USDA Rural Housing Loan

 

Updated information- Check it out below

I normally hate titles that are meant to scare people into reading but unfortunately this time there is no exaggeration to the severity of the issue. USDA Guaranteed Rural Development loans, one of the best low/no down payment financing programs left, has recently announced they expect to be out of the funds they use to guarantee loans by late April. If no action is taken by Congress to re-appropriate more funds then it will be the next budget year, after October, before we have this financing option again.

But the Tax Credit deadline is looming

Exactly- This funding shortfall couldn't happen at a worse time. Now as contacts are being negotiated, applications are being taken and plans are being made to ensure buyers meet the dates of the tax credit deadline, we throw a wrench in the system. Should a buyer proceed with USDA financingif they have just received a fully executed contract? Should a buyer that has been prequalified for a Rural Development loan continue house shopping? What can this mean to a buyer that is already in the process too far to turn back?

These questions must all be dealt with on a case by case basis, depending on a variety of factors. One of the most important factors to consider is current and anticipated turn times for your local USDA underwriting. Here in Lake County, FL USDA is at 7-10 business days so unless you can have your loan ready to go to the USDA by April 9^th, there is a good possibility you may not make the funding cutoff. This is further complicated by the fact that USDA is the only loan program that does not require HVCC type appraisal restrictions (VA is a different animal but with the same results). This means if you commit to USDA financing now and are forced to revert to FHA or another program, you may need a new appraisal.

Buyers should follow the advice of their trusted lenders and know that proceeding with a USDA loan without enough time to make this cutoff is a gamble. We truly need an act of Congress to approve additional funds for these loans. Although it seems logical that they should want to avoid such a deep blow to the housing industry at this time, we all know oftentimes there is precious little logic in D.C. If you think I'm exaggerating the seriousness of this, do know the USDA Guaranteed RD program resulted in over 3500 transactions since October 1, 2009 in Florida alone! That breaks out to over 350 deals a month. Sure, some may be able to qualify through another program like FHA or VA but many won't.

Is there anything we can do to help?

Yes- please accept this call to action to contact your trade associations and express the severity of this. NAR, NAMB and the NAHB have all been made aware of this and I trust are beginning lobbying efforts to rectify it. You could also contact your members of elected officials in the House and in the Senate and urge them to sponsor legislation and fast track it to minimize the damage a funding delay could cause. This is not a partisan issue, both sides of the aisle should be eager to approve this. This isn't about bailing out the housing industry, it's about maintaining funding for a loan program that has suddenly become much more popular than anyone expected due to the current environment of real estate.

Gerry Suarez, Jr.

Your FHA Loan Pro!

UPDATE 03/11 5p EST- I just received the first notice from an investor on this and interestingly enough they are not allowing locks on USDA loans until a conditional commitment setting aside available funds is received from the USDA. That basically means borrowers will be forced to float their rate until the loan is almost ready to close. Look for more developments on this as more investors chime in with changes.

Your FHA Loan Pro on Facebook

The rumors are true and I am excited! FHA has handed down the changes...

 

FHA had talked about increasing down payment to 5% rather than 3.5%

• Increased Enforcement- HUGE WIN!  Let's get the lenders that are not playing by the rules out of here- - the one's doing it right!
• MIP changes- not as big as you think- the analysis on monthly payment isn't a big hit
• We all have to follow the same rules, so no one has a leg up!
• 3% vs. 6% seller concession- talk to your borrowers about gifts! 

   Credit and Credit Scores

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. (PrimeLending requires a 620 credit score for all transactions)
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Reduce allowable seller concessions from 6% to 3%  

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Increase enforcement on FHA lenders  

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.  
• This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available. Enhance monitoring of lender performance and compliance with FHA guidelines and standards.  
• Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
• This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
• HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:  
• Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
• Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

These changes are a positive move for our industray. Industry leaders will embrace them and continue to help more people achieve their dreams of home ownership!