((a)) ** .—** If the proceeds of an obligation guaranteed under this chapter are to be used to finance the construction, reconstruction, or reconditioning of a vessel that will serve as security for a guarantee under this chapter, the Secretary or Administrator may accept and hold in escrow, under an escrow agreement with the obligor, a portion of the proceeds of all obligations guaranteed under this chapter whose proceeds are to be so used which is equal to—

((1)) the excess of—

((A)) the principal amount of all obligations whose proceeds are to be so used; over

((B)) 75 percent or 87.5 percent, whichever is applicable under , of the amount paid by or for the account of the obligor for the construction, reconstruction, or reconditioning of the vessel; plus

((2)) any interest the Secretary or Administrator may require on the amount described in paragraph (1).

((b)) ** .—** If the security for the guarantee of an obligation relates both to a vessel to be constructed, reconstructed, or reconditioned and to a delivered vessel, the principal amount of the obligation shall be prorated for purposes of subsection (a) under regulations prescribed by the Secretary or Administrator.

((c)) ** .—**

((1)) ** .—** The Secretary or Administrator shall disburse amounts in the escrow fund, as specified in the escrow agreement, to—

((A)) pay amounts the obligor is obligated to pay for—

((i)) the construction, reconstruction, or reconditioning of a vessel used as security for the guarantee; and

((ii)) interest on the obligations;

((B)) redeem the obligations under a refinancing guaranteed under this chapter; and

((C)) pay any excess interest deposits to the obligor at times provided for in the escrow agreement.

((2)) ** .—** If a payment becomes due under the guarantee before the termination of the escrow agreement, the amount in the escrow fund at the time the payment becomes due, including realized income not yet paid to the obligor, shall be paid into the appropriate account under . The amount shall be credited against amounts due or to become due from the obligor to the Secretary or Administrator on the guaranteed obligations or, to the extent not so required, be paid to the obligor.

((d)) ** .—**

((1)) ** .—** No disbursement shall be made under subsection (c) to any person until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 12.5 percent, whichever is applicable under , of the aggregate actual cost of the vessel, as previously approved by the Secretary or Administrator. If the aggregate actual cost of the vessel has increased since the Secretary’s or Administrator’s initial approval or if it increases after the first disbursement is permitted under this subsection, then no further disbursements shall be made under subsection (c) until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 12.5 percent, as applicable, of the increase, as determined by the Secretary or Administrator, in the aggregate actual cost of the vessel. This paragraph does not require the Secretary or Administrator to consent to finance any increase in actual cost unless the Secretary or Administrator determines that such an increase in the obligation meets all the terms and conditions of this chapter or other applicable law.

((2)) ** .—** The Secretary or Administrator shall, by regulation, establish a transparent, independent, and risk-based process for verifying and documenting the progress of projects under construction before disbursing guaranteed loan funds. At a minimum, the process shall require documented proof of progress in connection with the construction, reconstruction, or reconditioning of a vessel or vessels before disbursements are made from the escrow fund. The Secretary or Administrator may require that the obligor provide a certificate from an independent party certifying that the requisite progress in construction, reconstruction, or reconditioning has taken place.

((e)) ** .—**

((1)) ** .—** If a payment has not become due under the guarantee before the termination of the escrow agreement, the balance of the escrow fund at the time of termination shall be disbursed to—

((A)) prepay the excess of—

((i)) the principal amount of all obligations whose proceeds are to be used to finance the construction, reconstruction, or reconditioning of the vessel used or to be used as security for the guarantee; over

((ii)) 75 percent or 87.5 percent, whichever is applicable under , of the actual cost of the vessel to the extent paid; and

((B)) pay interest on that prepaid amount of principal.

((2)) ** .—** Any remaining balance of the escrow fund shall be paid to the obligor.

((f)) ** .—** The Secretary or Administrator may invest and reinvest any part of an escrow fund in obligations of the United States Government with maturities such that the escrow fund will be available as required for purposes of the escrow agreement. Investment income shall be paid to the obligor when received.

((g)) ** .—** The escrow agreement shall contain other terms the Secretary or Administrator considers necessary to protect fully the interests of the Government.