(a)Fraud and misrepresentation. The loan guarantee constitutes an obligation supported by the full faith and credit of the United States. The Agency may contest the guarantee only in cases of fraud or misrepresentation by a lender or holder, in which:
(1) The lender or holder had actual knowledge of the fraud or misrepresentation at the time it became the lender or holder, or
(2) The lender or holder participated in or condoned the fraud or misrepresentation.
(b)Lender violations. The loan guarantee cannot be enforced by the lender, regardless of when the Agency discovers the violation, to the extent that the loss is a result of:
(1) Violation of usury laws;
(2) Negligent servicing;
(3) Failure to obtain the required security; or,
(4) Failure to use loan funds for purposes specifically approved by the Agency.
(c)Enforcement by holder. The guarantee and right to require purchase will be directly enforceable by the holder even if:
(1) The loan guarantee is contestable based on the lender's fraud or misrepresentation; or
(2) The loan note guarantee is unenforceable by the lender based on a lender violation.
Title 7 published on 2014-01-01
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