Refinancing Rural Housing Loans: Rural Housing Service Announces Pilot Program
On the heels of President Obama’s State of the Union address, the U.S. Department of Agriculture this month announced a two-year pilot program to help borrowers with USDA-guaranteed loans refinance their mortgages at lower rates without obtaining a new credit report, appraisal, or property inspection. The program will be offered only in Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee, states selected because they are among those hardest hit by the downturn in the housing market. The Department estimates that 235,000 homeowners will be eligible to refinance their loans through this program.
To be eligible, borrowers must have made their mortgage payments on time for the 12 consecutive months prior to the refinance. Loans that are less than a year old are ineligible. Borrowers must also meet current income eligibility requirements, meaning that a borrower’s income may not exceed the applicable income limit. Lenders are not required to calculate a borrower’s total debt ratio to determine repayment ability, and unemployed borrowers are eligible if they have made their mortgage payments as agreed for the previous 12 months. The refinancing lender must verify the borrower’s unemployment and, if the borrower has been employed during the previous 12 months, must verify the borrower’s previous earnings and consider such earnings in the annual income calculation for determining eligibility. New borrowers cannot be added to the refinanced loan, and an original borrower may be removed only if that borrower is now deceased.
The refinanced loan must have a fixed interest rate a minimum of 100 basis points below the current interest rate, subject to the applicable maximum rate for USDA-guaranteed loans, and a term of 30 years from the date of closing. The loan-to-value ratio does not matter. The refinanced loan may include only the principal balance of the loan being refinanced and the one-time upfront guarantee fee. The refinanced loan may not include accrued interest, closing costs, lender fees, or late fees, and cash-outs to the borrower are not permitted. The lender may collect customary and reasonable closing costs and other fees from the borrower, but these charges may not exceed the actual cost paid by the lender or charged to the lender by the service provider. Lenders are also permitted to charge the borrower an origination fee of up to one percent of the total loan amount.
This new program supplements, rather than replaces, the streamlined and non-streamlined refinancing options already offered in connection with USDA-guaranteed loans. The Department intends to review the performance of the pilot after two years to determine whether to extend it, terminate it, or make it permanent.
Please refer to RD Administrative Notice No. 4615 for more information.