12 CFR 160.60 – Suretyship and guaranty
Pursuant to section 5(b)(2) of the HOLA, a Federal savings association may enter into a repayable suretyship or guaranty agreement, subject to the conditions in this section.
Terms Used In 12 CFR 160.60
- Appraisal: A determination of property value.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
(a) What is a suretyship or guaranty agreement? Under a suretyship, a Federal savings association is bound with its principal to pay or perform an obligation to a third person. Under a guaranty agreement, a Federal savings association agrees to satisfy the obligation of the principal only if the principal fails to pay or perform.
(b) What requirements apply to suretyship and guaranty agreements under this section? A Federal savings association may enter into a suretyship or guaranty agreement under this section, subject to each of the following requirements:
(1) The Federal savings association must limit its obligations under the agreement to a fixed dollar amount and a specified duration.
(2) The Federal savings association’s performance under the agreement must create an authorized loan or other investment.
(3) The Federal savings association must treat its obligation under the agreement as a loan to the principal for purposes of 12 CFR 31.2 and part 32 of this chapter.
(4) The Federal savings association must take and maintain a perfected security interest in collateral sufficient to cover its total obligation under the agreement.
(c) What collateral is sufficient? (1) The Federal savings association must take and maintain a perfected security interest in real estate or marketable securities equal to at least 110 percent of its obligation under the agreement, except as provided in paragraph (c)(2) of this section.
(i) If the collateral is real estate, the Federal savings association must establish the value by a signed appraisal or evaluation in accordance with part 34, subpart C of this chapter. In determining the value of the collateral, the Federal savings association must factor in the value of any existing senior mortgages, liens or other encumbrances on the property, except those held by the principal to the suretyship or guaranty agreement.
(ii) If the collateral is marketable securities, the Federal savings association must be authorized to invest in that security taken as collateral. The Federal savings association must ensure that the value of the security is 110 percent of the obligation at all times during the term of agreement.
(2) The Federal savings association may take and maintain a perfected security interest in collateral which is at all times equal to at least 100 percent of its obligation, if the collateral is:
(i) Cash;
(ii) Obligations of the United States or its agencies;
(iii) Obligations fully guarantied by the United States or its agencies as to principal and interest; or
(iv) Notes, drafts, or bills of exchange or bankers’ acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank.