USDA overhauls Single Family Housing Guaranteed Loan Program
Secretary of Agriculture Tom Vilsack announced a series of sweeping changes to a popular loan program for rural homebuyers. The changes are part of an extensive overhaul that will strengthen rural housing markets, increase the availability of rural home loans and spur the construction of new homes in rural areas.
“These improvements will help create jobs and enable more people to participate in the rural home loan guarantee program,” Vilsack said. “The changes will add significant capital to rural areas and give rural Americans more opportunities to make financing decisions that lay the groundwork for the future prosperity of their families.”
The changes are published in today’s Federal Register. They take effect Sept. 1, 2014, and make several improvements to USDA Rural Development’s Single Family Housing Guaranteed Loan Program. Among other things, they expand the types of lenders who are eligible to participate. With the rule change, any lending entity supervised and regulated by the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Federal Reserve Banks, or the Federal Housing Finance Board may underwrite loans guaranteed by Rural Development. This will enable many small community banks and credit unions to participate in the guaranteed loan program. Currently, these entities are not eligible lenders.
In another policy change, for the first time, borrowers will be able to choose home loan terms shorter than 30 years. This will result in a significant cost savings for borrowers who qualify for the higher payments and who want to pay off their loan faster and pay less interest on their loan.
Collectively, these changes will make housing loans more readily available to residents in underserved communities, such as those targeted by USDA’s StrikeForce initiative. Through StrikeForce, USDA staff work with state, local and community officials to increase awareness of USDA programs that help rural residents, businesses and communities.
As part of the overhaul, Rural Development has begun a series of enhancements to automate processes, reduce paperwork and reduce loan approval times.
Lenders may consider a home’s energy efficiency as a compensating factor when underwriting a mortgage application. Energy efficiency is an attractive feature for homebuyers and sellers. Energy efficient homes help the nation lessen its dependence on foreign oil and result in lower utility costs for homeowners. Lower utility costs also improve the local economy by directly increasing consumers’ disposable income.
Lenders and borrowers no longer will be required to initiate separate construction and permanent loans for new homes. Instead, there will be one closing for one loan, known as a construction-to-permanent loan.
Lenders will be required to consider foreclosure prevention techniques such as loan modifications and short sales. Currently, lenders are “encouraged” but not required to do so.
These changes will be fully outlined in a new handbook to accompany program regulations. The handbook will provide a single reference point on program rules for borrowers and lenders. It will replace more than 20 administrative notices that are written separately and must be updated annually.
For additional details, see page 73927 of the Dec. 9 Federal Register. USDA welcomes public comment on the changes. The deadline to submit comments is Jan. 8, 2014. See Page 73927 for information on how to submit comments.
Since the start of the Barack Obama administration, more than 700,000 rural residents have bought homes with mortgages guaranteed by USDA Rural Development. In many rural areas, the majority of homes are financed with loans underwritten through this program.
Vilsack said that the announcement is another reminder of the importance of USDA programs for rural America. A comprehensive new Food, Farm and Jobs Bill would further expand the rural economy, Vilsack added, saying that’s just one reason why Congress must get a comprehensive Bill done as soon as possible.