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<br />Although not formally adopted as a standard policy, every year since 1995 the Board has adopted . <br />the staff recommendation to set the standard, municipal low income, agricultural, and <br />commercial/industrial lending rates at essentially the same relative differences. The standard rate <br />is 10 percent lass than the high-income rate while the low income and agricultural rates are 20 <br />percent less than the standard rate. The commercial/industrial rate is set at about 20 percent <br />higher than the standard rate. Also, the Board has annually adopted a policy of reducing the <br />interest rates for loans with repayment periods less than the standard 30-year period. <br /> <br />Discussion <br /> <br />A copy of the revised Lending Policy which incorporates the formally adopted policy changes in <br />the Jan 95 and Nov 97 memos to the Aug 94 Guidelines is attached for your information and <br />review. Policy changes annually adopted by the Board have been incorporated and shown in bold <br />type in the attachment. <br /> <br />In compiling these documents into one document I have used my best judgment, and sorne editorial <br />changes in the order and minor wording have occurred. To the best of my ability, it is a faithful <br />representation in one place of the Board's formally adopted rate setting policy. Staff members <br />have commented that additional clarification and editorial changes may be desirable. <br /> <br />In accordance with the new policy adopted in November 1997, the Board recently required a <br />certain municipality with a strong financial statement to borrow at a slightly higher interest rate <br />than as indicated by the rate structure. We learned later that the borrower felt it was singled out. <br />Staff would like to develop a balanced Construction Fund loan portfolio that includes a broad <br />range of borrowers with varying fmancial capabilities. Strong borrowers increase the rate of <br />return and reduce the risk of defaults. Because the language for this policy is somewhat vague <br />(see paragraph h), the Board may want to consider clarifying or even eliminating this policy. <br /> <br />. <br /> <br />Recommendation <br /> <br />Staff recommends that the Board review the attached consolidation statement of the rate setting <br />aspect of the Board's lending policy, and provide feedback to the staff in time for consideration <br />of a decision at the January meeting to update Section 1.3.2 of the Guidelines. We suggest the <br />Board consider forming a subcommittee to meet with staff at a workshop sornetime in December. <br /> <br />Attachment <br /> <br />L:\BOARDMEM\NOV98\914a - Revisions.doc <br /> <br />. <br /> <br />2 <br /> <br />- <br />