Maintenance of additional collateral for loss proceeds held by land bank. Upon receipt of any sum in settlement of a loss on property covered by a mortgage pledged with the farm loan registrar, the land bank shall forthwith notify the registrar thereof, and, pending disposition of such sum in accordance with §§ 10.33110.347 shall deposit and/or maintain with the farm loan registrar an amount of additional eligible collateral at least equal to the full amount of such payment. When disposition of such sum or any part thereof is finally made, the land bank shall forthwith report to the registrar the amount, if any, which should be endorsed as a credit upon the indebtedness of the mortgagor, and the bank may withdraw such portion of the additional collateral as shall not be required to cover the amount so to be endorsed and/or any amount withheld by the bank, if it shall have met all other existing requirements with respect to the collateral for its bonds.† (Sec. 6, 47 Stat. 14, secs. 12 "Ninth", 19, 39 Stat. 371, 376; 12 U.S.C. 665, 771 "Ninth", 856)

10.347 Unconditional release of loss proceeds. No insurance proceeds may be released unconditionally to a borrower or a junior lienor except for the purpose and under the conditions set forth in §§ 10.331-10.347, unless the remaining security for the loan meets the provisions of the Federal Farm Loan Act relating to new loans, that is, unless the unpaid balance of the loan does not exceed 50 percent of the value of the land and 20 percent of the value of the permanent, insured improvements remaining thereon. Exceptions to this requirement may be made only where it is clearly to the best interest of the bank to do so. Where insurance proceeds are released unconditionally to a borrower or junior lienor the procedure governing the release of funds received from the sale of part of the security shall be followed so far as applicable.† (Sec. 6, 47 Stat. 14, sec. 12 "Ninth", 39 Stat. 371; 12 U.S.C. 665, 771 "Ninth")

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For source citation, see note to § 10.7.

DIRECT LOAN REGULATIONS

10.361 Authorization to make direct loans. A Federal land bank may apply to the Land Bank Commissioner for authorization to make direct loans to borrowers secured by first mortgages on farm lands located in such bank's district within any locality or territory where farmers are unable to apply through a national farm loan association for either of the following reasons:

(a) That national farm loan associations have not been formed in such locality or territory; or

(b) That the bank is unable to accept applications from national farm loan association (s) within whose chartered territory such locality or territory or part thereof is situated.t (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a))

10.362 Territories in which direct loans may be made. A Federal land bank may make direct loans only upon the security of first mortgages on farm lands situated within localities or territories covered by authorization (s) granted by the Land Bank Commissioner. Such authorization (s) may be terminated or modified at any time by the Land Bank Commissioner. Such authorization (s) shall expire with respect to all or any part of a locality or territory whenever it shall appear to the Land Bank Commissioner that the farmers residing in such locality, territory or part thereof are able to apply to the bank for loans through a national farm loan association from which the bank is able to accept applications. The bank shall advise the Land Bank Commissioner whenever such locality, territory or part thereof becomes included within the chartered territory of an association from which the bank may accept applications for loans either due to the organization of a new association, or to the existence of circumstances enabling the bank to resume the acceptance of applications through an old association.t (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a))

10.363 Applicability of association loan regulations. Except as otherwise specifically provided in §§ 10.361-10.368 and/or in section 7 of the Federal Farm Loan Act, as amended (39 Stat. 365, as amended; 12 U.S.C. 711-723, and Sup.), all provisions of said Act and of the rules and regulations adopted thereunder which are applicable with respect to loans made through national farm loan associations shall, insofar as practicable, apply with respect to direct loans. (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a)) 10.364 Interest. A Federal land bank shall charge interest on direct loans made at any time at a rate which exceeds by 1/2 of 1 per centum per annum the rate of interest then charged on loans through national farm loan associations: Provided, however, That if and when the borrower who has obtained such direct loan either shall have been elected to membership in an existing association whose endorsement at the time is acceptable to the land bank, or shall have united with other such borrowers to form a national farm loan association, which association shall have been chartered by the Land Bank Commissioner in accordance with the provisions of section 7 of the Federal Farm

†For source citation, see note to § 10.7.

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Loan Act, as amended (39 Stat. 365, as amended; 12 U.S.C. 711–723, and Sup.), and said association shall have complied with all of the requirements and conditions in such case made and provided by said section, then the bank shall, in the event such loan is in good standing by reason of the borrower's compliance with all covenants and conditions contained in his mortgage and in the promissory note secured thereby, reduce the interest rate thereon, beginning with the next regular installment date, to the rate of interest paid by borrowers on new loans made through national farm loan associations in the same farm credit district at the time such direct loan was made.t (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a), (b), (c), and Sup.)

10.365 Subscription to stock. Each applicant for a direct loan from a Federal land bank shall, at the time of making application, subscribe for capital stock in the Federal land bank to which his application is addressed, in the sum of $5.00 for each $100.00 or fraction thereof borrowed. Each such subscription shall contain an undertaking on the part of the applicant to pay said subscription upon the granting of the loan by said bank. Any person who obtains a direct loan from a Federal land bank may, at his option, pay said subscription in cash, or authorize said bank to deduct the amount of said subscription from the amount borrowed before remitting the net proceeds of the loan and/or for the account of the borrower. When the amount subscribed by a borrower for stock in such bank is deducted from the net proceeds of the loan obtained by him, he shall be deemed to have complied with the requirement of section 7 of the Federal Farm Loan Act, as amended (39 Stat. 365, as amended; 12 U.S.C. 711-723, and Sup.), that he pay for such stock, and the amount so subscribed and deducted shall be included in and constitute part of the amortized mortgage loan in connection with which such stock subscription was made: Provided, however, that the total amount of such mortgage loan shall not exceed the limitation imposed in section 12 "Fifth" of the Federal Farm Loan Act (39 Stat. 371, as amended; 12 U.S.C. 711 "Fifth", and Sup.).† (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a), (c), and Sup.)

10.366 Stock held as collateral security. Shares of stock issued by a Federal land bank to a borrower who obtains a direct loan shall be held by said bank as collateral security for the loan of the borrower and shall participate in all dividends. Upon full payment of the loan or upon foreclosure of the mortgage securing the same, such stock shall, if still outstanding, be canceled at par, or, in the event that such stock shall have become impaired, at the estimated value thereof as approved by the Land Bank Commissioner, and the proceeds thereof shall be paid to the borrower: Provided, however, That all sums accruing and payable as dividends on such stock and/or proceeds of such stock upon cancelation (other than as provided in §10.367), shall be subject to the right of said bank to retain and apply the same upon any obligation (s) due and unpaid under the terms of the mortgage securing the loan in connection with which such stock was subscribed; and Provided further, That the capital stock of said bank shall not be reduced to an amount less than 5 per

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For source citation, see note to § 10.7.

centum of the principal of the outstanding farm loan bonds issued by it. The law confers no voting privilege upon such stock. Such stock is subject to transfer only on the books of said bank, and with its permission as provided in section 12 "Sixth" of the Federal Farm Loan Act (39 Stat. 371, as amended; 12 U.S.C. 771 "Sixth", and Sup.).† (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a), (c), and Sup.)

10.367 Cancelation of direct loan stock. As soon as a borrower who has subscribed to stock in a Federal land bank, in accordance with the provisions of § 10.365, either shall have been elected to membership in an existing association whose endorsement at that time is acceptable to the land bank, or shall have united with other such borrowers to form a national farm loan association, and the organization of such association has been approved by the Land Bank Commissioner, the stock in the Federal land bank held by such borrower shall be canceled at par, and in lieu thereof said bank shall issue an equal amount of stock in the name of said national farm loan association, which stock shall be held by said bank as collateral security, as provided in the Federal Farm Loan Act with respect to other loans through national farm loan associations.t (Sec. 6, 47 Stat. 14, sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a), (d))

10.368 Receipt evidencing stock subscription. Each borrower who obtains a direct loan from a Federal land bank shall be furnished by said bank with a receipt evidencing his subscription and payment for, and the issuance to him of, shares of the capital stock of said bank, the number and amount of such shares to be stated in said receipt. Each such receipt shall contain the following state

ment:

The shares of stock hereinbefore mentioned are held by the Federal land bank as collateral security for the direct loan obtained by said borrower; said stock is nonvoting, and may be transferred only on the books of said bank and with its permission, as provided in Section 12 "Sixth" of the Federal Farm Loan Act. Said stock will be canceled by the bank if and when said borrower becomes a member of a duly organized national farm loan association, and in such event there will be issued in the name of said national farm loan association an equal number of shares of the capital stock of the bank, such shares to be held by the bank as collateral security for the loan of said borrower. The shares of stock of the Federal land bank issued to said borrower shall, if still outstanding, upon payment in full of said loan or foreclosure of the mortgage securing the same, be cancelled at par, or, in the event that such stock shall have become impaired, at the estimated value thereof as approved by the Land Bank Commissioner, and the proceeds thereof shall be paid to the borrower: Provided, however, that all sums accruing and payable as dividends on such stock, and/or proceeds of such stock upon payment in full of said loan or foreclosure of said mortgage, shall be subject to the right of the bank to retain and apply the same upon any obligation(s) due and unpaid under the terms of said mortgage.

† (Sec. 6, 47 Stat. 14; sec. 7, 39 Stat. 365, as amended; 12 U.S.C. 665, 723 (a), (c), (d), and Sup.)

REFINANCING OF ACQUIRED MORTGAGES

10.382 Refinancing mortgages acquired by Federal land banks. Whenever a mortgage is acquired by a Federal land bank under the provisions of Section 13 "Second" of the Federal Farm Loan Act, as

For source citation, see note to § 10.7.

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amended (39 Stat. 372, as amended; 12 U.S.C. 781 "Second"), the Federal land bank acquiring the mortgage shall, by registered mail, notify the owner of the real estate securing the mortgage (if he was such owner at the time the mortgage was acquired) of his right to have the farm mortgage indebtedness refinanced and the amount at which such indebtedness may be refinanced. The notice shall also advise such owner that in order to refinance such indebtedness he must file an application for a refinancing loan within a reasonable period of time which shall be fixed in the notice and which shall extend not less than three months nor more than six months from the date of mailing of the notice. The right to refinance may be exercised only by a person who, at the time when the mortgage was acquired, was the owner of the property securing the mortgage. Said right may be availed of only in a case where an application for a refinancing loan is filed within the time specified in the notice given by the Federal land bank as herein provided or within such further period of time as may be consented to in writing by the Federal land bank: Provided, however, That the Federal land bank shall not extend such period of time beyond six months from the date of mailing of said notice. Stock required to be subscribed by the owner in connection with a refinancing loan shall be paid for in cash except that such cost may, at the option of the Federal land bank, be included in the amount of the loan to the extent that 50 per centum of the normal value of the land mortgaged and 20 per centum of the value of the permanent insured improvements thereon as determined by appraisal exceeds the price paid for the mortgage by the Federal land bank. (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

PREPAYMENT OF LOANS

10.386 Payments in advance after five years. Any borrower from a Federal or joint stock land bank may without advance notice at the end of five years from the date of his mortgage, or on any regular installment date thereafter, make in advance any number of installment payments or any portion thereof on account of principal of his loan, or may pay the entire principal.† (Sec. 6, 47 Stat. 14, sec. 12 "Second", 39 Stat. 370, as amended; 12 U.S.C. 665, 771 "Second")

10.387 Payment in full before five years. While the borrower has no legal right to pay off his mortgage within five years from its date, the acceptance of such payment is not prohibited to either Federal or joint stock land banks where unforeseen circumstances arise making it to the interest of the borrower to pay. Should a land bank accept such payment, it may collect from the borrower such a sum as will reimburse the bank for the expense of making the loan.† (Sec. 6, 47 Stat. 14, sec. 12 "Second", 39 Stat. 370, as amended; 12 U.S.C. 665, 771 "Second")

EXCHANGE OF BONDS

10.662 Bonds issued by Federal land banks individually and bonds issued by joint stock land banks. Upon reasonable request by any holder of outstanding farm loan bonds issued by a Federal land bank individually or by a joint stock land bank, such bank shall make exchanges of its farm loan bonds of the same issue. No charge Page 36

+For source citation, see note to § 10.7.