In March we learned that USDA Rural Housing funds were expected to run dry by the end of April.
A month later, even though the legislation intended to provide the funding had not passed, USDA began issuing commitments for new loans, but there was a caveat: Loan approvals would be "subject to the availability of funds and Congressional authority to charge a 3.5 percent guarantee fee for purchase loans and a 2.25 percent guarantee fee for refinance loans."
Finally, on July 29 Congress passed HR 4899 to reestablish the program as one that would no longer be subject to the annual whims of Federal funding but self-sustaining through a 3.5 percent guarantee fee paid by the borrower.
Four weeks passed after the Congress did their job and appropriated unlimited funding for the USDA Rural Housing Program, yet all loans under Section 502 still had to carry the "subject to availability" caveat. This forced us to ask the question: WHERE'S THE FUNDING WHAT'S THE HOLD UP? Shortly thereafter, USDA issued THIS ANNOUNCEMENT which stated the following: "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. The lender will assume all risk of loss for the loan until Rural Development obligates funds and the Loan Note Guarantee is subsequently issued". This left borrowers in limbo as many lenders simply stopped funding USDA Section 502 product as the early payment default (EPD) risk was just too much to take on in this lending environment. But the USDA said we should expect the completion of the interim system by "mid-September". So we waited.
TO: Participating Lenders
FROM: Tammye Trevino, Administrator, Housing and Community Facilities Programs
SUBJECT: Single Family Housing Guaranteed Loan Program Funding Notice
Rural Development's interim systems enhancements will complete on September 8, 2010, at which time the Agency will begin obligating Section 502 Single Family Housing Guaranteed Loans. The systems enhancements will:
- Phase out the old 2 percent fee structure for purchase loan guarantees;
- Allow for a new up-front fee of 3.5 percent as authorized by Congress in Public Law 111-212, sec. 102(7/29/10);
- Enable lenders with access to Rural Development's Guaranteed Underwriting System (GUS) to begin submitting new loan requests through GUS.
The first priority on September 8, 2010 will be for Rural Development to fund the backlog of approximately $1.6 billion in Conditional Commitments that were issued after May 26, 2010, with the proviso "subject to availability of funds" language. Beginning September 8, lenders may submit their final closing packages and guarantee fees. After those commitments have been processed, Rural Development will begin processing new Conditional Commitment requests. Sufficient funds will be available for all requests during the remainder of the fiscal year (FY).
Requests for refinance will remain at the present fee structure of .5 percent for the remainer of the FY. However, the system has been enhanced to accommodate the increased refinance fee of 2.25 percent which will be effective October 1, 2010.
We appreciate your continued support of the Single Family Housing Guaranteed Loan Program (SFHGLP). Questions regarding this notice may be directed to the SFHGLP division at 202.720.1452.
Way to go USDA! Everything would be "all good" if you could be just a little more proactive about communicating with the masses....
John Rodgers, our resident USDA lending expert adds, " Funds have been loaded into the system and GUS is up and running, we should see more lenders turning the program back on soon. This means business as usual for Rural Development, as long as the new system is glitch free. Remember the new funding fee is 3.5%."
I know the biggest USDA lender has already issued guidance on the delivery process. If you haven't seen that announcement, get with your production manager, account executive, or secondary manager ASAP. Make sure your closing package includes a check for the guarantee fee as well as an executed Lender Certification!