Section 502 Guarantee Program Regs Revised

Following is the text of an email announcement USDA Rural Development sent to stakeholders on May 3, 2016 regarding the Section 502 guarantee program.

A final rule amending the Section 502 guaranteed loan regulation (7 CFR 3555) was published on May 3, 2016 and will be effective on June 2, 2016. The following sections were changed:

  • 3555.101 Loan Purposes: The Agency is making the “Streamlined-Assist” refinancing option, which has been successfully tested in a pilot, a permanent program feature. The streamlined-assist refinance differs from traditional refinance options in that there is no requirement for an appraisal, a credit report, or the calculation of debt-to-income ratios, as long as the borrower is of low or moderate income and has been current on their first mortgage for the previous twelve months. A new appraisal is required for direct loan borrowers who received a subsidy for the purposes of calculating subsidy recapture. The borrower must receive a tangible benefit to refinance under this option. A tangible benefit is defined as a $50 or greater reduction in their principal, interest, taxes and insurance (PITI) which includes the annual fee payment on the new guaranteed loan when compared to the existing PITI including the annual fee payment.
  • 3555.108 Full Faith and Credit: The Agency is expanding its lender indemnification authority as per a recommendation by the Office of Inspector General. If a loan originator did not follow Agency guidelines in underwriting a loan, and then sells it to another lender, and the loan defaults because of the underwriting deficiency, the Agency will require the originator to indemnify or repay the Agency the amount of any loss claim associated with the loan. The old indemnification authority applied if a loss claim was paid within 24 months of origination. The expanded authority is if the loan defaults within 60 months of origination.
  • 3555.109 Qualified Mortgage: The Agency has defined what a “qualified mortgage” is, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Any loan guaranteed by the Agency is a qualified mortgage as long as the originator did not charge the borrower points and fees above the limits established by the Consumer Financial Protection Bureau.

Additional guidance will be provided with Handbook HB-1-3555 updates which will be published on June 2, 2016.

Questions regarding this announcement may be directed to the National Office Division at 202-720-1452. [HAC note: The contact person listed in the Federal Register notice about the rule change is Lilian Lipton, USDA RD, 202-260-8012.]