(b) Security interest

No obligation shall be guaranteed under this subchapter unless the obligor conveys or agrees to convey to the Secretary such security interest, which may include a mortgage or mortgages on a vessel or vessels, as the Secretary may reasonably require to protect the interest of the United States.

(c) Amount of guarantee; percentage limitation; determination of actual cost of vessel

The Secretary shall not guarantee the principal of obligations in an amount in excess of 75 per centum, or 87% per centum, whichever is applicable under section 1274 of this title, of the amount, as determined by the Secretary which determination shall be conclusive, paid by or for the account of the obligor for the construction, reconstruction, or reconditioning of a vessel or vessels with respect to which a security interest has been conveyed to the Secretary, unless the obligor creates an escrow fund as authorized by section 1279a of this title, in which case the Secretary may guarantee 75 per centum or 871⁄21⁄2 per centum, whichever is applicable under section 1274 of this title, of the actual cost of such vessel or vessels.

(d) Pledge of United States

The full faith and credit of the United States is pledged to the payment of all guarantees made under this subchapter with respect to both principal and interest, including interest, as may be provided for in the guarantee, accruing between the date of default under a guaranteed obligation and the payment in full of the guarantee.

(e) Proof of obligations

Any guarantee, or commitment to guarantee, made by the Secretary under this subchapter shall be conclusive evidence of the eligibility of the obligations for such guarantee, and the validity of any guarantee, or commitment to guarantee, so made shall be incontestable.

(f) Limitation on outstanding amount

The aggregate unpaid principal amount of the obligations guaranteed under this section and outstanding at any one time shall not exceed $12,000,000,000, of which $1,650,000,000 shall be limited to obligations pertaining to commerical demonstration ocean thermal energy conversion facilities or plantships guaranteed under section 1279c of this title, and of which $850,000,000 shall be limited to obligations pertaining to guarantees of obligations for fishing vessels and fishery facilities made under this subchapter. No additional limitations may be imposed on new commitments to guarantee loans for any fiscal year, except in such amounts as established in advance in annual authorization Acts. No vessel eligible for guarantees under this subchapter shall be denied eligibility because of its type.

(June 29, 1936, ch. 858, title XI, § 1103, as added June 23, 1938, ch. 600, § 46, 52 Stat. 969, and amended Aug. 15, 1953, ch. 513, § 1, 67 Stat. 626; Sept. 3, 1954, ch. 1265, § 3, 68 Stat. 1268; June 25, 1956, ch. 438, 70 Stat. 332; Aug. 7, 1956, ch. 1026, § 1(a), (c), (d), 70 Stat. 1087; Oct. 21, 1970, Pub. L. 91-469, § 30, 84 Stat. 1035; Oct. 19, 1972,

Pub. L. 92-507, § 3, 86 Stat. 910; July 10, 1973, Pub. L. 93-70, § 3, 87 Stat. 168; Nov. 13, 1975, Pub. L. 94-127, § 5, 89 Stat. 681; June 26, 1978, Pub. L. 95-298, § 5, 92 Stat. 340; Aug. 3, 1980, Pub. L. 96-320, title II, § 203(b)(1), 94 Stat. 994; Dec. 22, 1980, Pub. L. 96-561, title II, § 220(2), 94 Stat. 3292; Aug. 6, 1981, Pub. L. 97-31, § 12(136), 95 Stat. 166; Aug. 13, 1981, Pub. L. 97-35, title XVI, § 1606(a), (b), 95 Stat. 752; Jan. 6, 1983, Pub. L. 97-424, title IV, § 425, 96 Stat. 2167.)

AMENDMENTS

1983-Subsec. (f). Pub. L. 97-424 added provision that no additional limitations may be imposed on new commitments to guarantee loans for any fiscal year, except in such amounts as established in advance in annual authorization Acts, and that no vessel eligible for guarantees under this subchapter shall be denied eligibility because of its type.

1981-Subsecs. (a) to (c), (e). Pub. L. 97-31 struck out "of Commerce" following "Secretary" wherever appearing.

Subsec. (f). Pub. L. 97-35, § 1606(b), increased the maximum amount from $10,000,000,000 to $12,000,000,000, and substituted provisions relating to monetary limitations and criteria for obligations, for former pars. (1) and (2) relating to percentage limitations and criteria for obligations, and required aggregate amount.

1980-Subsec. (f). Pub. L. 96-561 added pars. (1) and (2) and provision that the aggregate amount reserved for the purposes set forth in pars. (1) and (2) equal 10 percent of such sum.

Pub. L. 96-320, § 203(b), which effective Oct. 1, 1981, substituted "$12,000,000,000, of which $2,000,000,000 shall be limited to obligations pertaining to commercial demonstration ocean thermal energy conversion facilities or plantships guaranteed pursuant to section 1279c of this title" for "$10,000,000,000" was later repealed by Pub. L. 97-35. See Repeals note set out below.

1978-Subsec. (f). Pub. L. 95-298 increased limitation on amount of outstanding obligations from $7,000,000,000 to $10,000,000,000.

1975-Subsec. (f). Pub. L. 94-127 increased limitation on amount of outstanding obligations from $5,000,000,000 to $7,000,000,000.

1973-Subsec. (f). Pub. L. 93-70 increased limitation on amount of outstanding obligations from $3,000,000,000 to $5,000,000,000.

1972-Subsec. (a). Pub. L. 92-507 incorporated provisions of former subsecs. (a) and (b) into subsec. (a) and substituted provisions authorizing the Secretary to guarantee the payment of principal and interest on the obligation for provisions authorizing the Secretary to insure a mortgage or a loan.

Subsec. (b). Pub. L. 92-507 added subsec. (b). Provisions of former subsec. (b) were incorporated into subsec. (a).

Subsec. (c). Pub. L. 92-507 substituted provisions making the Secretary's determination of actual cost of the vessel conclusive for the purposes of determining the maximum amount which may be guaranteed, for provisions making the mortgagee or lender the beneficiary of insurance contracts.

Subsec. (d). Pub. L. 92-507 substituted provisions pledging the full faith and credit of the United States for payment of all guarantees with interest, for provisions pledging the faith of the United States to the payment of principal and interest of each mortgage and loan.

Subsec. (e). Pub. L. 92-507 added subsec. (e). Former subsec. (e) redesignated (f).

Subsec. (f). Pub. L. 92-507 redesignated former subsec. (e) as subsec. (f), and in subsec. (f) as so redes

ignated, substituted "obligations guaranteed" for "mortgages and loans insured".

1970-Subsec. (e). Pub. L. 91-469 increased limitation on outstanding amount of mortgages and loans insured under this section from one to three billion dollars.

1956-Subsec. (a). Act Aug. 7, 1956, § 1(a), (c), eliminated "90 per centum of" preceding "the unpaid balance" and eliminated proviso that as to special purpose vessels certified essential to national defense, Secretary of Commerce may insure 100 per centum of principal and interest on eligible mortgages.

Subsec. (b). Act Aug. 7, 1956, § 1(a), (c), eliminated "90 per centum of" preceding "the unpaid balance" and eliminated proviso that as to special purpose vessels certified essential to national defense, Secretary of Commerce may insure 100 per centum of principal and interest on eligible loans.

Subsec. (d). Act Aug. 7, 1956, § 1(d), eliminated "the" preceding "interest on and" and the words "90 per centum of" following such words.

Act June 25, 1956, pledged the faith of the United States, in the case of special-purpose vessels, to the payment of the interest on and 100 per centum of the unpaid balance of the principal amount of each mortgage and loan insured under this subchapter.

1954-Act Sept. 3, 1954, provided for the insurance of mortgages by Secretary up to 90 per centum of unpaid balance except that vessels essential to national defense may be insured up to 100 per centum, to provide for insurance contracts, pledged the United States as security, and limited aggregate unpaid principal to $1,000,000,000.

1953-Act Aug. 15, 1953, designated existing provisions as subsec. (a), inserted after "provided" the words "90 per centum of the unpaid balance" and struck out the last sentence relating to aggregate amount of mortgage obligations, and added subsecs. (b) and (c).

EFFECTIVE DATE OF 1956 AMENDMENT

Act June 25, 1956, which amended subsec. (d) of this section, provided in part that the amendment of subsec. (d) should be effective Sept. 3, 1954.

REPEALS

Pub. L. 96-320, title II, § 203(b), Aug. 3, 1980, 94 Stat. 994, cited as a credit to this section, which amended subsec. (f) of this section, effective Oct. 1, 1981, by increasing the aggregate unpaid principal amount of obligations guaranteed under this section to $12,000,000,000 of which $2,000,000,000 was to be limited to obligations pertaining to commercial demonstration ocean thermal energy conversion facilities or plantships guaranteed pursuant to section 1279c of this title, was repealed by Pub. L. 97-35, title XVI, § 1606(a), Aug. 13, 1981, 95 Stat. 752.

ELECTION OF COVERAGE

Section 7 of Pub. L. 92-507 provided that: "Any citizen of the United States to whom the Secretary of Commerce issued an approval in principle of an application for loan or mortgage insurance or a commitment with respect to such insurance under the provisions of title XI of the Merchant Marine Act, 1936 [this subchapter), prior to the effective date of this Act [Oct. 19, 1972] may elect, with respect to the vessels covered by such approval or commitment, to be bound either by the provisions of title XI of the Merchant Marine Act, 1936 [this subchapter], as in effect prior to the effective date of this Act [Oct. 19, 1972] or by the provisions of this Act [see Short Title of 1972 Amendment note under section 1245 of this title]."

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1274, 1279c of this title.

§ 1274. Eligibility for guarantee

(a) Purpose of obligations

Pursuant to the authority granted under section 1273(a) of this title, the Secretary, upon such terms as he shall prescribe, may guarantee or make a commitment to guarantee, payment of the principal of and interest on an obligation which aids in

(1) financing, including reimbursement of an obligor for expenditures previously made for, construction, reconstruction, or reconditioning of a vessel or vessels owned by citizens of the United States which are designed principally for research, or for commercial use (A) in the coastwise or intercoastal trade; (B) on the Great Lakes, or on bays, sounds, rivers, harbors, or inland lakes of the United States; (C) in foreign trade as defined in section 1244 of this title for purposes of subchapter V of this chapter;; or (D)' as an ocean thermal energy conversion facility or plantship; or (E) with respect to floating drydocks, in the construction, reconstruction, reconditioning, or repair of vessels: Provided, however, That no guarantee shall be entered into pursuant to this paragraph (a)(1) later than one year after delivery, or redelivery in the case of reconstruction or reconditioning of any such vessel unless the proceeds of the obligation are used to finance the construction, reconstruction, or reconditioning of a vessel or vessels, or facilities or equipment pertaining to marine operations;

(2) financing, including reimbursement of an obligor for expenditures previously made for, construction, reconstruction, reconditioning, or purchase of a vessel or vessels owned by citizens or nationals of the United States or citizens of the Northern Mariana Islands which are designed principally for research, or for commercial use in the fishing trade or industry;

(3) financing the purchase of vessels theretofore acquired by the Fund under the provisions of section 1275 of this title and reconditioning and reconstructing such vessels;

(4) financing, in whole or in part, the repayment to the United States of any amount of construction-differential subsidy paid with respect to a vessel pursuant to subchapter V of this chapter;

(5) refinancing existing obligations issued for one of the purposes specified in (1), (2), (3), or (4) whether or not guaranteed under this subchapter, including, but not limited to, short-term obligations incurred for the purpose of obtaining temporary funds with the view to refinancing from time to time;

(6) financing or refinancing, including, but not limited to, the reimbursement of obligors for expenditures previously made for, the construction, reconstruction, reconditioning, or purchase of fishery facilities; or

(7) financing the purchase of fishing vessels or fishery facilities, the construction, reconstruction, reconditioning, or purchase of which was guaranteed under this subchapter,

'So in original. Probably should be "chapter; (D)".

that are sold at foreclosure instituted by the Secretary, or are sold by the Secretary following purchase at foreclosure, and the reconstruction or reconditioning thereof.

Any obligation guaranteed under paragraph (6) shall be treated, for purposes of this subchapter in the same manner and to the same extent as an obligation guaranteed under this subchapter which aids in the construction, reconstruction, reconditioning, or purchase of a vessel; except with respect to provisions of this subchapter that by their nature can only be applied to vessels.

(b) Contents of obligations

Obligations guaranteed under this subchapter

(1) shall have an obligor approved by the Secretary as responsible and possessing the ability, experience, financial resources, and other qualifications necessary to the adequate operation and maintenance of the vessel or vessels which serve as security for the guarantee of the Secretary;

(2) subject to the provisions of paragraph (1) of subsection (c) of this section, shall be in an aggregate principal amount which does not exceed 75 per centum of the actual cost or depreciated actual cost, as determined by the Secretary, of the vessel which is used as security for the guarantee of the Secretary: Provided, however, That in the case of a vessel, the size and speed of which are approved by the Secretary; and which is or would have been eligible for mortgage aid for construction under section 1159 of this title (or would have been eligible for mortgage aid under section 1159 of this title except that the vessel was built with the aid of construction-differential subsidy and said subsidy has been repaid) and in respect of which the minimum downpayment by the mortgagor required by that section would be or would have been 12 per centum of the cost of such vessel, such obligations may be in an amount which does not exceed 87% per centum of such actual cost or depreciated actual cost: Provided, further, That the obligations which relate to a barge which is constructed without the aid of construction-differential subsidy, or, if so subsidized, on which said subsidy has been repaid, may be in an aggregate principal amount which does not exceed 87% per centum of the actual cost or depreciated actual cost thereof: Provided, further, That in the case of any vessel to be used in the fishing trade or industry, such obligations may be in an aggregate principal amount which does not exceed 87% per centum of the actual cost or depreciated actual cost of the vessel: Provided further, That in the case of an ocean thermal energy conversion facility or plantship which is constructed without the aid of construction-differential subsidy, such obligations may be in an aggregate principal amount which does not exceed 87% percent of the actual cost or depreciated actual cost of the facility or plantship;

(3) shall have maturity dates satisfactory to the Secretary but, subject to the provisions of paragraph (2) of subsection (c) of this section,

not to exceed twenty-five years from the date of the delivery of the vessel which serves as security for the guarantee of the Secretary or, if the vessel has been reconstructed or reconditioned, not to exceed the later of (i) twenty-five years from the date of delivery of the vessel and (ii) the remaining years of the useful life of the vessel as determined by the Secretary;

(4) shall provide for payments by the obligor satisfactory to the Secretary;

(5) shall bear interest (exclusive of charges for the guarantee and service charges, if any) at rates not to exceed such per centum per annum on the unpaid principal as the Secretary determines to be reasonable, taking into account the range of interest rates prevailing in the private market for similar loans and the risks assumed by the Secretary;

(6) shall provide, or a related agreement shall provide, that if the vessel used as security for the guarantee of the Secretary is a delivered vessel, the vessel shall be in class A-1, American Bureau of Shipping, or shall meet such other standards as may be acceptable to the Secretary, with all required certificates, including but not limited to, marine inspection certificates of the United States Coast Guard, with all outstanding requirements and recommendations necessary for retention of class accomplished, unless the Secretary permits a deferment of such repairs, and shall be tight, stanch, strong, and well and sufficiently tackled, appareled, furnished, and equipped, and in every respect seaworthy and in good running condition and repair, and in all respects fit for service; and

(7) may provide, or a related agreement may provide, if the vessel used as security for the guarantee of the Secretary is a passenger vessel having the tonnage, speed, passenger accommodations and other characteristics set forth in subchapter V of this chapter, and if the Secretary approves, that the sole recourse against the obligor by the United States for any payments under the guarantee shall be limited to repossession of the vessel and the assignment of insurance claims and that the liability of the obligor for any payments of principal and interest under the guarantee shall be satisfied and discharged by the surrender of the vessel and all right, title, and interest therein to the United States: Provided, That the vessel upon surrender shall be (i) free and clear of all liens and encumbrances whatsoever except the security interest conveyed to the Secretary under this subchapter, (ii) in class, and (iii) in as good order and condition, ordinary wear and tear excepted, as when acquired by the obligor, except that any deficiencies with respect to freedom from encumbrances, condition and class may, to the extent covered by valid policies of insurance, be satisfied by the assignment to the Secretary of claims of the obligor under such policies.

The Secretary may not establish, as a condition of eligibility for guarantee under this subchapter, a minimum principal amount for an obligation covering the reconstruction or recon

Sept. 2, 1960, Pub. L. 86-685, §§ 2, 3, 74 Stat. 733; June 15, 1968, Pub. L. 90-341, 82 Stat. 180; Oct. 21, 1970, Pub. L. 91-469, §§ 31, 32, 84 Stat. 1035; Oct. 19, 1972, Pub. L. 92-507, § 3, 86 Stat. 910; Apr. 7, 1978, Pub. L. 95-257, 92 Stat. 194; Aug. 3, 1980, Pub. L. 96-320, title II, § 202(b), (c), 94 Stat. 992; Dec. 22, 1980, Pub. L. 96-561, title II, § 220(3), 94 Stat. 3292; Aug. 6, 1981, Pub. L. 97-31, § 12(136), 95 Stat. 166; Aug. 13, 1981, Pub. L. 97-35, title XVI, § 1606(c), (d), 95 Stat. 752.)

AMENDMENTS

1981-Subsecs. (a) to (c). Pub. L. 97-31 struck out "of Commerce" following "Secretary" wherever appearing.

Subsec. (d). Pub. L. 97-35, § 1606(c), in par. (1) substituted "No" for "Except as provided in paragraph (2), no", struck out par. (2) which related to application of par. (1), and redesignated par. (3) as (2).

Pub. L. 97-31 struck out "of Commerce" following "Secretary" wherever appearing.

Subsecs. (e), (f). Pub. L. 97-31 struck out "of Commerce" following "Secretary" wherever appearing.

Subsec. (g). Pub. L. 97-35, § 1606(d), designated par. (1) as entire provision, and struck out par. (2), which required the Secretary to establish subfunds within the Fund.

Pub. L. 97-31 struck out "of Commerce" following "Secretary".

Subsec. (h). Pub. L. 97-31 struck out "of Commerce" following "Secretary" in two instances.

1980-Subsec. (a). Pub. L. 96-561, § 220(3)(A)(vi), inserted provision following par. (7) that any obligation guaranteed under par. (6) be treated, for purposes of this subchapter, in the same manner and to the same extent as an obligation guaranteed under this subchapter which aids in the construction, reconstruction, reconditioning, or purchase of a vessel, except with respect to provisions of this subchapter that by their nature can only be applied to vessels.

Subsec. (a)(1). Pub. L. 96-561, § 220(3)(A)(i), (ii), substituted"; or (D)" for "(D) in the fishing trade or industry; (E)" and redesignated cl. (F) as (E).

Pub. L. 96-320, § 202(b), redesignated cl. (E), relating to floating drydocks, as cl. (F) and added cl. (E) relating to ocean thermal energy conversion facilities or plantships.

Subsec. (a)(2). Pub. L. 96-561, § 220(3)(A)(iii), added par. (2) and redesignated former par. (2) as (3).

Subsec. (a)(3). Pub. L. 96-561, § 220(3)(A)(iii), redesignated former par. (2) as (3). Former par. (3) redesignated (4).

Subsec. (a)(4). Pub. L. 96-561, § 220(3)(A)(iii), (iv), redesignated former par. (3) as (4), and in par. (4) as so redesignated, substituted "this chapter;" for "this chapter; or". Former par. (4) redesignated (5).

Subsec. (a)(5). Pub. L. 96-561, § 220(3)(A)(iii), (v), redesignated former par. (4) as (5), and in par. (5) as so redesignated, substituted "(3), or (4)" for "or (3)" and a semicolon for a period at the end thereof.

Subsec. (a)(6), (7). Pub. L. 96-561, § 220(3)(A)(vi), added pars. (6) and (7).

Subsec. (b)(2). Pub. L. 96-320, § 202(c), added proviso that in the case of an ocean thermal energy conversion facility or plantship which is constructed without the aid of construction-differential subsidy, the obligations may be in an aggregate principal amount which does not exceed 87% percent of the actual cost or depreciated actual cost of the facility or plantship. Subsec. (b). Pub. L. 96-561, § 220(3)(B), inserted provision following par. (7) prohibiting the Secretary from establishing, as a condition of eligibility for guarantee, a minimum principal amount for an obligation covering the reconstruction or reconditioning of a fishing vessel or fishery facility, which reconstruction or reconditioning does not include the routine minor repair or maintenance of the vessel or facility.

Subsec. (d). Pub. L. 96-561, § 220(3)(C), designated existing provision as par. (1), and in par. (1), as so designated, substituted "Except as provided in paragraph (2), no" for "No", and added pars. (2) and (3).

Subsec. (g). Pub. L. 96-561, § 220(3)(D), designated existing provision as par. (1) and added par. (2). 1978-Subsec. (b)(2). Pub. L. 95-257 added proviso relating to vessels to be used in the fishing trade or industry.

1972 Subsec. (a). Pub. L. 92-507 substituted provisions relating to the purposes for which guarantees may be made, for provisions relating to the eligibility of mortgages for insurance.

Subsec. (b). Pub. L. 92-507 substituted provisions relating to the eligibility requirements of obligations for guarantee, for provisions relating to the eligibility of loans for insurance.

Subsec. (c). Pub. L. 92-507 substituted provisions that security for guarantee may relate to more than one vessel, that security may consist of any combination of types of security, and that an obligation may have the latest maturity date permissible for any vessel which serves as security for the government guarantee of the related obligations, for provisions relating to the prior determination of the soundness of the property or project for mortgage or loan.

Subsec. (d). Pub. L. 92-507 incorporated provisions of former subsec. (c) into subsec. (d) and extended provisions of this subchapter to commercial fishing vessels. Provisions of former subsec. (d) were incorporated into subsec. (e).

Subsec. (e). Pub. L. 92-507 incorporated provisions of former subsec. (d) into subsec. (e) and substituted therein provisions authorizing the Secretary to fix a fee for the guarantee of obligations and providing separate formulae for delivered vessels and vessels under construction, for provisions authorizing the Secretary to fix a premium charge for the insurance of mortgages and loans and providing separate formulae for mortgages and loans by reference to section 1273 of this title. Provisions of former subsec. (e) were incorporated into subsec. (f).

Subsec. (f). Pub. L. 92-507 incorporated provisions of former subsec. (e), relating to the collection of investigation fees from applicants for insurance into subsec. (f), and substituted therefor provisions relating to the collection of investigation fees from applicants for guarantee. Provisions of former subsec. (f) incorporated into subsec. (g).

Subsec. (g). Pub. L. 92-507 incorporated provisions of former subsec. (f) into subsec. (g).

Subsec. (h). Pub. L. 92-507 added subsec. (h). 1970-Subsec. (a)(8). Pub. L. 91-469, § 31, inserted "research, or for" preceding "commercial use".

Subsec. (b). Pub. L. 91-469, § 32, inserted in par. (2) "research, or for" preceding "commercial use", substituted in par. (4) "not exceed" for "be less than", and inserted in par. (4) restriction that advance and principal amount of other advances under insured loans outstanding at time of advance shall not exceed 87% per centum of actual cost of vessel where in the case of the approved vessel the minimum downpayment by the mortgagor required by section 1159 of this title would be 12 per centum of cost of vessel.

1968-Subsec. (a)(5). Pub. L. 90-341 substituted provision that the maximum interest rates allowed on ship mortgages eligible for insurance coverage be at such rates on the outstanding principle obligation as determined by the Secretary of Commerce to be reasonable, taking into account the prevailing rates and the risks assumed by the Department of Commerce, for provision setting a maximum of 5 per centum per annum, or 6 per centum per annum when the Secretary determined that in certain areas or under special circumstances the mortgage or lending market demanded it.