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this section, any application for interest subsidies may be approved by the Secretary only if he determines that without such interest subsidy payments the applicant would not, over a substantial portion of the loan term, be able to repay the principal and interest of the loan without jeopardizing the quality of the educational program.

$57.1506 Priority.

(a) Priority in approving applications for loan guarantee and/or interest subsidies shall be determined in accordance with the factors specified in section 721(d) of the Act, and the following: (1) The relative need for increased enrollment and the availability of students; (2) the relative effectiveness of the project relative to the cost to the Federal Government; and (3) the relative ability of the applicant to make efficient and productive use of the facility constructed.

(b) In the case of applications to aid in the construction of new schools of medicine, osteopathy, or dentistry, the Secretary shall give special consideration to those applications which contain or are reasonably supported by assurances that, because of the use that will be made by such school of already existing facilities (including Federal medical or dental facilities), the school will be able to accelerate the date on which it will begin its teaching program.

(2) Notwithstanding paragraph (a)(1) of this section, the Secretary may in particular cases guarantee loans in excess of the amount specified in paragraph (a)(1) of this section where he determines that, because of special circumstances, such additional loan guarantee will further the purposes of part B of title VII of the Act. In making such determinations, the Secretary will in each case consider the following factors:

(i) The need for the project in the area to be served;

(ii) The availability of financing for the project on reasonable terms and conditions without such additional loan guarantee;

(iii) Whether the project can be constructed without such additional loan guarantee; and

(iv) Other relevant factors consistent with the purpose of part B of title VII of the Act and this subpart.

(3) In determining the cost of construction of the project there shall be excluded from such cost all fees, interest, and other charges relating or attributable to the financing of the project except the following:

(i) Reasonable fees attributable to services rendered by legal counsel in connection with such loan;

(ii) With the approval of the Secretary, reasonable fees attributable to the services of a financial advisor in assisting the applicant in securing the loan and arranging for repayment thereof; and

(iii) Interest attributable to the interim financing of construction of the project prior to the initial permanent financing thereof.

(b) No loan guarantee under this subpart shall apply to more than 90 percent of the loss of principal of and interest on such loan incurred by the holder of such loan upon default by the applicant.

8 57.1507 Limitations applicable to

loan guarantee. (a) The amount of loan with respect to which a guarantee is made under this subpart shall be determined by the Secretary based upon such considerations as the availability of funds and the applicant's need therefor; Provided, That: (1) Subject to paragraph (a)(2) of this section, no loan with respect to which a guarantee is made for any project under this subpart may be in an amount which, when added to the amount of any grant made with respect to such project under part B of title VII of the Act or any other law of the United States, or to the total of such grants, exceeds 90 percent of the eligible cost of construction of such project as determined by the Secretary;

$57.1508 Amount of interest subsidy

payments; limitations. The length of time for which interest subsidy payments will be made under the agreement, the amount of loan with respect to which such payments will be made, and the level of such payments shall be determined by the Secretary on the basis of the availability

of funds and his determination of the applicant's need therefor taking into

consideration his analysis of the 3: present and reasonable projected future

financial ability of the applicant to

repay the principal and interest of the a 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 per

cent per annum the net effective inter: est rate otherwise payable on the loan

or the portion thereof with respect to
which such interest subsidy is paid.
$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 So evidenced by a credit instrument and

secured by a security instrument in

such forms as may be acceptable to the I Secretary.

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.

$57.1510 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.

$57.1512 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

$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

(c) In no case shall a loan repayment amount of the loan in any calendar period exceed the useful life of the fa- year without additional charge, but no cility to be constructed with the assist- such payment in excess of 15 percent ance of the loan.

shall be made without the prior writ

ten approval of the Secretary. $57.1513 Repayment.

(3) That if the applicant shall default Unless otherwise specifically author- in making periodic payment, when due, ized by the Secretary, each loan with of the principal and interest on the respect to which a guarantee is made loan guaranteed under the agreement, or interest subsidies are paid shall be the holder of the loan shall promptly repayable in substantially level total give the Secretary written notification annual installments of principal and of such default. The Secretary shall, interest, sufficient to amortize the immediately upon receipt of such noloan through the final year of the life tice, provide the holder with written of the loan.

acknowledgement of such receipt.

(4) That if such default in making 857.1514 Loan guarantee and interest eriodic payment when due of the prinsubsidy agreements.

cipal and interest on the guaranteed For each application for a loan guar- loan is not cured within 90 days after antee or interest subsidy, or combina- receipt by the Secretary of notice of tion thereof, which is approved by the such default, the holder of the loan Secretary under this subpart, an offer shall have the right to make demand to guarantee such loan and/or make in- upon the Secretary, in such form and terest subsidy payments with respect manner as the Secretary may prethereto will be sent to the applicant, scribe, for payment of 90 percent of the setting forth the pertinent terms and amount of the overdue payments of conditions for the loan guarantee and principal and accrued interest, toor interest subsidy, and will be condi- gether with such reasonable late tioned upon the fulfillment of such charges as are made in accordance with terms and conditions. The accepted the terms of the credit instrument or offer will constitute the loan guarantee security instrument evidencing or seagreement, the interest subsidy agree- curing such loan. The Secretary shall ment, or the loan guarantee and inter- pay such amount from funds available est subsidy agreement, as the case may

to him for these purposes. be. Each such agreement shall include (5) That in the event of exercise by the applicable provisions set forth the holder of the loan of any right to below:

accelerate payment of such loan as a (a) Loan guarantee. Each agreement result of the applicants default in makpertaining to a loan guarantee shall in- ing periodic payment when due of the clude the following provisions:

principal and interest on the guaran(1) That the loan guarantee evidenced teed loan, the Secretary shall, upon deby the agreement shall be incontest- mand by the holder not less than 90 able (i) in the hands of the applicant on days after receipt by the Secretary of whose behalf such loan guarantee is notification of such default, pay to made except for fraud or misrepresen- such holder 90 percent of the total tation on the part of such applicant, amount of principal and of interest on and (ii) as to any person who makes or the loan remaining unpaid after the contracts to make a loan to such appli- holder has exercised his right to forecant in reliance on such guarantee, ex- close upon and dispose of the security cept for fraud or misrepresentation on and has applied the proceeds thereby the part of such other person.

received to reduce the outstanding bal(2) That the applicant shall be per- ance of the loan, in accordance with mitted to prepay up to 15 percent of applicable law and the terms of the sethe original principal amount of such curity instrument. loan in any calendar year without addi- (6) That the Secretary shall not guartional charge. The applicant and the antee any funds which are disbursed by lender may further agree that the ap- a lender following notification by the plicant shall be permitted to prepay in Secretary to such lender that the Asexcess of 15 percent of the original surance executed by the Applicant

1

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 new 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 no

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

tice.

(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

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 in 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]

$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. 8 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. $57.1517 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 Education 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. 295g6(a)); renumbered as sec. 747, as amended by Pub. L. 102-408, 106 Stat. 2042-2043 (42 U.S.C. 293k).

857.1601 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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