Is it permissible for a lender to secure the unguaranteed portion of a loan with bank CDs owned by the borrower's parents?

In the context of farm loans, it is important to recognize the regulations surrounding loan collateral and the relationships involved. Securing the unguaranteed portion of a loan with assets that belong to individuals who are not the primary borrower, such as the bank CDs owned by the borrower's parents, is generally not permissible.

This is because lenders typically prioritize collateral that directly relates to the borrower. Accepting collateral from a third party, especially family members, can introduce complexities with regard to the ownership, control, and marketability of those assets. Lenders must ensure that the collateral is tied directly to the loan applicant to maintain transparency and mitigate risk. Thus, the correct interpretation of this scenario validates the understanding that it would not be allowed for a lender to secure a loan portion using the assets of the borrower's parents.