Tuesday, March 8, 2011

USDA Changes Fees for Rural Development Loan

The U.S. Department of Agriculture (USDA) has issued an Administrative Notice (AN) shifting a portion of the upfront fee it charges for the Single Family Housing Guaranteed Loan Program (SFHGLP) to the annual fee.

The two fees are an attempt to make the popular loan program self-sustaining and to eliminate or at least minimize the frequent interruptions suffered by the program.

When the bill was passed an upfront fee of the full 3.5 percent rate authorized by Congress was put into effect. The AN issued on February 3, notifies lenders that USDA will be lowering the upfront fee to 2 percent of the loan amount and implementing an annual fee of 0.3 of the unpaid principal balance for all purchase loan transactions. The changes will go into effect on October 1, 2011.

The SFHGP ran through its $13.1 billion program funding early in 2010 and home buyers encountered long delays in completing their purchases until Congress reauthorized additional funding in late July. Depleted funding had been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas.

According to the AN, "the intent of the annual fee is to make the SHHGLP subsidy neutral, thus eliminating the need for taxpayer support of the program."

The program is popular with borrowers because of a low required down payment and with lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income.