Last 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.

When the 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. 

According 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.