Tuesday, August 31, 2010

USDA Update On Guaranteed Funding

Yesterday, August 30th, 2010, USDA released an update on the Guaranteed funding, ... or lack there of.  You can find out more details about this great mortgage here: Guaranteed Mortgage Guidelines  Be sure to read the comments following the release.

This is the Release:

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.


Sound Good?  Read the Italics carefully.  Each office already has stacks of loans that have been manually underwritten and issued a Conditional Commitment.  They are first in line.  The software won't be ready until mid Sept.  When it is ready, all those loans must be obligated by USDA.  The lenders must certify to the Agency that no adverse changes have occurred in each loan.  This is going to be a major mess.

Look at the timeline.  GUS Software Ready in mid Sept, ... End of fiscal year 2010 is September 30th.  There is a two week window.  Then guess what.  ... No more funds until FY2011 funds are allocated.  And, more software changes.

Want to switch to a 502 Direct Loan.  Think twice.  On Average those loans take 4 to 5 months to close and they are very restrictive.

I understand one of Ms. Trevifio's goals is to have the American people "want" to come to USDA for their mortgage.  Wow.  I just don't know how to respond to that.

Many Lenders are discontinuing this product.  Can you Blame them?  The real impact is felt by the consumer.  This is a great loan for the buyer and a needed boost to the housing market.

Don't you just wonder, ... what are they thinking??

Sunday, August 15, 2010

Rural Development Direct Home Loan

USDA’s Direct Home Loan or Guaranteed home loan can help Real Estate Agents and Builders sell their homes.

USDA Rural Development has TWO “no money down” home loan programs that can help any real estate agent or builder in this miserable housing market we have today. It is not quite as simple as putting “no down payment” in your advertising, but if you understand the two programs you can successfully target people that will qualify.

First, the home you are trying to sell must be in a rural eligible area.  This does not mean the home must be in the middle of the woods. Roughly, their definition of “rural” is an area with a population less than 10,000. You can check your homes location to determine if it is eligible from USDA’s main website. Find the property eligibility page and type in the address of the home you are trying to sell.

Next, decide which of the two programs best fit your home. The Guaranteed Home Loan is for people with very good credit, scores above 620, and people with moderate to above moderate income (125%) based on the median income for that county. The maximum loan amount is determined by their debt to income ratio.

The Guaranteed Home Loan is a great mortgage that requires no money down. Sometimes Rural Development runs out of funds for this program so check funding availability before you recommend this to your perspective buyers. Rural Development gets new funding at the beginning of each fiscal year.

The Rural Development Direct Home Loan is like no other mortgage on the market and can really be an asset to selling your homes. This loan is funded directly by the government. It is a little complicated but even people on a fixed income can qualify for this mortgage.  I would say that it might be the only true sub-prime loan left on the market today.

The income requirement is based on the adjusted median income for each county so to qualify; the buyer’s adjusted income must be Low to Very Low. Low is defined as 80% of the median income and Very Low is less than 50% of the median income! Yes, people on fixed income, social security, SSI, and food stamps may qualify. Most of these loans are subsidized by the Government.

This subsidy is when the government makes part of the monthly payment on the mortgage so these people can qualify. The subsidy does have to be paid back when the home is sold but how much of it is determined by the equity in the home at the time of sale.  It is a very complicated formula.

The Direct home loan does not use a credit score to qualify but does have reasonable expectations about collections, judgments, and liens. This loan’s focus is on credit history, not score. It even has provisions for people that do not use typical credit. If the buyer has Alternate Credit such as a cell phone, utilities, cable, or insurance in their name that they “pay on time” it can be used as credit history.

If the buyer’s income is at the Very Low level the PITI cannot be more than 29%. If they are in the Low Income level it can go as high as 33%. Total debt for either income level is 41%. Because of the government subsidy people with incomes as low as $800 a month could qualify. Get this; … food Stamps are counted as part of repayment ability. How cool is that?

What about closing costs? It doesn’t get any better than this. If the appraisal is sufficient, closing costs and repairs may be added into the loan if the seller is not willing to help the buyer pay them.

These loans take a little longer to close so make sure your contracts reflect that.  If I were an Agent I would learn all I could about both loans and start tageting this market.  There are a lot of low income families wanting to get a home that could easily qualify. 

Hello, ... did I say no down payment and all closing costs can be paid by the seller.  Closing costs may be financed into the loan if the appraisal is high enough.  WOW, it just doesn't get any better than that.