USDA Lowers Upfront Guarantee Fee. Shifts Cost to Annual Repayment
month the U.S. Department of Agriculture (USDA) issued an Administrative Notice
(AN) shifting a portion of the upfront fee it charges for the Single Family Housing
Guaranteed Loan Program (SFHGLP) to the annual fee.
The two fees, part of Public Law 111-212 are an
attempt to make the popular loan program self-sustaining and to eliminate or at
least minimize the frequent interruptions suffered by the program. Under the legislation the Secretary of USDA
is authorized to collect an upfront fee from lenders of up to 3.5 percent for
its guarantee of a loan or modification of a loan and an additional annual fee
not to exceed 0.5 percent of the outstanding principal balance of the loan for
the life of the loan. The annual fee is
applicable to purchase and refinance loan transactions.
bill was passed an upfront fee of the full 3.5 percent rate authorized by
Congress was put into effect. The AN
issued on February 3, notifies lenders that USDA will be lowering the upfront fee
to 2 percent of the loan amount and implementing an annual fee of 0.3 of the
unpaid principal balance for all
purchase loan transactions. The changes will
go into effect on October 1, 2011.
The SFHGP ran through its $13.1 billion program funding early in
2010 and home buyers encountered long delays in completing their purchases
until Congress reauthorized additional funding in late July. Depleted funding had been a nearly annual
occurrence for the program that guarantees loans for single family homes in
designated exurban and rural areas. The
delay last year, however, caused an unusual number of problems by pushing many
homebuyers up against or past the deadlines for using the popular Homebuyer Tax
Credits which were available until June 30.
to the AN, "the intent of the annual fee is to make the SHHGLP subsidy
neutral, thus eliminating the need for taxpayer support of the program." The fee will be calculated annually and
billed to the lender on the anniversary date of the loan with the calculation based
on the "scheduled amortized unpaid principal balance (UPB) of the loan,
not the actual UPB." The annual fee
will be collected through Pay.Gov and is subject to a 4 percent late fee if not
paid within 15 days of billing.