USDA Rural Housing Issues Funding Update: Lenders Still in Limbo
FYI: This update was issued to lenders yesterday by the USDA Rural Housing Office.....
HERE is the presser issued by the USDA
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TO: Participating Lenders
FROM: Tammye Trevifio, Administrator, Housing and Community Facilities Programs
SUBJECT: Single Family Housing Guaranteed Loan Program Funding Notice
Many of you may be aware of recent legislation in which Congress provided USDA with authority to resume operating the Single Family Housing Guaranteed Loan Program (SFHGLP) at no cost to taxpayers. This was done through a combination of authority to: increase the upfront fee up to 3.5 percent of the principal obligation; charge a new annual fee of up to 0.5 percent of the outstanding principal balance; and waive payment of any fees for low and very low income borrowers up to a certain amount of loan guarantees.
Rural Development expects to complete an interim enhancement to its electronic systems by mid-September to accommodate the increase in the up-front fee to 3.5 percent. When this interim enhancement is complete, Rural Development will process all Conditional Commitments issued after May 26, 2010, that had the proviso "subject to the availability of funds." These Conditional Commitments will be processed in the date order by which they were received by the agency. Also, after the enhancements are completed, Rural Development will resume issuing standard commitments without the special "subject to" condition.
In the meantime, Rural Development will continue to accept complete loan applications and issue Conditional Commitments subject to the condition in italics below. Lenders may close loans upon receipt of these conditional commitments, but will assume all risk until the Loan Note guarantee is issued.
This Conditional Commitment is subject to the continuing availability of funds and the completion of Rural Development operation systems enhancements to implement guarantee fee changes made by Public Law 111-212, sec. 102 (7/29/10). When Rural Development operation systems enhancements are completed, the Agency will notify the lender, and the guarantee process will continue subject to all applicable Agency regulations and conditions set forth in this Conditional Commitment. Rural Development will not reserve loan funds for applications in process during this timeframe. Lenders may close the loan as scheduled.
The lender will assume all risk of loss for the loan until Rural Development obligates funds and the Loan Note Guarantee is subsequently issued. When the lender requests the Loan Note Guarantee, the lender must certify to the Agency, using the process provided in this commitment, that there have been no adverse changes to the borrower's financial condition since the date the Conditional Commitment was issued by the Agency. The lender will submit the appropriate guarantee fee at the time they request the Loan Note Guarantee. The Agency will not be able to issue the Loan Note Guarantee until these conditions are met and funding is obligated.
Rural Development also is working on a more complete system upgrade to accommodate all provisions of the new law. We expect this full enhancement to be completed as early as possible next fiscal year. While the 3.5 percent up-front fee is sufficient at the current subsidy rate, we must be prepared to make adjustments in later years using the new authority for an annual fee to maintain a zero cost program. We appreciate your role as a lender in responsibly servicing loans in the SFHGLP portfolio and helping us maintain a successful program.
All Conditional Commitments issued for purchase loans under the authority described in this memorandum are subject to a guarantee fee of 3.5 percent. A sample of the Conditional Commitment form, and its attachment, are both attached. The italicized language set out above will be added as an "other condition" on the attachment.
The waiver of fees for Low Income and Very Low Income borrowers that was authorized in Public Law 111-212, sec. 102, cannot be accommodated at this time. However, borrowers who meet the criteria may be eligible for USDA's Section 502 Direct Loan Program which currently has sufficient funding to meet the needs for the remainder of the 2010 Fiscal Year. Please consult with the closest Rural Development Office in your area for more information on the Direct lending process.
Based on current usage, sufficient funds should be available for the remainder of the FY to fund all guaranteed refinance loans at a 0.5 percent guarantee fee. Your support of the SFHGLP is appreciated. For questions regarding this notice, please contact Rural Development's Single Family Housing Guaranteed Loan Division at (202) 720-1452.
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While this update addresses the question "Where's the Funding?", no real answer was supplied as to why lenders still have to stomach the risk of funding Section 520 loans with a "Conditional Commitment". This caveat will keep most lenders from offering USDA loans. At this point only a handful of lenders buy guaranteed Section 502 paper and one of those lenders just announced they were discontinuing the product, today! They don't want the EPD risk. I hope more don't follow suit...
The USDA says they're working on an "interim enhancement to its electronic systems" and to expect completion by mid-September. Until then the USDA program will be stuck in limbo. The new financial year begins on October 1, what was the point of passing legislation on June 29, 2010? Why is this update taking so long?
THIS POST shares some insight on that question.
And another question: WHY IS THIS INFORMATION SO HARD TO FIND? IT'S NOT ON THE USDA WEBSITE! WHY DON'T THEY COMMUNICATE??!!!???