The Farmers Home Administration (FmHA) requested a decision on whether a commitment by FmHA to guarantee a loan by a private lender to an eligible borrower can still be counted against the authorized loan guarantee ceiling for the fiscal year (FY) in which the commitment was made, when changes affecting different aspects of the guarantee occur in a subsequent FY. GAO held: (1) A loan guarantee by FmHA, initially charged against the level of guarantee authority for a particular FY in which the guarantee was first approved, cannot continue to be charged against the authority for that year when an entirely new borrower is substituted in a subsequent FY. When a substituted borrower bears a close and genuine relationship to the original borrower, the loan purpose remains unchanged, FmHA would have the authority to charge the loan guarantee to the substitute borrower against the ceiling for the FY in which the original guarantee was approved. However, FmHA would have the authority to charge an amended loan guarantee against the ceiling for the FY in which it was first approved when less substantial changes are involved, and the purpose and scope of the revised loan guarantee agreement are consistent with those of the original guarantee, and the need for the project continues to exist. (2) A loan guarantee by FmHA initially charged against the level of a loan guarantee authority for a particular FY in which the guarantee was first approved can continue to be charged against the authority for that year if a new guaranteed lender is substituted in a subsequent FY, provided that the borrower, loan purpose, and loan term remain substantially unchanged. Although the guarantee is actually extended to the lender, the lender is merely a conduit through which FmHA provides assistance to an eligible borrower. Therefore, a new lender can be designated without changing the essence of the agreement. (3) The FmHA regulations as well as terms of the relevant FmHA forms indicate that the applications for loan guarantees are to be approved or disapproved in writing. Thus, oral notification of a loan guarantee approval would not be sufficient to create a valid guarantee.
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