tions; (ii) positions paid on a fee basis; and (iii) positions of a confidential or policy-determining character such as the principal officers and any confidential assistants.

(2) Special plans. Any district farm credit board may submit to the Farm Credit Administration a system for making appointments which will result in granting preference to veterans but which does not conform to all of the procedural requirements set forth in this section, but no such system may be put into effect until it has received the prior approval of the Administration.

When a reduction in personnel is to be made in any type and level of work, due to lack of work, shortage of funds, reorganization, or exercise of reemployment rights, and an employee entitled to veterans' preference under § 7.2 is among the competing employees, any preference employees whose performance is satisfactory may not be separated unless or until all nonpreference employees in the same type and level of work and with the same type of appointment are separated, but employees with temporary appointments for one year or less, or who have not completed their probationary period, may be separated without regard to the regulations in this section. Between preference employees with the same type of appointment and whose performance is equally satisfactory, the employee with least service in the banks, including active military service in the armed forces of the United States, shall be separated before an employee who has more such service. Only in unusual cases where the preference just indicated for reductions in force would cause undue interruptions in the activity involved may there be a variance from such preference. In any such case, the variance should be substantiated in writing, with a copy thereof to be given any employee whose preference is denied upon his so requesting.

§ 7.5 Discharge, suspension, etc., only for cause.

For the purposes of this section, employees during their first year of current continuous service, employees appointed for periods specifically limited to one year or less, and employees whose annuity under the Civil Service Retirement Act was continued upon reemployment on or after October 1, 1956, shall

not be deemed to be permanent or indefinite preference eligibles. No permanent or indefinite preference eligible shall be discharged, suspended for more than 30 days, furloughed without pay, reduced in rank or compensation, except as provided in the preceding section, or for such cause as will promote the efficiency of the service and for reasons given in writing, and the person whose discharge, suspension for more than 30 days, furlough without pay, or reduction in rank or compensation is sought shall have at least 30 days advance written notice (except where there is a reasonable cause to believe the employee to be guilty of a crime for which a sentence of imprisonment can be imposed), stating any and all reasons, specifically and in detail, for any such proposed action. Such preference eligible shall be allowed 10 days for answering the same personally and in writing, and for furnishing affidavits in support of such answer, and from an adverse decision thereon shall have the right to appeal locally as provided in the next sentence. Such appeal shall be made in writing within 10 days after receipt of notice of such adverse decision and shall be made to the farm credit board of the district unless the board shall have designated the general agent or a senior officer not connected with the employing bank to hear such appeals locally. On such local appeal, the matter shall be reviewed with the preference eligible and the appropriate bank officers and such recommendation shall be made (or conclusion reached in the case of the board) as is deemed advisable. The preference eligible shall be notified in writing of the action taken as a result of the local appeal. If this does not conclude the matter satisfactorily, such preference eligible, may, within 30 days after receiving notice of the action on the local appeal, further appeal in writing to the Deputy Governor, Farm Credit Administration, Washington 25, D.C. Such preference eligible shall have the right to make a personal appearance, or an appearance through a designated representative, as may be arranged with the Deputy Governor. After investigation and consideration of the evidence submitted, the Deputy Governor shall submit his decision to the bank and shall send copies of the same to the appellant or to his designated representative. Such decision of the Deputy Governor shall be final and binding upon all parties

concerned and the bank shall take such corrective action as the Deputy Governor determines.

§ 7.6 Appeals generally.

In addition to the appeal provided for discharge, suspension, etc., cases under the preceding section, any person considering he has not received the preference provided for him under these rules and regulations may appeal locally, as provided in the next sentence, within 10 days after receiving notice of the action deemed adverse. Such appeal shall be made in writing to the farm credit board of the district unless the board shall have designated the general agent or a senior officer not connected with the employing bank to hear such appeals locally. On such local appeal, the matter shall be reviewed with such person and the appropriate bank officers and such recommendation shall be made (or con

clusion reached in the case of the board) as is deemed advisable. If this does not conclude the matter satisfactorily, such person may, within 10 days after receiving notice of the action on the local appeal, further appeal in writing to the Deputy Governor of the Farm Credit Administration, Washington 25, D.C. The decision of the Deputy Governor in respect to such appeal shall be made known to and shall be final and binding upon all parties concerned.

§ 7.7 District board action.

The action taken by the farm credit board in each district to provide for veterans' preference under these rules and regulations, and any changes therein, shall be reported to the Farm Credit Administration. In the case of the Central Bank for Cooperatives, any corresponding action shall be by its board of directors.

Subpart-Security

Security standards.

Normal agricultural value.

10.119

10.11

10.12

10.13

Basis of loan and appraisal.

10.120 10.120a

Subpart-Limitations and Requirements

10.120b

10.120c

10.120d

10.121

10.122

Rescheduling loans on

unamor

tized or partially amortized basis.

Subpart-Mineral Rights

Holding mineral rights for more than 5 years.

Subpart-Bonds

Method of calling consolidated
Federal farm loan bonds.

Same; less than entire issue.

Exchanges and assignments of consolidated bonds.

Basis of relief on account of lost, stolen, destroyed, mutilated, or defaced consolidated bonds or coupons.

Claims and proof for lost, stolen, destroyed, mutilated, or defaced consolidated bonds or coupons. Restrictive endorsements of bearer securities.

Lost or stolen bonds and coupons issued by a bank individually. Same; bond of indemnity.

AUTHORITY: §§ 10.1 to 10.122 issued under sec. 6, 47 Stat. 14, as amended; 12 U.S.C. 665. SOURCE: §§ 10.1 to 10.122 appear at 27 F.R. 877, Jan. 31, 1962, except as otherwise noted.

NOTE: That part of each section number which follows the first decimal is the same as the section number of the corresponding provision in the Federal Land Bank Manual, except for §§ 10.120a, 10.120b, 10.120c, and 10.120d which do not appear in the manual. Where the word "bank” appears alone, it refers to a Federal land bank; the word "association" refers to a Federal land bank association; the word "Administration" refers to the Farm Credit Administration.

Subpart-Eligibility

§ 10.1 Eligibility of applicants.

An eligible person as used in section 12 Sixth of the Federal Farm Loan Act (12 U.S.C. 771 Sixth) is one who is engaged, or shortly to become engaged, in farming operations or who derives the principal part of his income from farming operations.

§ 10.2 Same; farming operations.

A person will be deemed to be engaged in farming operations if, in the capacity of owner, lessee, or tenant of a farm, he actively participates personally or through an agent to a substantial degree in the management and conduct of the farming operations on any farm land. § 10.3 Same; farming corporations.

The term "person" includes a corporation engaged in farming operations. Loans may be made to such a corporation provided that (a) more than onehalf of its income is derived from farming operations, (b) one or more individuals owning a substantial portion of the outstanding stock of the corporation are engaged in farming operations in connection with the farm to be mortgaged as security for the loan, and (c) one or more individuals owning a substantial portion of the outstanding stock of the corporation assume personal liability for the loan. Requirements (b) and (c) may be met by either the same or different individuals. § 10.5

Joint Owners.

An application offering jointly held property as security may be accepted if it is signed by one or more of the joint owners, on behalf of all of the joint owners, provided it is understood that all of the owners will join in a mortgage if a loan is approved. Ordinarily all of the joint owners should assume personal liability for the loan; however, in appropriate circumstances a loan may be made with less than all of the joint owners assuming personal liability. [28 F.R. 2958, Mar. 26, 1963]

§ 10.6 Same; fiduciaries.

Loans may be made to an executor, administrator, trustee, or guardian if (a) the fiduciary, as such, or the beneficiary or ward is engaged, or shortly to become engaged, in farming operations, or derives the principal part of his income from farming operations; (b) a valid lien can or will be given on the property on which the loan is sought; and (c) an individual sufficiently interested to do so, can and will incur personal liability for the loan.

§ 10.7 Eligibility of purposes.

The statutory provision as to the purposes for which loans may be made is as follows (12 U.S.C. 771 Fourth):

Such loans may be made for general agricultural purposes and other requirements of the owner of the land mortgaged, under rules and regulations of the Farm Credit Administration.

While many of them might be placed in either category, the recognized purposes are as hereafter listed under the headings § 10.8 Same; general agricultural purposes and § 10.9 Same; other requirements of the owner.

§ 10.8 Same; general agricultural pur

poses.

(a) Purchase and improvement of farm real estate;

(b) Purchase of livestock, equipment, and supplies;

(c) Payment of farm operating expenses, including taxes and insurance;

(d) Provide a home for use in connection with farm operation;

(e) Removal of a lien from farm land; (f) Refinance indebtedness incurred for any of the foregoing purposes or reimburse applicant for amounts spent out of his own funds for such purposes. § 10.9 Same; other requirements of the

owner.

(a) Provide a home for the owner or his family;

(b) Pay family living expenses, including premiums on life insurance, educational, medical, and funeral expenses;

(c) Provide facilities for processing, storage, and marketing of farm products, and the handling of farm equipment and supplies, even though not located on the mortgaged farm;

(d) Discharge any bona fide liability of the owner, including income and other taxes, judgments, liens, liability as endorser or surety for the debt of another, etc.;

To be acceptable security for a loan, a property must meet each of the following minimum standards:

(a) It must be sufficiently desirable to be readily salable or rentable under normal agricultural conditions.

(b) It must be sufficiently durable to maintain satisfactory production during the loan term specified.

(c) It must have sufficient stability of value to assure that, on a loan that would be proper to a typical owner of the property, the bank could recover its investment if unforeseen difficulties should result in acquirement of the property.

(d) It must be capable of producing, under typical operation, sufficient normal agricultural earnings to pay farm operating expenses, including taxes and other fixed charges, maintain the property, and meet family living expenses and installments on a loan that would be proper to a typical operator: Provided, That where income from dependable sources other than farm earnings is available to a typical operator, such income may be relied upon to meet loan installments and family living expenses including that part of the taxes, insurance, and maintenance costs chargeable to the dwelling.

§ 10.12

Normal agricultural value.

The normal agricultural value of a farm is the amount a typical purchaser would, under usual conditions, be willing to pay and be justified in paying for the property for customary agricultural uses, including farm home advantages, with the expectation of receiving normal net earnings from the farm and from other dependable sources.

§ 10.13 Basis of loan and appraisal.

The normal agricultural value of a farm shall be the basis for a loan. In making the appraisal the net earnings of the farm shall be determined by using normal commodity prices and the re

lated level of farm operating costs. Normal prices and related costs shall be determined on the basis of the long-term economic outlook and be approved by the Administration. Likewise, the net earnings from other dependable sources shall be on a normal level that reflects the same long-term economic outlook.

Subpart-Limitations and
Requirements

§ 10.33 Bona fide ownership.

A loan should not be made in any case if the ownership of the security by the applicant(s) is not bona fide, or if it was acquired with the intention to reconvey after the loan is closed in order to avoid limitations as to eligibility of person or amount of loan.

§ 10.34 Computing amount loanable to applicant.

(a) Limitation. The amount of any loan made by a bank may not exceed one-twelfth of 10 percent of the combined total net worth of all Federal land banks, or 10 percent of the total net worth of the bank making the loan, whichever is higher, based on the respective amount of such total net worth as of the end of the preceding semiannual period (June 30 or December 31). The amount of loans to any one borrower, computed as hereinafter provided, may not exceed such limitation.

(b) Individuals. In determining the amount loanable to an individual, within such limitation, there shall be charged against his borrowing capacity the total unpaid principal of all indebtedness to any bank of the system which is secured by property presently owned or being acquired by him, either individually or jointly with others, or for which he is personally liable. The amount of any loan to a corporation engaged in farming operations shall be charged against the individual borrowing capacity of each stockholder who assumes personal liability for the loan to the corporation.

(c) Farming corporations. In determining the amount loanable to a corporation engaged in farming operations, within such limitation, there shall be charged against its borrowing capacity the total unpaid principal of all indebtedness to any bank of the system which is secured by property presently owned or being acquired by it, or for which it is liable. The amount loaned to a corpora

(a) General requirements. (1) Insurance on buildings shall be required against such risks and in such amounts as the bank may determine to be necessary for adequate protection of the interests of the bank and the endorsing association, and shall afford the same protection provided under the New York standard mortgage clause.

(2) Insurance requirements on existing loans may be reduced or discontinued upon the request of the borrower or on the initiative of the bank or association when such action is not prejudicial to the interest of the bank and the association.

(3) A bank may delegate to associations full or limited authority with respect to the determination of insurance requirements.

(b) Application of loss proceeds. (1) The bank may, in its discretion, permit individual losses not in excess of an amount fixed by the bank with due regard to adequate protection of the mortgagee to be paid directly to the mortgagor for use in the prompt reconstruction of the buildings destroyed.

(2) At the option of a mortgagor and subject to the provisions of these regulations any sum received in settlement of a loss covered by insurance required by these regulations may be used to pay for the reconstruction of the buildings involved. Upon giving notice of the exercise of such option or within 30 days thereafter, unless such time for good cause be extended, the mortgagor shall furnish information in such form as shall be satisfactory covering the plans of the mortgagor for the reconstruction of the building involved in sound and serviceable form and condition, at least equal to that which existed immediately prior to the loss. Within said 30 days the mortgagor shall also furnish satisfactory assurance that such reconstruction will be completed within a reasonable time, and that there will be no unsatisfied liens for labor, materials, and/or other expenses that will have priority over the mortgage when such reconstruction shall have been completed or when the

said sum received shall have been paid to or for the account of the mortgagor. If the mortgagor desires to use the insurance money in whole or in part in order to replace the building involved with an insurable building of a less expensive type, or to substitute any other insurable building, the funds may be used for such purpose provided the bank or association is satisfied that the proposed building will be suitable and adequate to the agricultural needs of the farm.

(3) If the mortgagor fails or refuses to exercise his option in accordance with these regulations, or to comply with all of the conditions of these regulations with respect thereto, or if the mortgage be in process of foreclosure, or if the mortgagor be in default in such manner that the mortgage is subject to foreclosure, the sum received may be retained for application upon the indebtedness secured by such mortgage or as collateral security therefor. Any portion of the sum received which is not used for reconstruction may also be retained for application upon the indebtedness or as collateral security therefor.

§ 10.41

Subpart-Interest Rates

Interest rates on loans.

On loans made through associations each bank shall charge interest at the rate approved by the Administration. [28 F.R. 5557, June 6, 1963]

§ 10.42 Special interest rates.

Subject to the maximum interest rate of 6 percent per annum prescribed by law, approval is given to an interest rate one-half of 1 percent per annum in excess of the interest rate otherwise authorized for bank loans through associations secured by first mortgages on the following farm property in the continental United States:

(a) Land that is employed primarily in the production of naval stores as defined by section 2 of the Naval Stores Act (sec. 2, 42 Stat. 1435; 7 U.S.C. 92);

(b) Land used for the raising of livestock, in estimating the earning power and in establishing the value of which leases or permits for the use of other lands were taken into consideration and were a factor in determining the amount of the loan; and

(c) Land, a substantial part of the earnings from which is derived from orchard crops.