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this section, any application for inter- (2) Notwithstanding paragraph (a)(1) est subsidies may be approved by the of this section, the Secretary may in Secretary only if he determines that particular cases guarantee loans in exwithout such interest subsidy pay- cess of the amount specified in paraments the applicant would not, over a graph (a)(1) of this section where he desubstantial portion of the loan term, be termines that, because of special cirable to repay the principal and interest cumstances, such additional loan guarof the loan without jeopardizing the

antee will further the purposes of part quality of the educational program. B of title VII of the Act. In making

such determinations, the Secretary $57.1506 Priority.

will in each case consider the following

factors: (a) Priority in approving applications for loan guarantee and/or interest sub

(1) The need for the project in the sidies shall be determined in accord

area to be served; ance with the factors specified in sec

(ii) The availability of financing for tion 721(d) of the Act, and the fol

the project on reasonable terms and

conditions without such additional lowing: (1) The relative need for in

loan guarantee; creased enrollment and the availability of students; (2) the relative effective

(iii) Whether the project can be con

structed without such additional loan ness of the project relative to the cost to the Federal Government; and (3) the

guarantee; and

(iv) Other relevant factors consistent relative ability of the applicant to make efficient and productive use of

with the purpose of part B of title VII

of the Act and this subpart. the facility constructed.

(3) In determining the cost of con(b) In the case of applications to aid

struction of the project there shall be in the construction of new schools of

excluded from such cost all fees, intermedicine, osteopathy, or dentistry, the

est, and other charges relating or at Secretary shall give special consider

tributable to the financing of the projation to those applications which con

ect except the following: tain or are reasonably supported by as

(i) Reasonable fees attributable to surances that, because of the use that

services rendered by legal counsel in will be made by such school of already

connection with such loan; existing facilities (including Federal

(ii) With the approval of the Secmedical or dental facilities), the school

retary, reasonable fees attributable to will be able to accelerate the date on

the services of a financial advisor in which it will begin its teaching pro

assisting the applicant in securing the gram.

loan and arranging for repayment

thereof; and 857.1507 Limitations applicable to loan guarantee.

(iii) Interest attributable to the in

terim financing of construction of the (a) The amount of loan with respect project prior to the initial permanent to which a guarantee is made under financing thereof, this subpart shall be determined by the (b) No loan guarantee under this subSecretary based upon such consider- part shall apply to more than 90 perations as the availability of funds and cent of the loss of principal of and inthe applicant's need therefor; Provided, terest on such loan incurred by the That: (1) Subject to paragraph (a)(2) of holder of such loan upon default by the this section, no loan with respect to applicant. which a guarantee is made for any project under this subpart may be in an

$57.1508 Amount of interest subsidy amount which, when added to the

payments; limitations. amount of any grant made with respect The length of time for which interest to such project under part B of title subsidy payments will be made under VII of the Act or any other law of the the agreement, the amount of loan United States, or to the total of such with respect to which such payments grants, exceeds 90 percent of the eligi- will be made, and the level of such payble cost of construction of such project ments shall be determined by the Secas determined by the Secretary;

retary on the basis of the availability

of funds and his determination of the applicant's need therefor taking into consideration his analysis of the present and reasonable projected future financial ability of the applicant to repay the principal and interest of the loan without jeopardizing the quality of its educational program: Provided however, That each such interest subsidy payment shall not exceed the amount necessary to reduce by 3 percent per annum the net effective interest rate otherwise payable on the loan or the portion thereof with respect to which such interest subsidy is paid.

ity of the applicant to issue the note and secure it by the proposed collateral, and the legality of the issue upon delivery. “Legal counsel" means either a law firm or individual lawyer, thoroughly experienced in the long-term financing of construction projects, and whose approving opinions have previously been accepted by lenders or lending institutions. The legal memorandum or opinion to be provided by legal counsel in each case shall be as follows:

(a) A memorandum, submitted with the application for a loan guarantee or interest subsidy, stating that the applicant is or will be lawfully authorized to finance, construct, and maintain the project, and to issue the proposed obligations and to pledge or mortgage the assets and/or revenues offered to secure the loan, citing the basis for such authority; and

(b) A final approving opinion, delivered to the Secretary at the time of delivery of the evidence of indebtedness to the lender, stating that the credit and security instruments executed by the applicant are duly authorized and delivered and that the indebtedness of the applicant is valid, binding, and payable in accordance with the terms on which the loan guarantee was approved by the Secretary.

$57.1509 Forms of credit and security

instruments. Each loan with respect to which a guarantee is made or interest subsidies are paid under this subpart shall be evidenced by a credit instrument and secured by a security instrument in such forms as may be acceptable to the Secretary. $57.1510 Security for loans.

Each loan with respect to which a guarantee is made or interest subsidies are paid under this subpart shall be secured in a manner which the Secretary finds reasonably sufficient to insure repayment. The security may be one or a combination of the following:

(a) A first mortgage on the facility and site thereof.

(b) Negotiable stocks or bonds of a quality and value acceptable to the Secretary

(c) A pledge of unrestricted and unencumbered income from an endowment or other trust fund acceptable to the Secretary.

(d) A pledge of a specified portion of annual general or special revenues of the applicant acceptable to the Secretary.

(e) Such other security as the Secretary may find acceptable in specific instances. $57.1511 Opinion of legal counsel.

At appropriate stages in the application and approval procedure for a loan guarantee or interest subsidy, the applicant shall furnish to the Secretary a memorandum or opinion of legal counsel with respect to the legality of any proposed note issue, the legal author

857.1512 Length and maturity of

loans. The repayment period for loans with respect to which guarantees are made or interest subsidies paid under this subpart shall be limited to 30 years: Provided, That:

(a) The Secretary may, in particular cases where he determines that a repayment period of less than 30 years is more appropriate to an applicant's total financial plan, approve such shorter repayment period;

(b) The Secretary may, in particular cases where he determines that, because of unusual circumstances, the applicant would be financially unable to amortize the loan over a repayment period of 30 years, approve a longer requirement period which shall in no case exceed 40 years; and

(c) In no case shall a loan repayment period exceed the useful life of the facility to be constructed with the assistance of the loan.

$57.1513 Repayment.

Unless otherwise specifically authorized by the Secretary, each loan with respect to which a guarantee is made or interest subsidies are paid shall be repayable in substantially level total annual installments of principal and interest, sufficient to amortize the loan through the final year of the life of the loan.

8 57.1514 Loan guarantee and interest

subsidy agreements. For each application for a loan guarantee or interest subsidy, or combination thereof, which is approved by the Secretary under this subpart, an offer to guarantee such loan and/or make interest subsidy payments with respect thereto will be sent to the applicant, setting forth the pertinent terms and conditions for the loan guarantee and/ or interest subsidy, and will be conditioned upon the fulfillment of such terms and conditions. The accepted offer will constitute the loan guarantee agreement, the interest subsidy agreement, or the loan guarantee and interest subsidy agreement, as the case may be. Each such agreement shall include the applicable provisions set forth below:

(a) Loan guarantee. Each agreement pertaining to a loan guarantee shall include the following provisions:

(1) That the loan guarantee evidenced by the agreement shall be incontestable (i) in the hands of the applicant on whose behalf such loan guarantee is made except for fraud or misrepresentation on the part of such applicant, and (ii) as to any person who makes or contracts to make a loan to such applicant in reliance on such guarantee, except for fraud or misrepresentation on the part of such other person.

(2) That the applicant shall be permitted to prepay up to 15 percent of the original principal amount of such loan in any calendar year without additional charge. The applicant and the lender may further agree that the applicant shall be permitted to prepay in excess of 15 percent of the original

amount of the loan in any calendar year without additional charge, but no such payment in excess of 15 percent shall be made without the prior written approval of the Secretary.

(3) That if the applicant shall default in making periodic payment, when due, of the principal and interest on the loan guaranteed under the agreement, the holder of the loan shall promptly give the Secretary written notification of such default. The Secretary shall, immediately upon receipt of such notice, provide the holder with written acknowledgement of such receipt.

(4) That if such default in making periodic payment when due of the principal and interest on the guaranteed loan is not cured within 90 days after receipt by the Secretary of notice of such default, the holder of the loan shall have the right to make demand upon the Secretary, in such form and manner as the Secretary may prescribe, for payment of 90 percent of the amount of the overdue payments of principal and accrued interest,

together with such reasonable late charges as are made in accordance with the terms of the credit instrument or security instrument evidencing or securing such loan. The Secretary shall pay such amount from funds available to him for these purposes.

(5) That in the event of exercise by the holder of the loan of any right to accelerate payment of such loan as a result of the applicants default in making periodic payment when due of the principal and interest on the guaranteed loan, the Secretary shall, upon demand by the holder not less than 90 days after receipt by the Secretary of notification of such default, pay to such holder 90 percent of the total amount of principal and of interest on the loan remaining unpaid after the holder has exercised his right to foreclose upon and dispose of the security and has applied the proceeds thereby received to reduce the outstanding balance of the loan, in accordance with applicable law and the terms of the security instrument.

(6) That the Secretary shall not guarantee any funds which are disbursed by a lender following notification by the Secretary to such lender that the Assurance executed by the Applicant

new

under section 799A of the Act is no longer satisfactory.

(b) Interest subsidy. Each agreement pertaining to the payment of interest subsidies with respect to a loan shall include the following provisions:

(1) That the holder of the loan shall have a contractual right to receive from the United States interest subsidy payments in amounts sufficient to reduce by up to 3 percent per annum the net effective interest rate determined by the Secretary to be otherwise payable on such loan.

(2) That payments of interest subsidies pursuant to paragraph (b)(1) of this section will be made by the Secretary, in accordance with the terms of the loan with respect to which the interest subsidies are paid, directly to the holder of such loan, or to a trustee or agent designated in writing to the Secretary by such holder, until such time as the Secretary is notified in writing by the holder that such loan has been transferred. Pursuant to such written notification of transfer, the Secretary will make such interest payments directly to the

holder (transferee) of the loan: Provided, however, That it shall be the responsibility of the holder to remit any payments of interest subsidy to the new holder which the Secretary may have made to the holder after such transfer and prior to receipt of such written notice, and the Secretary shall not be liable to any party for amounts remitted to the holder prior to receipt of such written notice and acknowledgment in writing by the Secretary of receipt of such notice.

(3) That the holder of the loan will promptly notify the Secretary of any default or prepayment by the applicant with respect to the loan.

(4) In the event of any exercise by the holder of the loan of the right to accelerate payment of such loan, whether as a result of default on the part of the applicant or otherwise, the Secretary's obligations with respect to the payment of interest subsidies shall cease.

(5) Where, during the life of the loan with respect to which interest subsidies are to be paid, the applicant ceases to use the facility for the purposes for which constructed, the Secretary's obligation with respect to the

payment of interest subsidies shall cease: Provided, however, That where the applicant is continuing to use the facility for purposes eligible for support under part B of title VII of the act, the Secretary may make a determination, based upon the health manpower needs of the community served by the facility as well as other relevant factors, to continue to make interest subsidy payments in accord with the agreement.

(6) Where during the life of the loan with respect to which interest subsidies are to be paid, it is determined, after an opportunity for a hearing pursuant to 45 CFR part 83, that the Assurance executed by the applicant under section 704 (or its predecessor, section 799A) of the Act, is no longer satisfactory, the Secretary's obligation with respect to the payment of interest subsidies shall cease: Provided, however, That the Secretary shall resume making interest subsidy payments if he determines that a subsequent Assurance submitted by the applicant is satisfactory.

(7) Where during the life of the loan with respect to which interest subsidies are to be paid, it is determined by the Secretary, after an opportunity for a hearing pursuant to 45 CFR parts 80 and 81, that the applicant has ceased to comply with the Assurance it has executed under 45 CFR 80.4(d) concerning nondiscrimination on the basis of race, color or national origin, the Secretary's obligation with respect to the payment of interest subsidies shall cease: Provided, however, That the Secretary shall resume making interest subsidy payments if he subsequently determines that the applicant has come into compliance with the requirements of title VI of the Civil Rights Act of 1964 and implementing regulations.

(8) Where during the life of the loan with respect to which interest subsidies are to be paid, it is determined by the Secretary after an opportunity for a hearing pursuant to title IX of the Education Amendments of 1972, that the applicant has ceased to comply with such title, and its implementing regulations, the Secretary's obligation with respect to the payment of interest subsidies shall cease: Provided, however, That the Secretary shall resume making interest subsidy payments if he subsequently determines that the applicant has come into compliance with the requirements of title IX of the Education Amendments of 1972 and implementing regulations.

(c) General. In addition to the applicable requirements of paragraphs (a) and (b) of this section, each agreement, whether pertaining to a loan guarantee or interest subsidy or both, shall contain such other provisions as the Secretary finds necessary in order to protect the financial interests of the United States.

poses in the sciences related to health for which funds are available under part B of title VII of the act and these regulations;

(b) A hospital or outpatient facility will be used as provided for under title VI of the act;

(c) There are reasonable assurances that for the remainder of the repayment period of the loan other facilities not previously utilized for the purpose for which the facility was constructed will be so utilized and are substantially equivalent in nature and extent for such purposes; and

(d) Such recovery would seriously curtail the training of qualified health professions personnel the area served by the facility.

(38 FR 31836, Nov. 19, 1973, as amended at 49 FR 38113, Sept. 27, 1984)

$57.1518 Modification of loans.

No official of the Department of Health and Human Services will approve any proposal to modify the terms of a loan guaranteed under title VII of the Public Health Service Act (42 U.S.C. 293 et seq.) and this subpart which would permit the use of the guaranteed loan (or the guarantee) as collateral for an issue of tax-exempt securities.

(Secs. 215 and 726, Public Health Service Act, 58 Stat. 690 and 85 Stat. 432, 42 U.S.C. 216 and 293i, as amended). [48 FR 42984, Sept. 21, 1983]

8 57.1515 Loan closing.

Closing of any loan with respect to which a guarantee is made or interest subsidies are paid under this subpart shall be accomplished at such time as may be agreed upon by the parties to such loan and found acceptable to the Secretary. $57.1516 Right of recovery-subordina

tion. (a) The United States shall be entitled to recover from the applicant for a loan guarantee under this subpart the amount of any payment made pursuant to such guarantee, unless the Secretary waives such right of recovery as provided in $ 57.1517.

(b) Upon making of any payments pursuant to a loan guarantee under this subpart, the United States shall be subrogated to all of the rights of the recipient of the payments with respect to which the guarantee was made. 857.1517 Waiver of right of recovery.

In determining whether there is good cause for waiver of any right of recovery which he may have against any applicant by reason of any payments made pursuant to a loan guarantee under this subpart, the Secretary shall take into consideration the extent to which:

(a) The facility with respect to which the loan guarantee was made will continue to be devoted by the applicant or other owner to the teaching of health professions personnel, or to other pur

Subpart Q Grants for

Predoctoral, Graduate, and
Faculty Development Edu-
cation Programs in Family
Medicine

AUTHORITY: Sec. 215 of the Public Health Service Act, 58 Stat. 690, as amended by 63 Stat. 35 (42 U.S.C. 216); sec. 786(a) of the Public Health Service Act, 90 Stat. 2316, and as amended by 102 Stat. 3146 (42 U.S.C. 295g 6(a)); renumbered as sec. 747, as amended by Pub. L. 102-408, 106 Stat. 2042-2043 (42 U.S.C. 293k).

$ 57.1601 To what programs do these

regulations apply? These regulations apply to the award of grants under section 747 of the Public Health Service Act (42 U.S.C. 293k) to schools of medicine or osteopathic medicine, hospitals, and other public or

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