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<br />. ii~ <br /> <br />.!' <br /> <br />. <br /> <br />. <br /> <br />AITACHMENT <br />Agenda Item 20b <br />March 9, 1994 <br /> <br />3 <br /> <br />. <br />, <br /> <br />Policy for Dealing With FIP Loans <br />December 16, 1993 <br /> <br />3. There are a number of reasons why the CWCB might want a loan repaid in <br />advance. For example, if the interest rate on the loan was below our current <br />"standard" interest rate, we could reloan the funds at a higher rate and increase our <br />income. Or, if the Borrower was considering an additional project, it might make <br />sense to consolidate the two loans into one. Finally, without a reasonable <br />prepayment option, we may appear as an inflexible bureaucracy with the result that <br />our public image is diminished. <br /> <br />At the present time the CWCB Board can review and consider a request for <br />prepayment by any borrower who currently holds a FIP Loan, and establish a reasonable <br />payoff in each case. The problem is that there are 57 of these loans, and repeated <br />discussions of this nature may take more of the Board's time than is warranted. This could <br />be avoided by establishing a standard policy for Staff to administer. <br /> <br />RECOMMENDATION <br /> <br />1. The CWCB Board should establish a policy dealing with the prepayment of Fixed <br />Interest Payment Loans (FIP Loans). The Staff recommends the following: <br /> <br />That a policy be adopted that any Borrower who has a Fixed Interest Payment <br />Loan with the CWCB may prepay that loan at any time, provided that the <br />payoff amount will be the remaining principal balance from the amortization <br />schedule for a Fixed Interest Rate Loan of the same original loan amount, <br />interest rate and term. <br /> <br />2. Assuming Recommendation 1. is adopted, the issue of understating interest <br />income and overstating principal payback in our accounting records is more difficult to <br />correct. We could: <br /> <br />a. Revise all FIP loan contracts to FIR loans, and adjust our books to reflect <br />proper amortization of those loans. (This would be a huge job since the <br />contracting process is so cumbersome and time consuming.) <br /> <br />b. Revise only our accounting of FIP Loans using FIR Loan amortization <br />schedules instead. (This would require an amortization schedule for each of <br />the 57 loans, and revisions to the COFERS records. This could be a problem <br />since the contracts would conflict with COFERS.) <br />