(a) The Secretary may require an institution to reimburse its Fund in an amount equal to that portion of the outstanding balance of—
(1) A loan disbursed by the institution to a borrower in excess of the amount that the borrower was eligible to receive, as determined on the basis of information the institution had, or should have had, at the time of disbursement; or
(2) Except as provided in paragraph (b) of this section, a defaulted loan with regard to which the institution failed—
(i) To record or retain the loan note in accordance with the requirements of this part;
(ii) To record advances on the loan note in accordance with the requirements of this part; or
(iii) To exercise due diligence in collecting in accordance with the requirements of this part.
(b) The Secretary does not require an institution to reimburse its Fund for the portion of the outstanding balance of a defaulted loan described in paragraph (a)(2) of this section—
(1) That the institution—
(i) Recovers from the borrower or endorser; or
(ii) Demonstrates, to the Secretary's satisfaction, would not have been collected from the borrower even if the institution complied in a timely manner with the due diligence requirements of subpart C of this part; or
(2) On which the institution obtains a judgment.
(c) An institution that is required to reimburse its Fund under paragraph (a) of this section shall also reimburse the Fund for the amount of the administrative cost allowance claimed by the institution for that portion of the loans to be reimbursed.
(d) An institution that reimburses its Fund under paragraph (a) of this section thereby acquires for its own account all the right, title and interest of the Fund in the loan for which reimbursement has been made.
(Approved by the Office of Management and Budget under control number 1845-0019)