On November 17, 2015, USDA Rural Development sent the following notice to its single-family housing email list. Sign up here to get future notices from USDA’s list. Also, an Unnumbered Letter dated October 6, 2015, provides guidance on the processes covered in these email notices.

Clarification for Self-Help Loan Application Packagers

On October 19, 2015 an ‘Important Notice to Loan Application Packagers and Rural Development Staff’ was forwarded through this GovDelivery system. Since that time, many questions have been received regarding the applicability of that notice to loan packaging for Self-Help Housing.

Clarification for Self-Help Grantee loan packagers and Rural Development staff is given as follows:

• Mutual Self-Help Grantees operating under a valid grant agreement are not authorized to issue the Loan Estimate or Closing disclosure on behalf of Rural Development.

While non-self-help application packagers are required to ‘instruct their clients that a property must not be identified in the application unless and until such time as the Agency issues a Certificate of Eligibility’; Self-Help packagers are to continue with their current practice of submitting loan and construction packages to Rural Development.

The Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Mortgage Disclosures (TRID) requirements are applicable to Rural Development (RD) upon receipt of the ‘complete loan application’. This includes self-help packages that contain all required items constituting a complete application under the TRID rule. Self-Help packagers must coordinate package submittal timeframes with the local RD office. Based on workload, RD Staff should intake application packages in a manner that ensures the TRID timeframes are meet.

For more information about the TRID process, please refer to the ‘Implementation of the TILA-RESPA integrated Mortgage Disclosure for Direct Section 502 and 504 Loan Programs’ sent via this delivery system on October 5, 2015 or other related materials.

Following is the text of the October 19, 2015 notice.

Important Notice to Loan Application Packagers and Rural Development Staff

Effective on the date of this notice, the processing sequence for preparing loan application packages on behalf of very low- and low-income persons seeking a Section 502 direct single family housing loan has changed to account for the following:

• Loan application packagers are not authorized to issue the Loan Estimate or Closing Disclosure on behalf of Rural Development.
• The definition of application under the Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Mortgage Disclosures rule issued by the Consumer Financial Protection Bureau, which became effective on October 3, 2015.

The stages currently outlined in Handbook-1-3550, Attachment 3-A, and in Form RD 1944-12, Rural Housing Loan Application Package, are hereby modified as outlined below.

• A loan application package prepared by a packager and submitted to Rural Development must only contain the items needed by the Agency to determine whether to issue Form RD 1944-59, Certificate of Eligibility (COE). As it stands today, this would include items listed in Stages 1 and 3. This does not include items in Stage 2.
• Loan application packagers are to instruct their clients that a property must not be identified in the application unless and until such time as the Agency issues a COE.
• If a COE is issued, it is at this point and only at this point where the loan application packager would assist their client in gathering the property related items needed by the Agency. As it stands today, this would include items listed in Stage 2.

Steps are being taken by the Agency to revise Attachment 3-A and Form RD 1944-12. However, these revisions will take some time.

As it relates to loan application packaging, packagers and Rural Development staff should be aware of the following:

• The Agency can accept loan application packages that are securely transmitted electronically (e.g. via a password protected email). When this means of transmission is used, there is no need to subsequently mail the original documents to the Agency.
• Regardless of how the applicant responds to the Privacy Act waiver on the disclosure letter (refer to Attachment 3-A), Agency staff must provide packagers with status updates. For example, Agency staff should keep a loan application packager abreast of the Agency’s receipt of the loan application package, eligibility determination, issuance of a COE, receipt of an appraisal, underwriting decision, and plans for closing.
• Copies of items obtained the Agency, such as an appraisal report, will only be provided to the loan application packager if the applicant marked “Yes” to the Privacy Act waiver.

While this notice is written from the perspective of the program’s handbook, the above guidance similarly applies to intermediaries operating under the loan application packaging pilot.

Following is the text of the October 5, 2015 notice.

Implementation of the TILA-RESPA Integrated Mortgage Disclosure for Direct Section 502 and 504 Loan Programs

The Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Mortgage Disclosures (TRID) rule issued by the Consumer Financial Protection Bureau (CFPB) became effective on October 3, 2015. Any loan, Section 502 or 504, is subject to the TRID regulation if a security interest will be taken on the property. This regulation is expected to have an impact on almost every aspect of the mortgage transaction, including activities performed by lenders and third-party settlement service providers. Given this, Rural Development (RD) has developed training materials and conducted webinars for RD staff working with Single Family Housing Direct (SFHD) loans. In addition to this, an unnumbered letter to supplement HB-1-3550 guidance is currently in clearance. Below are selected highlights of this guidance:

• The TRID regulation implements the Loan Estimate, which is provided at the time an application is received, and the Closing Disclosure, which is provided shortly before closing. As the lender, RD is responsible for issuing accurate and timely TRID disclosures associated with SFHD secured loans.
• Within three (3) business days of receiving a complete loan application as defined by the TRID regulation, RD staff will prepare and issue the Loan Estimate to the applicant along with Attachment 3-I, Settlement Service Providers and Mortgage Loan Application Related Disclosures, and CFPB’s booklet “Your home loan toolkit: A step-by-step guide”.
• The loan application packaging fee is a “zero tolerance” item. This means that the packaging fee charged at closing cannot exceed the fee amount initially disclosed in the Loan Estimate even if the fee is paid by the seller or another funding source.
• Revisions to the Loan Estimate can only be made by RD staff strictly when applicable “changed circumstances” exist. Loan application packagers are strongly encourage to promptly inform Agency staff of any changes in the transaction that may increase the closing costs disclosed in the initial Loan Estimate.
• There is a seven-day waiting period between the date of the Loan Estimate and closing. Revisions to the Loan Estimate reset this waiting period.
• The closing agent/attorney will complete the Closing Disclosure. However, since the Agency is ultimately responsible for meeting the accuracy and delivery requirements of this form, the appropriate Agency staff will review the Closing Disclosure prepared by the closing agent and, if correct, will proceed (or authorize the closing agent/attorney) to provide the disclosure to the applicant within the timeframe provided by the law.
• For transactions with a rescission period, the Closing Disclosure must be given separately to each applicant who has the right to rescind under the regulation.
• Once a Closing Disclosure has been issued to the applicant, a Loan Estimate cannot be issued. Instead, if changes are needed, a revised Closing Disclosure will be issued and an additional three (3) business day waiting period prior to consummation will be required.